Thursday, 17 July 2014

The Ghost of Karl Polanyi

Nearly three years ago I wrote a two-part review of a book that, although close to 70 years old, seemed practically psychically insightful about our current economic and social predicament.  The Great Transformation by émigré socialist economist Karl Polanyi was about how the free market economy, scrupulously assembled and globalised in the 19th century, crashed and burnt in the 1930s, to be replaced by Fascism and Stalinism.

At the heart of this market economy, and pivotal to its collapse, was the creation of what Polanyi calls ‘fictitious commodities’. Nature, labour and money were not commodities; they didn’t conform to the definition of a commodity in that they weren’t produced for sale. But they were still caught in the dragnet. Everything had to be a commodity, no form of income could be permitted that didn’t derive from selling on the market. “To allow the market mechanism to be the sole director of the fate of human beings and their natural environment, even of the amount and use of purchasing power,” wrote Polanyi, “would result in the demolition of society”.

Past, pre-capitalist societies saw great dangers in this commodification and they deliberately held it in check. Nobody was threatened with starvation – as they are now - unless they made enough money through paid labour. Past societies (European feudalism is an example), even though marked by oppression and domination, operated on different, non-economic, principles, such as reciprocity, loyalty and obligation.

Polanyi saw a solution to this modern commodification of everything in the regulated and mixed economies that were to emerge after the Second World War (The Great Transformation was published in 1944). He believed that working conditions and the basic wage should be “determined outside the market”. He thought land should be owned by co-operatives, towns, schools, parks and wildlife preserves, and the government should direct investment. After a century of blind improvement society was restoring its habitation, Polanyi said.

I was reminded of Polanyi’s relevance because someone else was. Marxian geographer, David Harvey, in his latest book, Seventeen Contradictions and the End of Capitalism, says that “capital has expanded its range and depth with the passing of time” and no-one saw more clearly the nature of this phenomenon than Karl Polanyi.

Chief among the self-evident truths that govern our societies, writes Harvey, is the idea that “everything under the sun must be in principle and wherever technically possible subject to commodification, monetisaton and privatisation.” Neoliberal policies have ripped up many of the protections put in place by the politics moulded after the Second World War. Using Marx’s terminology, Harvey says that “exchange value is everywhere the master and use value the slave.” You can see the contrast between use value and exchange value most clearly in housing. There is an obvious use value in housing – people need somewhere to live and shelter, warmth, utilities etc. But housing is also, and now primarily, a way to make money; it possesses exchange value. It is a financial asset that has a crucial role in the economy. This leads to perverse policies so that house building is limited in order that increased supply doesn’t drag down house prices. So exchange value trumps use value.

The question that thrusts itself forward if you read Polanyi today is whether society, as it was in the 1930s, is in dire need of de-commodification? After three decades of neoliberal improvement, does society need to concentrate on habitation?

You could classify this necessary de-commodification, following Polanyi, into three main areas, plus one more

1 Labour

Labour’s commodification is becoming more pronounced in the kind of economy that is being built post-crash. Casual (zero-hours, short-term or self-employed), low-paid and low productivity jobs are in the ascendancy. People are reduced to mere labour costs which must always be held down. Labour’s status as a ‘fictitious commodity’ is compounded by its lack of power as a commodity. It suffers from perpetual over-supply so, small elites aside, it lacks negotiating power. The compulsion to work at whatever conditions offered by the market is augmented by the systematic dissolution of the welfare state in Britain. Wages fall as a result.

One way to give a modicum of power back to labour is a basic income. With everybody’s income assured at some level, the capacity of those offering employment to, in the words of a member of the Swiss organisation, ‘Generation Basic Income’, “blackmail people with their existence” will be severely curtailed. In his day, Polanyi thought trade unions had the power to determine the basic wage outside of the market. They no longer have that power, but a basic income can achieve a similar de-commodification of labour.

2 Housing and Public Services

As noted on the Preorg blog, Article 25 of the UN’s Declaration of Human Rights says that everyone has a right to housing. But in Britain ever rising mortgage costs mean the average house now trades at just shy of 10 times salary. Spiralling rents mean they can easily eat up 50% of income, while people are frequently evicted from their rented accommodation because the owner wants to sell to cash in on rising prices, or raise the rent.

“Land, a commodity that arose through no work of our own,” says the Preorg blog in an echo of Polanyi, “and buildings, a collection of simple technologies that could be available to all, are not what prevents us solving the housing crisis in Britain and they are not the cause of homelessness around the world.”

There are uncomplicated ways that housing can shed its exchange value and be returned to a use value function, such as community land trusts, council housing and housing co-operatives. But such market-denying interventions are nowhere near the level they need to be.

A similar de-commodification is needed in public services. The unadorned principle should be that the provision of utilities that everyone needs should not be means to make billions for hedge funds. Capital-ism – the use of money to make money – has no rightful place here. Welsh Water, a social enterprise without shareholders that does not engage in crass profiteering and does not raise prices unjustifiably, is an example of the way ahead. Use value needs to trump exchange value.

3 Land/Nature

Polanyi says in The Great Transformation that to isolate land and form a market out of it “was one of the weirdest undertakings of our ancestors.” Famous nineteenth century liberal Jeremy Bentham wrote that “the condition most favourable to the prosperity of agriculture exists when there are no entails, no unalienable endowments, no common lands, no rights or redemptions, no tithes.”

There are many more restrictions on how owners can use land than existed in nineteenth century, but land is still a massively privately-owned resource. 36,000 individuals – 0.6% of the population – own half of rural land in Britain. The movement towards community land ownership in Scotland is a way land ownership could be democratised. A return, possibly, to the common lands of centuries past. But, and this is important to remember, it would still be a market, albeit a decentralised one, with different people running things.

Polanyi’s own answer to nature becoming a market was that land should be owned by institutions – schools, co-operatives, the church or towns. Land and nature should be ‘embedded’ in institutions, followers of Polanyi say. But, as recent history shows, the church, local authorities or public agencies are not custodians of the land. These institutions seem utterly entwined in the ‘one big market’ of which Polanyi spoke. They are not averse to selling the land they own for development, for instance. In China, land grabs against peasant ownership in the last few years have been conducted by heavily indebted local authorities who then sell the land to developers.

Land that is not ‘marketised’ would form, I would suggest, a landscape that was not exploited solely as a resource, was not used for fracking, was not developed for houses (yes, I know there is a contradiction between this and the need to build homes), not subject to harmful pesticides, not used for agricultural mega-farms. This does suppose a change in ownership but that is not sufficient.

4 Money
Here we are on, I admit, shaky ground in trying to apply to Polanyi’s insights to today’s financialised world.  His central objection was to commodity money – money that is a mere representative of a commodity like gold or silver – and cannot be increased or decreased. In the nineteenth and early twentieth century reliance on commodity money was why so many governments were part of the international gold standard. Countries ‘pegged’ their currencies to gold and wages and prices fell or rose as they experienced a trade surplus or deficit. Polanyi quite correctly saw that these swings caused mass uncertainty and unemployment and paved the way for the collapse of the market economy in the ‘30s. Many people have said the euro is a 21st century gold standard because it denies states the option of devaluing their currency (they don’t have one), and austerity is the inevitable result – increased ‘competitiveness’ through lower wages. Given that, you could argue that, to be an authentic ‘Polanyian’ today, you should be in favour of European states having their own currencies again. “Abolishing the euro in its current form,” says German sociologist Wolfgang Streeck, “would thus be equivalent to the abolition of the gold standard in the 1920s, which, according to Polanyi, made it possible again ‘to tolerate willingly that other nations shape their domestic institutions according to their inclinations.’”

Commodity money is in contrast to fiat money – money issued by governments that cannot be redeemed in gold. With all due respect to Polanyi, I don’t see how the trillions of dollars of fiat money created through quantitative easing is any less fictitious than commodity money.

Polanyi argued that as commodity money practically disappeared after the collapse of the gold standard, it was replaced by ‘purchasing power’ money. The only purpose of purchasing power money is to buy goods to which price tags are attached. Shopping, in other words. It is tempting to argue that we have to contend with a new kind of commodity money – money used to buy and sell financial instruments based on debt, so that the end owner of the debt (who receives the interest payments), literally has no relation to, or knowledge of, the people or institutions that took out the loan in the first place. These were the instruments at the heart of the financial crisis, while ‘purchasing power money’ has taken a back seat. It could be argued this is ‘fictitious capital’ at its most dangerous.

Another side of Karl Polanyi

Karl Polanyi has come back into vogue in the aftermath of the economic crisis, but he usually receives a tepid interpretation. American sociologist Fred Block, for example, says that The Great Transformation shows that national economies depend on active government and the global economy on strong regulations. Blah, blah, blah. A more radical reading of Polanyi implores us to actively de-commodify – to remove from control by markets – certain key elements of human life. The question that remains is whether this is possible, while retaining capitalism. Writing in the 1940s, Polanyi was clear that labour, nature and money were “essential elements in industry” but he nonetheless wanted to safeguard them from the effects of markets. Today, they seem to be more essential than ever to economic growth. Continental Europe is endeavouring to restore growth by ending collective bargaining, thus enmeshing the ‘basic wage’ even more tightly in the market. The UK’s recovery is based on a house price bubble and exploitation of low wage labour. Further privatisation and outsourcing are also elements of the mix. Commodify, monetise, privatise.

A revolt against this process would obviously not try to facilitate this kind of growth; it would have the opposite effect. “The revolt of the mass of the people in the name of inadequate access to use values becomes imperative,” writes Harvey. But if you – to use Marx-speak – privilege use values at the expense of exchange values, do you not also inhibit capitalist growth? As I have written before, we have a ‘divided self’ when it comes to the economy. Many people can see the disastrous, anti-social impacts of capitalism, and want to ameliorate them, but they are also ‘capital dependent’ in the sense that they need jobs to live and pensions to live off when they retire (funds which are often invested on the stock market). They thus have an interest in capitalism being successful.

Against this, it should be said that introducing a basic income and detaching housing from the market, would result in higher incomes for people whose incomes are now being squeezed in various ways. This should have a beneficial impact on growth.

The radical interpretation of Polanyi inspires attempts to de-commodify core elements of human existence. The even more radical interpretation is that this Polanyian endeavour is now – whether it likes it or not – post-capitalist.


  1. I doubt Polanyi would have endorsed a basic income, given how he felt about the Speenhamland system. For better or worse, work is where people most often develop their capabilities and form social ties. A basic income just provides more consumption.

    1. Yes, you're probably right about Polanyi, he talks about Speenhamland in Chapter 5 of TGT.
      The point I was trying to make was that if you agree that labour is a fictitious commodity, you should work towards de-commodifying it. Polanyi thought unions could achieve this but they are so much weaker than they were in his day.
      It's indisputable that people form social ties at work, so I think you need something to positively replace work in that respect -, Capabilities, it depends on what capabilities. It doesn't matter to me that a basic income would be spent on consumption (what is income from work spent if not consumption?) The other effects it would have are what matter

    2. Another option would be a Job Guarentee, call it an 'inclusion' guarentee if you want.