Tuesday, November 3, 2015

Karl Polanyi: Critique of "The Great Transformation"

Karl Polanyi wrote The Great Transformation: The Political and Economic Origins of Our Time in the Second World War while a refugee from fascist Europe in Britain and the US. It is a ringing critique of the market economy.

We analyzed Polanyi's argument, chapter by chapter, starting wth "Capitalism as a Utopian Movement." But now it's time to critique the book.

The Great Transformation really amounts to a recapitulation of the moderate leftist argument made more argumentatively by Marx and his epigones.

Here is what Polanyi argues.

Back at the beginning of the agricultural revolution and its enclosures that started in around the 16th century, country folk started to get thrown off the land. Landowners found it more profitable to enclose the open fields of the medieval manor and often to raise sheep instead of crops. They needed less labor.

In the late 16th century in Britain the Tudors responded with legislation, the Poor Laws, that recognized the responsibility to take care of those thrown off the land. The Poor Law waxed and waned for the next 200 years, culminating in the Speenhamland Law of 1795 that created a right to existence -- and also collapsed the wages offered by employers, because the government would make up the difference.

But during the later 18th century a new utopian ideology grew up, that believed in the idea of the "self-regulating market." All the Poor Law stuff was rubbish to these people, and when they came to power in the Great Reform of 1832 they more or less abolished the Poor Law and forced workers to work in the labor market or die.

This capitalist ideology was founded on two ideas: first the idea that markets were self-regulating and didn't need the state to sort things out; second that labor, land, and money should be treated like commodities, bought and sold in the market.

But labor and land and even money, argued Polanyi, are not mere commodities; laborers are men, and land is nature, the source of life. And a market in money creates horrible panics and crashes. This ideology was based on the "commodity fiction" that labor, land, and money could or should be treated like goods offered for sale in the market.

The effect of the utopian economic liberalism on the workers and the farmers was so extreme that a counter movement arose to fight the utopian dreams of the economic liberals. Polanyi calls the clash of ideologies the "double movement." The opposing movement of "self-protection" was not organized or ideological. It just wanted social protections for the land-owners and the workers against the mechanical workings of the market and its sudden and periodic descents into economic crisis and unemployment.

The two opposing sides of the "double movement" were unable to compose their differences and so the world crashed into economic oblivion in the inevitable disaster of the Great Depression in 1929-33. Unfortunately the result of this was fascism, as people in their desperation chose strong charismatic leadership over either of the two sides of the "double movement."

So now what do we do, at the time that Polanyi was writing in the middle of World War II? What we needed to do was "planning and control," based on the idea of removing labor, land, and money from the market, and recognizing that you cannot make a "commodity fiction" out of things that are not really commodities in the first place.

OK, now let's take Polanyi's argument apart.

In the first place, the agricultural revolution wasn't the only thing going on in the 16th century in England. The other thing was the effort of the Tudor monarchs to build up the state and disarm the nobles. They demolished the castles and the private armies of the great lords, the colorful chaps that appear in Shakespeare's Wars of the Roses plays. This makes sense out of Marx's famous comment about "A mass of free proletarians was hurled on the labour market by the breaking-up of the bands of feudal retainers[.]" Of course it was. The nobles, stripped of their private armies, had no use for marginal retainers that could no longer be used as soldiers in the noble's feudal host. They would compete now in the capital city on the basis of their income, and their ability to afford extravagant display and to marshal political rather than military support as of old. In other words, the nobles needed cash, not men to demonstrate their strength and power. In this situation, the poor naturally became the charge of the folks that provoked their misery, the central government that was smashing up the old feudal order in its power project of centralization and nation-building. Needless to say, the government did the job very badly.

Now let's talk about the self-regulating market and the commodity fictions of labor, land, and money. First of all, let's concede the important thing. The market is not "self-regulating" like a steam engine with a governor. The market makes mistakes every day. John Kenneth Galbraith famously said that the stock market had predicted twelve of the last eight recessions.

I think it is incorrect to think of the market as self-regulating; on that I agree with Polanyi. The best way to think about it is to say that the markets (and businesses and consumers) learn from their mistakes. The market is not a machine; it is a daily learning process. As Kevin Williamson writes in The End is Near. Markets learn; governments don't.

It is also true that the idea of markets in labor, land, and money is a fantastical idea. It is indeed a "commodity fiction" to think of a market in labor, and every laborer's work time bought and sold as a stock or a bond. Who came up with that idea?

The answer is: everybody and nobody.

Let us get a clue from Eric Hoffer, the longshoreman philosopher. He writes that there are two options in deciding how the work of mankind gets to be done. Either the boss issues the orders, or the workers decide what to do on their own.

But hey! How in the world can an individual worker know what to do? Well, he can know if he pays attention to prices. Suppose there is a fracking boom going on in North Dakota. Guess what! The price of labor in North Dakota goes up into the stratosphere. So ordinary truck drivers get the idea that it would be a good idea to move to get a job in North Dakota. Suppose you are a steelworker represented by a labor union. Things aren't going too well for the steel company and it wants to cut wages. But the union bellows about "givebacks" and keeps your wages up until one day the steel company goes broke and you are out of a job. What do you think about "givebacks" now?

So the truth is that the "commodity fiction" of a market in labor is actually a brilliant idea that enables the world to work without a boss. How cool is that? The only thing it demands is that everyone submit to the hegemony of the market. For a lot of people, maybe for most people, that is a bridge too far. It's great to ride the wave of progress, but quite another thing to swallow your pride and take your losses when the market turns against you.

For Polanyi the story of the century between 1840 and 1940 is the story of the "double movement" between the movement towards markets and the self-protection movement against them. The disaster of 1929 he lays at the impossibility of a self-regulating market. The only solution, he writes, is to take the humans and nature out of the market and substitute "planning and control." Which means, of course the rule of people like Polanyi.

In your dreams, Karl.

We should not be too hard on Karl Polanyi. He was writing before the world recovered after World War II. Before the German Wirtschaftwunder. Before the Reagan Revolution. Before the wonders of electronics and computers and smartphones and Google Search, and kids in a village in Ethiopia learning English and how to hack the camera on a tablet without an adult to show them how. Before the curtain was drawn back on the unspeakable cruelties of the Stalinist Soviet Union and the Maoist Great Leap Forward. Before China decided to embrace the market economy and India too.

Polanyi's panacea of "planning" died not later than the "stagflation" of the late 1970s. Planning by political and intellectual elites does not work. It does not work because government does not learn. Not until it is way too late.

The bottom line is that before 1800, according to researchers like Gregory Clark in A Farewell to Alms, England experienced "downward mobility" as the poor had fewer surviving children and the younger children of the upper class moved in on the lower classes. After 1800 began the revolution in expectations we call "upward mobility" where parents across all classes expect their children to live better than they did. A lot better: per-capita income in the "West" is now 30 times the level of 1800. Deirdre McCloskey calls it The Great Enrichment, and writes that there has never been anything like it, ever.

In McCloskey's telling, and in George Gilder's, the reason for the Great Enrichment has not been capitalism, thought of as the patient accumulation of capital. It has been surprises, like the textile revolution, the steam revolution, the railroad revolution, the electrical revolution, the automobile revolution, the electronic revolution, the computer revolution, the communications revolution, the information revolution. And the fact that the unhampered market allowed these surprises, these revolutions, to elbow the old ways aside before they could get their political representatives to saddle up and protect them.

There is no doubt that the industrial or market revolution of 1800 was a cruel shock that changed the world and caused a lot of suffering. It forced everyone to work according to the dictates of the market or starve, as Polanyi argues.

We humans have to choose. Do we want to submit to the dictates of the market, the collective boss of all the producers and all the consumers, or to the individual human boss? Do we see the modern world as the Great Enrichment or the Great Transformation?

And the truth is that under the hegemony of the market we have lots of choices. We can go work for the government and get a lifetime job. The only problem seems to be that government workers are all miserable: talk to a public school teacher. We can go work for a big corporation and get a good salary and benefits. The only problem is that when the corporation gets old and sluggish it responds with layoffs. And that probably means you if you have been there for 20 years and have received regular step salary increases every year. Or we can work for a startup, or as an independent contractor. It's a lot more risky, day to day, but it keeps you awake and focused on upon the donut -- what am I worth in the labor market and what can I do about it -- and not upon the hole. When you are in the market you detect its smallest changes, and so you get to respond first. You have already responded while the corporate types and the government types are sitting in their cubicles absolutely clueless about what is coming down the road, whether it's a gentle evening breeze or a killer tornado.

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