Whatever other illuminations The Great Transformation furnishes, it also provides probably the funniest paragraph in economics. Admittedly this is not the hardest competition in the world to win, but still.
Polanyi, as explained in Part One, demonstrates that one crucial assumption of free market capitalism is a colossal invention. Human beings are assumed to be commodities, just like a can of Pepsi or a pair of shoes. But they aren’t commodities. They don’t fit the definition of a commodity in that they aren’t produced for sale. They are, in Polanyi’s words, fictitious commodities.
But just as an afterthought Polanyi says ok let’s assume for the sake of argument that human beings or labour are just commodities. How should a commodity behave?
Under the theory of the free market, anybody selling a commodity should get the highest price for it they possibly can. They should get highest price the buyer is prepared to pay. That way there will be “price equilibrium” across the economy. In medieval times, there was a lot of complicated nonsense about the ‘just price’ because Christianity was supposed to mean something then. But the whole point about markets is that they are an innovation that is outside of human inclinations. So labour – being a commodity like everything else – should get the highest price for its sale.
“Consistently followed up,” says Polanyi, “this means that the chief obligation of labour is to be almost continually on strike.”
“It is remarkable that this consideration is very rarely, if ever, mentioned in the discussion of the strike issue on the part of liberal economists [the old name for free market economists],” writes Polanyi, grinning away as he types.
If this question was rarely mentioned in the 1930s, now it is fervently repressed. It’s another example of The Great Transformation exposing an issue over which a veil is carefully drawn today.
Of course, labour is not permanently on strike. For one reason, it can’t be, it wouldn’t be allowed to happen. People would be sacked en masse. This fact illustrates the flaw in the theory of free market capitalism, the reality of powerlessness on which it relies.
But there is another reason, a sense of obligation, a desire to see society function - on the part of human beings selling their labour commodity – that stops such complete disruption happening.
Friedrich Hayek, the uber-free marketeer who inspired Margaret Thatcher, said in a TV interview in 1980, that society would prosper if everyone was motivated by gain. “Where does altruism come in?” asks the interviewer. “It doesn’t come in”, Hayek replies.
But it does come in. It’s absolutely essential. Without it, conflict over wages and conditions would come perennially to the surface, and make a stable social life untenable. Polanyi says that in the 1930s, the strike, the “normal bargaining weapon of industrial action, was more and more frequently felt to be a wanton interruption of socially useful work”.
It has been established that a work to rule, workers doing exactly what is prescribed by their contracts, reduces output by 30 to 50 per cent. Doing more than is officially expected, doing something extra, is indispensable. But why should a commodity do more than is required by its contract?
In Britain in the 1970s, that question was very real. Labour, as a commodity, did flex its muscles. There were work to rules, frequent strikes. Rubbish piled up in the street became an archetypal image, one that has subsequently become a propaganda staple of the Conservative party, a tangible example of a system in breakdown.
The swelling of support for Margaret Thatcher in the 1970s was partly due to a conviction that, whatever else, the system had to function, the open conflict between capital and labour had to be resolved. One side had to win. Even the famously left-wing playwright Harold Pinter voted Conservative in 1979.
The side that won was the employers. One of Thatcher’s advisers, the Communist turned neoliberal Alfred Sherman, made the revealing point, in a memo to Thatcher is 1978, that new laws against strike action were about workers voluntarily giving away the power they had accrued because it was harming society at large.
“It is in all of your interests, therefore, to give up some of these powers if all the others can be obliged to do so,” he wrote.
Labour did, or was forced to, become powerless, a move that had substantial public support. What we are experiencing now flows from that powerlessness. But the ostensible reason no longer applies. The system is not functioning so why accept the powerlessness anymore? As one economist has said, capitalism used to deliver the goods, now its delivering the bads. The deal is breaking down.
If the point of thinking is make what is unconscious, conscious, to bring unspoken assumptions to the front of the mind, then Polanyi does just that. Labour is treated as a commodity, as he says. Sign a contract and follow the instructions of your employer. They give you money and you can do what you want in your spare time, but in your working hours, you follow orders. But human qualities, professional pride, a desire to make things work, are integral. If people really acted as automatons, were really selfish, everything would grind a halt. But it doesn’t.
Under this capitalist system, people are treated as commodities, but expected to be much more than commodities.
The question that Polanyi raises is what do people get for behaving in a human way? The answer, certainly in Anglo-Saxon economies, is nothing. But why should employers get something for nothing? Why should a commodity give power away? Corporations don’t, they assiduously try to avoid paying tax, often paying no tax at all. So why shouldn’t labour be just as “selfish”?
There is a reason, of course, but only if you apply a very limited definition of “reason”. It’s in the employee’s self-interest (in fact carrying out whatever duties are demanded by the employer is now usually written into employment contracts), in the same way that there is a good reason for giving away your money and mobile phone if someone places the blade of a knife across your throat.
But there isn’t a good reason in the sense of an objective justification. In lieu of that type of reason, there is a gaping logical hole. Spelt 'neoliberalism'.
Polanyi’s concentration on the unspoken assumptions behind wage labour is profoundly unfashionable, which is just what makes him interesting. The boundaries of the debate now are about whether higher tax rates disincentivise the pursuit of the holy grail of economic growth. Workers – humans – are taken to be another piece in the jigsaw, who should just play the role allotted to them without complaint.
To go further and ask questions about their role in the process of making profit, is to venture onto ground marked, for at least three decades, with huge “No Trespassing” signs and barbed wire.
But once these questions were “mainstream”. To take one example, Abraham Lincoln, in debating with proslavery apologists in the 19th century, was compelled to say why wage labour – selling your labour to an employer to survive – was any better than slavery. Those in favour of slavery – called mud-sill theorists - argued that wage labour was more cruel because slave owners had to clothe and give shelter to their slaves (just as they might give stable a horse they owned) But employers had so such responsibility to “free labourers”. Such labourers were “free” to starve.
It might seem from our 21st century perspective, that the mud-sill theorists were so profoundly mistaken that it is not worth opening your mouth to rebut them.
But, according to the American historian Christopher Lasch, “Lincoln did not quarrel with his opponents’ disparaging view of wage labor”. He didn’t claim that “capital” (his word, in fact he sounds a lot like Karl Marx) hiring labourers by consent was, by definition, superior to capital buying them as slaves. What he said was that wage labourers were not “fatally fixed” in that condition. They could go on to own land or run their own businesses and become economically independent. So the reason why wage slavery was superior to chattel slavery, according to Abraham Lincoln, was that wage slavery did not have to be a permanent condition.
The exceptional circumstances of the US in the nineteenth century, with its open frontier of land, no longer apply, in the US or anywhere else. Social mobility is on a steady decline. Wage labourers are “fatally fixed” in their condition now. And labour remains the “fictitious commodity” that Polanyi labelled it. But to “decommodify” labour is the same thing as freeing wage labour from the dependence on another’s will that is an inescapable consequence of needing to be hired. This liberation requires two things. Firstly, economic security achieved through an unconditional income. And second, economic democracy, so that, in work, a small elite does not instruct and give orders to a much larger majority of people, for the purpose of exploiting them. We will see later how Polanyi addresses this problem.
But first, let’s return to The Great Transformation and Polanyi’s description of what happened after the Wall Street Crash of 1929 and the beginning of the Great Depression. The Depression highlighted the rigid determinism of the free market. Under a “self-regulating market” the economics of society had to be kept separate from the interference of politics. “Whether wages or social services had to be cut,” writes Polanyi “the consequences of not cutting them were inescapably set by the mechanism of the market.”
We are in an uncannily similar situation today. Governments apply swingeing cuts to public spending and announce huge privatisations to arrest falls in the markets. They say they have no choice but to reduce deficits into to calm stock exchanges. If they don’t, they claim, the consequences of economic collapse would be worse.
In the 1930s, according to Polanyi, Fascism and Stalinism (also known as ‘socialism in one country’) were ways of escaping this deathly determinism. Economic self-sufficiency became the aim, as countries cut themselves off from world trade. There was state intervention to reduce unemployment, through, for example, the construction of autobahns in Germany and the massive expansion of the military. They were ways to escape the straitjacket of the free market but they produced terrible suffering and, in Polanyi’s words, “sickness unto death”.
The Great Transformation, which was written during the Second World War, ends with an ominous question. Is the only alternative to the lethal determinism of the free market, the nightmare of totalitarianism?
Polanyi's answer is that there is an alternative and it’s called socialism. The free market and the freedom of the rich do as they please are consciously rejected. But civil liberties, and voluntary associations like trade unions, are cherished, not destroyed.
In this society, labour and the natural world aren’t commodities anymore.
“To take labor out of the market means a transformation as radical as was the establishment of a competitive labor market,” writes Polanyi. “Not only conditions in the factory, hours of work, and the modalities of contract, but the basic wage itself, are determined outside the market; what role accrues thereby to trade unions, state and other public bodies depends not only on the character of these institutions but also on the actual organization of the management of production.”
Land, says Polanyi, should be owned by the cooperative, the factory, the town, schools, parks and wildlife preserves.
Property, says Polanyi, undergoes a deep change. There is no longer any need to allow income stemming from property to “grow without bounds” in order to ensure employment and the use of resources.
It would be fruitless to see in Polanyi, who was writing in the 1940s, a blueprint for the way society should go. In particular the “actual organization of the management of production” seems vital to ascertain, and not something that should be vaguely left to unions and “the state”.
How enterprises exist while not growing “without bounds” is a crucial question. On the answer rests the future ecology of the planet and how a post-capitalist economy provides necessary goods, whilst acknowledging that scarcity is no longer an issue, and “the problem of production” has been solved. Although the fact that Polanyi could pose the question of the redundancy of growth in the 1940s, shows how long it has been haunting society.
But the principle of taking labour and nature out of the market is one that any sane society should adopt.
If Polanyi is to be any kind of guide, then a final principle of his should be taken into account. He characterises the market economy as the harbinger of “blind improvement”. It creates an endless cornucopia of goods and changes society to make it more productive and efficient. But this blind improvement brings in its train environmental destruction and the lethal destabilisation of the conditions that make life liveable. It is based on a mystical belief in the virtues of, in Polanyi’s words, “unconscious growth”. Improvement believes that all human problems can be solved “given an unlimited amount of material commodities.”
Against this, Polanyi says, there has always been an opposite impulse – habitation. The drive to protect and enhance the conditions of life in the here and now. Habitation is sceptical of progress, in favour of stability and protective of the human and natural environment.
“After century of blind ‘improvement’ man is restoring his ‘habitation’”, Polanyi wrote in 1944. That is still a hope and not a description.