His critique of free market capitalism regained attention after the 2008 financial crisis
ISLAMABAD: Karl Polanyi’s master piece “The Great Transformation – the Political and Economic Origins of Our Time” was originally published in 1939. His book is one of the major critiques of free market capitalism not just as an economic policy but also as a value system. The book has regained some attention in recent years after the Global Financial Crisis 2008 cast serious doubts over the efficacy of free market system to regulate itself.
Is Karl Polanyi still relevant?
The Great Transformation begins with a bold pronouncement – “Nineteenth Century civilisation has collapsed.” Polanyi traces the civilisation in four institutions ie balance of power system in great powers; international gold standard; self-regulating market and a liberal state.
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If these four institutions are accepted as defining interfaces of power in the 19th century, then Polanyi’s pronouncement was not far from the truth. The world wars suggested an imminent collapse of the global peace; the gold standard was displaced with the Bretton Wood institutions; the Great Depression had occurred, and the liberal state was replaced with fascist and totalitarian state in major power centres of the world.
The thesis of Karl Polanyi has several features. He refers to ‘capitalism without the labour market’ as one of the major contributors to the collapse of ‘market society’. He rightly points that the centre of industrial revolution in eighteenth and nineteenth centuries, England to be specific, was characterised with strict laws on movement of labour, which essentially implied absence of a labour market.
He talks of a double movement – first the emergence and expansion of market economy as a self-regulated system and second a reaction from the society exhibited in the form of democratic governments, trade unions and other social institutions, which proved as an effective check on the expansion of free market. He also blamed international banking system, which hedged the world economic order through strict adherence to gold standard. Thus, he favours strong central banks under the control of national governments, which can call the shots in the international banking system.
On the value system, Polanyi believes that the tendency of barter, on which Adam Smith relied heavily, is not a common tendency of human being, but a most infrequent one. He names three defining human values: redistribution, reciprocity and house-holding.
However, there cannot be a better redistribution system than a competitive free market. Under competition, innovators and entrepreneurs are rewarded and market shares do not only exchange hands but also increase in size.
Another key problematic conceptualisation is the “alienation” of the private sector by Polanyi. His contemporary Joseph Schumpeter was a strong believer in the market as a social process. But Polanyi seems to imply that the private sector does not comprise of ordinary people but of rather greedy, self-interest individuals. Of course, it is not true.
Fast forward to 2017
Karl Polanyi may still be relevant. The world economy is again under the shadow of a major crisis; Global Financial Crisis, which has been precipitated further by a commodity price crash. The crisis itself is vastly associated with a weak regulatory oversight though an alternative explanation traces the crisis into the political promises of universal home ownership. The labour mobility across borders has been severely reduced or is coloured by regional patterns.
The liberal and democratic regimes have been replaced with nationalistic and authoritarian regimes. The economic powerhouse of the world is China, which is not known for its love for civil liberties and liberal democracy. Some countries with nuclear power are continuously considered a threat to the world’s peace.
An artificial reading of Polanyi leads to a wholesale rejection of free markets and would classify him in the long list of socialist-Marxist thinkers. However a deeper reading would suggest otherwise – strictly speaking, he may be anti-capitalism but not anti-market.
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He can be a considered a critic of concentration of economic powers in the form of large privately owned companies. His strong arguments for creation of a labour market – and the fact that he uses the exact same framework for betterment of labour – are a testimony.
The best poverty reduction tool is not aid, but jobs. Imagine the prospects for peace in a world which becomes friendlier to free labour mobility. Besides labour market, Polanyi also comes out a strong advocate for consumer choice. He says that “the end of market society means in no way the absence of markets” while underscoring the importance of freedom of consumers.
Based on Polanyi’s rejection of concentration of economic power, preference for free labour market and guarantees for consumer choice, he paradoxically comes closer to the libertarian home ground.
The writer is the founder of PRIME Institute, an independent economic policy think tank in Pakistan
Published in The Express Tribune, September 25th, 2017.
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