The Economy as a Polity: The Political Constitution of Contemporary Capitalism

Christian Joerges

• Publisher: Routledge
• Year: 2020
• eBook ISBN: 9781000158359
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Constitutions
• Index: Politics & International Relations

The debate about so-called economic globalization has reached a new phase. The hegemony of neo-liberal thinking has ended, in the face of both the increased and increasingly effective resistance to the social consequences of neo-liberal market-making - rising inequality and insecurity throughout the world - and the visibly dysfunctional effects of lack of regulation - currency and stock market crashes, among others. Thus, the story about 'the rise and fall of market society', which was first told in these terms by Karl Polanyi sixty years ago, is about to receive a new chapter.

In this light, this volume offers a novel perspective on the interaction between states and markets. In contrast to much of current theoretical wisdom, we hold, with Polanyi, that markets cannot even be consistently thought of as self-regulating. Markets are always constituted by framework conditions that cannot be set by the markets themselves. The range and scope of market rules requires some agreement, or at least acceptance, for economic exchange to be working at all; in democratic societies, these rules are at least theoretically always subject to political debate and decision. To put the issue in theoretical terms: even the most pure version of economic liberalism always entails at the same time a political philosophy. This volume, thus, proposes to understand contemporary capitalism by regarding the economy as a polity, as an arrangement that is always constituted by some collective agreements about its mode of operation.

Such theoretical position on its own, though, is insufficient to explain the workings of capitalism once and for all. Historical experiences with capitalism have led to transformations that require new angles of analysis. It is in the nature of the struggles over the embedding of markets that their outcomes are subject to historical contingency and cannot be completely known beforehand. Beyond a review of the theoretical tools at hand, therefore, the analysis of the contemporary constellation of capitalism, also requires an understanding of its recent transformations. This is the second task to which this volume is devoted - through analyses of the current state of regulation of labour and money and through investigations of the historical development and novel forms of the mode of embedding markets. While focusing on the renewal of the analysis of contemporary capitalism, the volume also points to fruitful directions of institutional or policy change and provides perspectives for a much-needed political renewal, with a particular focus on the European Union as a novel polity embedding the European economy.

PART I

THE ANALYSIS OF CAPITALISM: WORK AT THEORETICAL RETRIEVAL

CHAPTER 1

TOWARDS A NEW UNDERSTANDING OF ECONOMIC MODERNITY

Fred Block

Too often the writings of … Polanyi have been ravaged like the carcasses of dead bodies — the most useful parts ripped from their meaning-giving integument and transplanted into ailing theories. (Michael Burawoy 2003)¹

This chapter argues that a reconstruction of Karl Polanyi’s social theory can provide contemporary scholars with powerful tools for analysing the last two centuries of capitalist development and for understanding the prospects and possibilities in the current historical moment. Polanyi is similar to his two great predecessors — Karl Marx and Max Weber — in that his writings do not yield their secrets easily for a range of different reasons. All three bodies of work are marked by internal theoretical tensions, shifting positions over time, and the absence of a final synthetic statement (Block 2001 and 2003; Block and Somers 2003). Moreover, our readings of all of these figures are encrusted with sedimentary layers of earlier interpretations and misinterpretations that make it difficult to recapture the ‘meaning-giving integument’.

The goal here is not to provide a definitive interpretation of Polanyi’s writings, but to elaborate a set of Polanyi-inspired concepts that provide leverage for the analysis of contemporary market societies. Developing such concepts is an urgent task because the critique of capitalism has reached an impasse in recent years. Other chapters in this volume, particularly by Wagner and Arnason, provide rich accounts of the analytic difficulties and intellectual dead ends that have plagued theories of capitalism. From the Enlightenment onwards, there has been a deep conflict between the project of political modernity defined as collective self-determination and economic modernity defined as the autonomous determination of the ways in which human needs are satisfied. Polanyi is one of the few thinkers who allows us to envision how this fundamental conflict could be overcome.

THE DOUBLE MOVEMENT

Polanyi’s masterpiece, The Great Transformation, was written between 1941 and 1943 — the same period in which JM Keynes and Harry Dexter White were working on post-war international monetary plans (Andrews, in this volume). Polanyi was also hoping to influence the post-war settlement; he wanted to avert the disastrous restoration of the Gold Standard that had occurred after the First World War. He believed that Gold Standard restoration had occurred then because policy-makers across the political spectrum failed to understand the deep flaws in market liberalism — the idea that society should be organised around an integrated set of self-regulating markets for commodities, land, labour and money. Polanyi’s core project was to show that market liberalism was utopian, impractical, and produced horrendous unintended consequences.

Polanyi’s book begins with the audacious claim that the Second World War was caused by the peculiar economic theory elaborated in England by Thomas Robert Malthus and David Ricardo in the period from 1798 to 1817. These two architects of Classical Economics provided the theoretical justification for organising society around self-regulating markets. As England became the dominant global power over the course of the 19th century, Malthus’s and Ricardo’s theoretical system provided the blueprint for organising the global economy around free trade and the Gold Standard. In Polanyi’s view, entrusting either national economies or the global economy to market self-regulation was internally contradictory and unsustainable. The crisis-prone project of organising a self-regulating global economy finally resulted in its collapse in the 1930s. That collapse, in turn, brought fascism to power in several countries and made a Second World War inevitable.

To flesh out his analysis, Polanyi argued that European societies in the 19th century were marked by a double movement of conflicting pushes and pulls. On the one side, inspired by Malthus and Ricardo, was the movement of laissez-faire — the effort to eliminate barriers to the growth and integration of markets. This movement was given powerful intellectual legitimation by the Classical Economists’ vision of self-regulating markets automatically establishing equilibrium between supply and demand. It was under the banner of this movement that the New Poor Law was passed in England in 1834 to create a national labour market in which wages would be the only source of income for prime age workers other than incarceration in a workhouse (Block and Somers 2003). The movement went on to abolish the Corn Laws in 1846 and to campaign for international free trade and global adoption of the Gold Standard.

Almost immediately, however, a counter-movement began to form. The purpose of this second movement was to protect society from the expansion of markets. However, in contrast to the first movement, this counter-movement lacked a unified theory; it was driven instead by the practical need of different groups to place limits on markets. One of its first victories was the passage of the Factory Acts in the 1840s to place some restraints on the exploitation of workers in the Satanic Mills of early industrial England. At the same time, the Chartist agitation by an emergent working class opened up a second front of this counter-movement. Polanyi argued that, by the 1870s and 1880s, the protective counter-movement was able to win increased regulatory interventions in virtually every country of Europe across a variety of policy areas. Hence, protective tariffs, social insurance, legalisation of trade unions, and other government initiatives insulated the citizenry from the impact of market forces.

Three things separate Polanyi’s account from conventional narratives of 19th century class struggle. First, Polanyi insisted that the staffing of these two conflicting “movements’ was highly heterogeneous. The movement of laissez-faire was sometimes driven by capitalists, but the initiatives of intellectuals, politicians, and bureaucrats were also important. Moreover, at key junctures the movement was able to win support from coalitions that crossed class lines. The counter-movement was even more diverse; it sometimes included workers, the old landowning class, other agrarian interests, bureaucrats, politicians, intellectuals, the clergy, and capitalists who found themselves threatened by excessive market uncertainties.

Secondly, Polanyi exposes the fundamental paradox that the movement for laissez-faire, despite its deep hostility to ‘state intervention’, consistently relied on the systematic and continuous use of state power to achieve its objectives. The pattern was set with the 1834 New Poor Law. In order to create a ‘free labour market’, the state had first to strip the English poor of rights to assistance that they had enjoyed for more than two centuries. Then the state created a new set of disciplinary institutions — the local workhouses — to administer poor relief in a way that made it less attractive than paid employment. Finally, a new centralised Poor Law Administration was established to force local parishes to abandon their previous relief-giving practices. Even simpler laissez-faire victories such as establishing agricultural free trade involved the state in repressing the protests of marginal farmers and in developing alterative revenue sources to substitute for the government funds that had earlier been raised by tariffs.

Thirdly, Polanyi suggests that ‘actually existing’ capitalist societies are constituted by this double movement — by both the drive to expand the scope of markets and by the counter impulse to place limits on the market. Polanyi explicitly states that the idea of a self-regulating market economy was utopian in the sense of utterly unrealisable. Hence, the existence of sustainable market societies was the result of the two conflicting movements reaching some state of balance or compromise. The protective counter-movement, in effect, saved capitalists from themselves. Polanyi’s analysis, however, is not functionalist. He recognises that the two movements can produce periods of dangerous stalemate in which no compromise seems possible. That was, in fact, central to his account of the rise of fascist movements starting in the 1920s. However, there is also the suggestion that certain periods of great capitalist advance, such as German industrialisation from the 1870s to the First World War, was linked to a productive, albeit shifting and conflictual, balance between these two multidimensional movements. (For a powerful argument along similar lines, see Swenson 2002.)

From this mutual constitution of actual capitalism by the two conflicting movements, we get the idea of the ‘always and everywhere embedded market economy’ (Block 2003). The key idea is that there is no such thing as a disembedded and fully autonomous economy; all market economies are constrained and shaped by non-market institutions and non-market values. This builds on two key Polanyian insights. First the creation of market economies depends critically on the continuous exercise of governmental power. Laissez-faire is always an internally contradictory policy; it cannot do without the state. Secondly, without the assistance of the protective counter-movement, societies built around the free market vision would self-destruct. Their only opportunity to be viable depends upon a broad range of social practices designed to constrain and limit the play of market forces. This includes widespread adherence to values or orientations that are in deep conflict with the values of the marketplace (see Arnason, in this volume).

To be sure, market societies experience disembedding projects — systematic efforts to dismantle existing limits on market forces. The effort to create a common European market can be understood as involving such a disembedding project (see Joerges and Everson, Bronzini and Stråth, in this volume). However, there are still no disembedded economies; the disembedding projects are combined with re-embedding projects (Vogel 1996). In some cases, such as European fascism or Pinochet’s Chile, the ‘freeing’ of the market occurs simultaneously with a systematic expansion of the state’s repressive role. In other instances, disembedding projects are combined with the development of new institutions of social protection or the shift of protectionist measures from one scale of governance to another. There is no guarantee, of course, that these new protections will emerge automatically or will be as effective as those they replace. However, the inherent instability of markets means that disembedding projects will always provide opportunities for new forms of social protection.

SCALES OF GOVERNANCE

Polanyi’s framework for analysing market societies was explicit in recognising five distinct levels of action. The first level of action is the mobilisation of social actors as part of these two great conflicting movements for laissez-faire and for social protection. These efforts tend to begin in local contestations that often make claims on local or sub-national states — the second level of action. However, as tensions intensify, demands often come to be focused on the decisions and policies of national states — the third level of action. The movements fight, for example, for and against tariff protections, new regulatory initiatives, or new forms of social insurance. Actions by national states are sometimes further constrained by regional blocs or multi-national empires — a fourth level of action. Having spent his formative years in Hungary which was then part of the Austro-Hungarian Empire, Polanyi was acutely aware that ethnicity, nationhood, boundaries, and sovereignty often do not coincide. Finally, all of these entities operate in a global environment that often constrains and limits the actions that can be taken at lower levels. Starting after 1870, when English hegemony established the combined imperatives of free trade and adherence to the Gold Standard, there has been the beginning of a global polity that establishes rules that it is costly to defy.

For Polanyi, the existence and coercive pressure of this global scale of governance is a variable that depends on shifts in the global balance of power and the relative stability of the global economy. Hence, in the 1920s when there was an international consensus for the restoration of the Gold Standard, the global rules meant that national governments were forced to resist the powerful pressures of the movement for social protection both inside and outside of the legislatures. In the 1930s, however, governments gained greater policy autonomy as the global governance mechanisms lost legitimation, enforcement mechanisms, and the institutional support of powerful governments.

This part of Polanyi’s argument anticipates the contrast between the post-Second World War era of ‘embedded liberalism’ from 1945 to 1973 and the period of reascendant market liberalism from 1983 onward (Ruggie 1982; Stiglitz 2002; see also Stråth and Culpepper, in this volume). In the ‘embedded liberalism’ period, the global regime afforded governments of developed nations considerable policy autonomy which made possible the successful pursuit of ‘full employment’ as a policy goal and allowed the full flowering of social welfare spending (Esping-Andersen 1990; Hicks 1999). While poorer nations had considerably less scope to protect their populations from the ups and downs of the business cycle, there was still tolerance for a range of government initiatives to foster economic development.

However, all of this changed dramatically in the period of reascendant market liberalism after 1983 (Blyth 2002; Scharpf 1991). The pressures of the global regime placed increasingly restrictive limits on policy autonomy for both developed and developing nations. Governments no longer had the option to pursue ‘full employment’; they were forced to tolerate unemployment in order to avoid inflation, government budget deficits, and speculative assaults on their currencies. The upward trend in welfare provision came to an end and even the most generous welfare states were forced to place limits on future spending increases. Most developing and transitional nations were pressured to abandon a range of active government development policies and to pursue instead privatisation, deregulation, and limits on government spending (Friedman 1999; Kay 2003; Stiglitz 2002).

However, in analysing the sea change between these two periods, it is easy to overdraw the contrast. While governmental policy autonomy declined considerably, it hardly disappeared (Mosley 2003). As in Polanyi’s description of the workings of the 19th century Gold Standard, people and governments still found numerous ‘under the radar’ methods to provide protection against the tides of global market forces. For example, while the ideological claim in the 1980s and 1990s was that international trade had come to be organised on ‘free market’ principles, the departures from those principles were widespread. Developed nations continued to use agricultural support policies to limit access to their domestic markets. Europeans found numerous formal and informal means to limit the flow of cheap Chinese industrial exports. Most importantly, the most powerful corporations in the developed nations continued to rely on a variety of governmental supports — from direct lobbying to export credits to ‘intellectual property’ protection — to increase their export success in foreign markets.

FICTITIOUS COMMODITIES AND THE CO-ORDINATION PROBLEM

The great strength of Polanyi’s analysis is that he demonstrates concretely why markets cannot be self-regulating and why they must be socially, politically, and ideationally embedded. He does this through his distinction between fictitious commodities and true commodities — those things that are produced for sale on a market. Polanyi argues that human labour power, land, and the supply of money must be understood as fictitious commodities because they were not produced to be sold. However, the theory of a self-regulating market system requires that society pretends that these fictitious commodities will behave like other commodities where the price mechanism produces a rapid balancing of supply and demand. When the price of a true commodity rises, producers have a strong incentive to increase the supply and consumers have good reason to shift to other products, and the reverse happens when prices fall. However, with fictitious commodities, supply side adjustments are likely to be very limited, so the speed with which supply and demand are balanced is greatly diminished. To make matters worse, disequilibrium between supply and demand for these particular economic inputs create acute difficulties for the functioning of economy and society.

In the case of labour, insufficient demand produces unemployment and a potential threat to social order when the unemployed have no other way to feed their families. Insufficient supply of labour also can be disruptive because it increases the relative bargaining power of employees who might well want to challenge the existing distributional rules. With land, the key problems are boom and bust in land markets, environmental degradation, and whether farming will remain viable as compared to other types of land use. In the case of money, a sustained shortfall in the money supply tends to be deflationary while too rapid an expansion tends to produce inflation.

Polanyi uses the fictitious commodity concept to identify three key coordination problems that cannot be solved by markets operating on their own. E...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Acknowledgments
• List of Contributors
• Table of Contents
• Introduction: The Political Constitution of Contemporary
• PART I THE ANALYSIS OF CAPITALISM: WORK AT THEORETICAL RETRIEVAL
• PART II MONEY, WORK, PUBLIC POLICY AND ADMINISTRATION: CONTEMPORARY CAPITALISM AND ITS HISTORICAL TRANSFORMATIONS
• PART III RE-EMBEDDING CAPITALISM: TWO PERSPECTIVES
• Index