Polanyi in times of populism

Vision and contradiction in the history of economic ideas

Christopher Holmes

• Publisher: Routledge
• Year: 2018
• Print ISBN: 9780367904173
• eBook ISBN: 9781315396965
• Edition: 1
• Topic: Política y relaciones internacionales
• Subtopic: Política

The rise of populism across Europe and the US – first in the wake of the 2008 global financial crisis and then in the shape of Donald Trump's presidential campaign and the Brexit vote in 2016 – are indicative of a seismic shift in the terrain of economic ideas in public discourse. Settled liberal norms concerning ever-increasing international market expansion, and the political integration required to sustain it, have been decisively upset by political forces that, whilst once on the fringes, now dominate economic debate. How might we make sense of this ideological breakdown and what might we hope for next?

This book turns to the work of Karl Polanyi for answers, developing the expansive, historicised approach to political economy that Polanyi pioneered. Holmes provides a wide-ranging history of economic ideas read in terms of a series of hopeful theoretical visions of order, in which political, social and ecological contradictions could be transcended in one way or another. Through this, the book demonstrates that the failing utopian visions of pre-2008 economic orthodoxy, which have formed the backdrop to the rise of populism today, are only the latest in a series that stretches across economic thought in Western modernity as a whole.

This book will interest students and scholars of IPE, political science, sociology, anthropology, law and history.

Part I

Polanyian perspectives

1 Polanyi in times of Brexit and Trump

Karl Polanyi’s book The Great Transformation (2001) has become a canonical text in international political economy (IPE). Various concepts, ideas and theories have been drawn from it and brought to bear on all manner of contemporary issues: from the ‘big’ questions – the nature of neoliberalism, the trajectory of globalisation and the changing role of the state – to a host of more specific areas, including financial market practices, central banking, civil resistance movements, the European Union, climate change politics, international organisations and economic development amongst many others. The Great Transformation (hereafter TGT) has also provided a conceptual language for a variety of key theoretical arguments about the nature of markets, society, economy and politics: Does it make sense to think of economy as distinct from polity? Are the ends of society in tension with those of the market? How important are economic ideas vis-à-vis political practice? Polanyi was notoriously ambiguous on these issues, but that ambiguity has been productive, spurring many fascinating and thought-provoking analyses, amongst those who raise his ideas only to reject them, as much as amongst committed Polanyians. I will present my position on these issues in full later, but if we for a moment block out all the noise of seventy years of commentary and debate on TGT and park the theoretical ambiguity in the text to one side, it becomes clear that Polanyi’s thesis is relevant more so today than ever before.

At surface level, TGT provides a novel analysis of the collapse of international society in the 1930s, tracing that collapse in part back to the failures of an economic theoretic view of people, nature and productive organisation in general in market terms only, that is to say as the commodities labour, land and money respectively. This ‘economistic fallacy’ (Polanyi 1977: 6), Polanyi argued, had been centuries in development, but reached its apotheosis in the conflicted ideology surrounding the Gold Standard monetary system. In the liberal economic theory of the time, the Gold Standard was presented as the real-world, global expression of the idea of market equilibrium: the balance of payments should have functioned automatically in response to global trade without any ‘political’ interference by participating states. By facilitating global economic integration, the system should have helped propel humanity towards ever higher productivity and wealth ad infinitum. But Polanyi argued that this view was conceptually blind to the role states had in creating, sustaining, manipulating and resisting the automatism of the Gold Standard in the defence of national interests. This was problematic in itself, but more importantly it occluded the fact that, as well as being the foundation of international economic productivity, the Gold Standard had also grown to become the foundation of international political order too. It had become a fabric through which states related to one another on the global stage.

Thus, when the wheels of productivity ceased to turn as depression gripped participating nations in the 1930s, different national economies did not simply rebalance against each other automatically via currency movements as trade dried up. Rather, states tended to draw inwards and pursue policies which increasingly undermined the ability of the Gold Standard to function at all, leading to the eventual collapse of the system. According to Polanyi, this inward turn then led quickly to a concomitant collapse in international political co-operative sentiments, making room for non-liberal ideologies – amongst them fascism – to take a hold of popular consciousness in various countries. By virtue of its marketised view of international relations and of humanity in general, economic liberalism was unable to see this breakdown of international society coming, and unable to provide the intellectual resources to do anything about it when it arrived. The only way that the collapse could be conceptualised from a liberal perspective, for Polanyi, was in terms of a combination of the undue machinations of power hungry politicians, undying imperialist passions and sheer economic irrationality (2001: 220–221).

To spell out the obvious parallels, the finance-led growth model that became increasingly critical to the continued reproduction of Western international economic order in the late twentieth and early twenty-first centuries represented a form of economic integration similar to that of the Gold Standard (see Silver and Arrighi 2003 for a Polanyian comparison). Although the gold peg no longer featured, international financial and monetary flows increasingly connected diverse nations deeply, shaping the economic and political fortunes of people, firms and nations across borders in myriad ways. And with the coming of the global financial crisis in 2008, that model failed spectacularly: in the same way that the Gold Standard helped to transmit the effects of the 1929 stock market crash across the world, the money, stocks, bonds and derivatives markets of the twenty-first century enabled the collapse of a segment of the US mortgage market to trigger a global liquidity crisis, global recession, several sovereign debt crises and the near collapse of the world’s most important currency bar the dollar: the euro. Since then, analogies between the Western political economy of the post-2008 period and that of the 1930s – often specifically the connection between economic crisis and political fallout – have become common (Elliott 2017; Judis 2016). The global financial crisis itself was regularly described as ‘the worst since the great depression’ by economists, commentators, journalists and politicians. Angela Merkel described the crisis of the euro as an ‘existential test’ with ‘incalculable’ consequences for Europe and the world. The director of the International Monetary Fund, Christine Lagarde, warned of a ‘nineteen thirties moment’ in which countries would turn against one another.

Financial crises occurring since 2008 were not the same as 1929, though. In most countries, Keynesian automatic stabilisers kicked in and governments swiftly enacted massive programmes of intervention in order to support their financial systems. These measures were often deeply problematic to the extent that they worked to defend the interests of some of the wealthiest and most powerful people in society (financiers and those with financial interests), but they did prevent the horrors of the great depression from repeating themselves in full. Nevertheless, a widely felt sense of economic insecurity, coupled with stagnant wage growth, growing inequality and many years of punishing austerity policies, sometimes with little democratic legitimacy to back them up, once again made room for political ideologies which rejected central precepts of international political and economic order in various ways. What came to be known as ‘populism’ swept across Europe in the shape of a variety of insurgent movements and political parties, including the French Front National, Alternativ für Deutschland, the Austrian Freedom Party, the UK Independence Party, the Five Star Movement in Italy, the True Finns party, Jobbik in Hungary, Podemos in Spain, the Swedish Democrats and both the Golden Dawn party and Syriza in Greece.

The picture is not black and white, of course. Syriza’s radical opposition to the economic dictates of the EU powers, which was for a time the most powerful expression of this new populism, have receded recently. And there has been some resurgence of the kinds of liberal-centrist ‘third way’ political ideologies that were so dominant before 2008. In 2017, Mark Rutte’s defeat of Geert Wilders in the Dutch elections and Emmanuel Macron’s defeat of Marine Le Pen have prompted speculation that we may have reached the high watermark of the tide of populism in Europe. On top of this, although the future of her chancellorship is now uncertain, Angela Merkel’s constant presence has provided a steadying backdrop to European politics in general.

But the two biggest international relations events of 2016 – the British referendum vote to leave the European Union and the election of Donald Trump to the US presidency – were indicative of a shift in the ideological terrain of Western political economy that would have been difficult to imagine even just a few years earlier: each represented in part the rejection of a broad consensus on the virtues of international economic integration and of the political co-operation required to sustain it. In the case of the ‘Brexit’ vote, whilst calls for deeper trading ties with non-EU nations were in the background of the campaign, the headline messages revolved around the repatriation of sovereignty over economic and political decision-making and the ability to more freely turn away economic migrants from abroad. Likewise, Trump’s ‘America First’ campaign was thick with protectionist rhetoric, openly hostile to trading partners, and also marked by promises to ‘tear up’ international economic agreements, to leave the World Trade Organisation (not to mention NATO) and to fortify borders against migrants. Both events abundantly demonstrated that economic nationalism, demands for protectionism and the rejection of mainstream economic thought had acquired newfound political legitimacy and electoral capital.

In reading Part III of TGT, where some sharp and often neglected commentary on the politics of the nineteen thirties takes place, Polanyi’s analysis seems remarkably apposite at points. In his characterisation of the breakdown of market society and the rise of fascism during this period, he remarks that ‘important signs were the spread of irrationalistic philosophies, racialist aesthetics, anticapitalistic demagogy, heterodox currency views, criticism of the party system, widespread disparagement of the “regime”’ (2001: 246). In the Brexit and Trump campaigns, anti-migrant sentiments often sat uncomfortably close to – or plainly overlapped with – bigotry, received economic wisdom on the benefits of economic integration was rejected, and both campaigns emerged from outside of the existing structures of two party politics, pitching themselves as ‘anti-establishment’, ‘anti-elite’, ‘anti-political’. Prominent Brexit campaigner Michael Gove captured the mood in his famous remark in an interview with Faisal Islam on Sky News in 2016: ‘people … have had enough of experts’ (see Mance 2016).

Polanyi’s reflections on the kinds of arguments made by those from within ‘the regime’ seeking to admonish the rise of protectionism and later fascism are also prescient. He notes, for example, a German scholar surveying the rise of anti-internationalism in 1933:

Can a policy, he asked, be right which is being unanimously condemned by all experts as utterly mistaken, grossly fallacious and contrary to all principles of economic theory? His answer was an unconditional ‘No’. But in vain would one seek in liberal literature for anything in the nature of an explanation for the patent facts. An unending stream of abuse of the governments, politicians, and statesmen whose ignorance, ambition, greed, and shortsighted prejudice were supposedly responsible for the consistently followed policies of protectionism … was the only answer.

(2001: 220)

This passage captures much of the thrust of the arguments that were, and continue to be, pitched against Trump and Brexit. Both sitting prime minister, David Cameron and then economic secretary to the treasury, Harriet Baldwin, had described a vote for Brexit as ‘economic self-harm’ (see Press Association 2016). Donald Trump’s protectionist and insular rhetoric on economic matters – immigration, the abandonment of free trade deals, the prospect of openly hostile trading relations with China – were almost universally derided by economists, the financial press and by international economic organisations. In both the British and American cases, the benefits of inward migration in terms of aggregate economic growth and governmental tax income were repeatedly cited. Standard international economic theory suggests that free movement of labour on the basis of the search for higher wages can only increase the allocative efficiency of the global labour market, and both Britain and America could be shown to have benefitted substantially from that dynamic.

The same applied to trade. In the 2017 International Monetary Fund (IMF) World Economic Outlook April 2017, Maurice Obstfeld (chief economist) argued that, in a number of ‘advanced economies’, politicians were ‘capitulating’ to political pressures to raise protectionist barriers in a way that would lower productivity, ultimately reducing domestic economic benefits and undermining multilateral cooperation (2017: xiii-xiv). In the face of overwhelming evidence of the apparent economic irrationality of these ideas, the sense was that democracy must have got it wrong, or, in the words of one economist writing in the Financial Times ‘[capitalism] can no longer afford the financial demands that full-blown democracy is placing upon it’ (Power 2017). These arguments all vividly recall Polanyi’s observation of the 1930s that, as popular governments increasingly hostile to the existing international economic order were elected to power, ‘there was not a militant liberal who did not express his conviction that popular democracy was a danger to capitalism’ (2001: 234).

It is impossible to know how Brexit will turn out, how long Trump will last, or how nationalist and insular political movements will fare in the future. For decades now, the usual strategy for teaching the recent history of economic ideas in IPE has been to divide the post-World War II period into one of more or less Keynesian ‘embedded liberalism’ (Ruggie 1982) stretching from the 1940s to the 1970s, then an ongoing period of Washington consensus neoliberalism underpinned by norms of ever-increasing international economic integration through the globalisation of markets. Could the populist tide be washing us towards a new, as yet unnamed, period in the history of political economic ideas, to be summarised for students in fifty minutes in the lecture theatres of the future? We can at least say that a major disruption in the discursive field of Western capitalism has been underway, forged in the experience of financial crisis in 2008 and coming of age in the divisive politics of 2016. And, on the strength of the most cursory reading of TGT, we can say that that disruption has evinced an obviously Polanyian character.

To draw simple analogies, however, is not enough. The resonances with Polanyi’s analysis are indeed striking, but there are all sorts of ways in which our current situation differs from the period he was concerned with. The very fact that people have reflected on the analogy between then and now introduces a hermeneutic quality to the relationship between the two periods, and beyond this, so much of the structure of the global economy and its ideological terrain differs. States function in different ways today, as do markets; neoliberalism is not the same ideology as classical liberalism and economic theory has developed and changed since Polanyi’s time. This means that we have to think carefully about why the Polanyian resonances exist: what is it about TGT that produces an analysis that seems so freshly relevant today? What does it mean to think through current times of populism from a Polanyian perspective? This book is an attempt to answer these questions, and so it is worth spending a bit of time defining what it might mean to do Polanyian political economy.

Thinking like Polanyi

The casual reader of secondary literature on Polanyi in IPE can justifiably feel rather bewildered by the variety of interpretations of his work on offer and the variety of schools of thought his theses have been read through. For some, Polanyi is ‘quintessentially constructivist’ (Abdelal 2009: 69), whilst for others, he is first and foremost an institutionalist (Blyth 2002) providing inspiration for the study of capitalism in different national and cultural contexts (van der Pijl 2009: 133). There has also been a long-running debate over the extent to which Polanyi’s analytical categories should be interpreted from a Marxian perspective in which the analysis is geared towards the complete rejection of commodity logic and the overthrow of market society (Clark 2014; Lacher 1999) or from a social democratic, quasi-Keynesian one where the aim is to moderate the harshest edges of market society via political interventions of one sort or another (e.g. Caporaso and Tarrow 2009). There are grains of truth in all these interpretations which can be traced to the variety exhibited in his own work: Polanyi’s influences were various, including Austrian economists, British Marxists, American institutionalists, his own conservative brother, Michael, and socialists of one sort or another including not least his radical revolutionary wife, Ilona Duczyńska. These different threads can all be picked up at different points in Polanyi’s writing, often blended together, and sometimes in ways that scholars in each tradition individually might have deemed problematic. The result, as Dale has demonstrated in his extensive studies of Polanyi’s life and work, is that, although much of his output can be explained in terms of one or other of his theoretical influences and practical life experiences, the net result is a number of theses which combine all those influences and experiences in a way unique to him (Dale 2016a; 2016b).

In amongst all this heterogeneity, there is something rather special about TGT, which is rightly regarded as Polanyi’s magnum opus. The book offers a rich intellectual toolbox of concepts and ideas which have been mined and deployed to great effect by generations of scholars of international political economy: the idea of a ‘double movement’ of capitalism, the ‘embeddedness’ or ‘disembeddedness’ of economic interactions in a deeper social level of human experience, the critique of laissez-faire ideology and the idea of market society. The book also offers a variety of penetrating insights into the international politics and economics of the inter-war period and before – on colonialism, the monetary system, the role of global finance and the effect of economic change on international relations and domestic policy-making – as well as providing a novel history of economic ideas stretching back to the seventeenth century and a variety of anthropological insights to boot. The range and ambition of the relatively slim volume is astounding.

There are costs to this polymathic, sweeping style, though. Data – if it can even be called as such in a book like TGT – is scanty at points, methodology – ditto – is mixed and unclear, concepts are not as precise as one would like, due respect for alternative literatures is sometimes absent. All this has provoked substantial debate amongst those interested in his work, and most major parts of his conceptual and empirical scheme have been shown to be problematic in one way or another over the years. As one scholar remarked to Margaret Lewis early on in the revival of interest in his political economy: ‘why do Polanyi’s emotions seem clear, but his reasoning cloudy?’ (Lewis 1991: 475). In encompassing such a wide variety of historical periods, schools of thought, analytical approaches and in traversing so many academic disciplinary lines, the book has often been found wanting in the details.

To focus on the parts of TGT only – to treat it as an intellectual toolbox – is, however, to miss the benefits of the whole: the value of the book comes precisely from its breadth and scope. In a time when the social sciences are increasingly measured by the yardsticks of their natural science cousins, Polanyi’s social science strikes one with some of the feel of a novel, full of twists, turns, metaphor and leaps of imagination. The remarkable style of writing propels the analysis along, engages the reader and manages to make its wide diversity hang together in a way few writers could pull off. The historical range of it is also long, shifting from the 1930s to the early seventeenth century and back again, interspersed with various detours into ancient economic systems and societies. The book suggests that understanding the collapse of international relations before World War II requires understanding the economics of Ricardo. Understanding the evolution of the free market idea means reflecting on the decline of organised religion. Being socially responsible in an economically complex world means thinking hard about what freedom means philosophically. Probing any of these questions, much less all of them together, necessitates taking the long and wide-ranging view that Polanyi adopts. As I read it, the political economy of the book emerges from no less than an engagement with the physical, psychological and spiritual condition of humanity in Western modernity.

Wresting the full value of Polanyi’s political economy for understanding the ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Acknowledgements
• PART I: Polanyian perspectives
• PART II: Contradiction and transcendence
• PART III: Marketised social protection
• PART IV: Contradiction without transcendence
• Bibliography
• Index