Interview with 'dissident economist' Harry Shutt

Harry Shutt is a rare specimen, a professional economist who’s also anti-capitalist. A consultant for international development agencies such as the UN and the World Bank, Shutt has also written a series of books such as The Trouble with Capitalism and The Decline of Capitalism exposing what he sees as the growing unsustainability of capitalism since the 1970s. He is influenced by thinkers such as Karl Marx, JK Galbraith and Andre Gorz. He warned in 2005 of “an unavoidable financial crisis” on a greater scale than any before. Since the 2007 economic crisis hit, he has argued that a return to enduring economic growth is not desirable or possible, and that western societies have to “grasp the nettle” of a “post-capitalist” economic future. His ideas are encapsulated in his latest book, Beyond the Profits System published in 2010, and reviewed here.

We are not the Beautiful talked to Shutt just after he addressed the Occupy London camp in St Paul’s.

We are not the Beautiful: Sovereign debt in Europe has become the issue threatening to cause a new banking meltdown and plunge Europe back into recession. But why has debt loomed so large now when no-one even considered it problem little more than three years ago?

Harry Shutt: The real question is why it did not loom larger earlier, to which the answer is that it's been systematically ignored ever since the ‘70s, when the first big post-war bust in the financial system occurred (1974). The immediate cause of that was over-risky lending and speculation. This should have led to a fundamental reappraisal of the whole capitalist model, but of course that didn't suit the global establishment any more than it does now, since it would have required huge losses through capital destruction and a permanent shift towards a more collectivist economic model in which their power and wealth would have been curtailed.

Against a background of already rising indebtedness before the crash the cost of the bank bailouts undertaken in response to the 2008 meltdown added a huge extra burden, while the sudden collapse of economic activity following the 2003-07 boom led to a sudden big drop in government revenue. Hence ballooning state debt.

How was the problem of debt able to be ignored for so long?

Through ever greater false accounting and criminal fraud - pretending that assets were worth far more than they were, in fact. The ultimate expression of this was the sub-prime mortgage fraud here and in the US, which was based on the premise that people with little or no income could service loans. The authorities were turning a blind eye to mortgage fraud back in 2003-04 and earlier. It all results from a desire to pretend that then capitalist business cycle of boom and bust is no longer a problem - as we were brought up to believe in the ‘60s -  whereas the Marxist view that it's an inescapable feature of the system has been comprehensively validated over the last 35 years. That ultimately required them to make-believe that you could have expanding markets without consumers.

The point is that the capitalist model depends on perpetual expansion of markets but that this is not possible because there are always limits to the growth of purchasing power - something we've known since the days of Malthus 200 years ago.

Reducing government debt is the justification given for crippling austerity in countries like Greece, Italy, Ireland and Spain. Fear of bank collapse has necessitated a permanent 1 trillion euro taxpayer bailout fund for banks. We are assured by politicians this is pill that has to swallowed even though there is no end in sight. The alternative, we are told, would be economic collapse, whole industries going the wall and millions being thrown out of work. But is that right? Is there an alternative that doesn’t involve economic Armageddon?

We've now reached the point where there is probably no alternative to Armageddon at least in the short and medium term - whether they try and bail out the banks again or not. Once it starts the logical immediate response would be emergency state intervention along the lines spelt out in my books, which would mean turning the whole ideology of liberalisation and globalisation on its head.

Note that the banks, especially in Europe, have apparently been refusing, at least until the midnight Brussels agreement of 26 October, to accept any write-down on sovereign debt on the basis that taxpayers are liable for issuing debt they couldn't afford to service - and thus denying that the banks themselves have any responsibility for ensuring their own investment decisions were based on sound assessment of their viability - surely the ultimate expression of “moral hazard”.

But if governments were to buy that it would mean fleecing taxpayers and/or forcing Greece and others into destitution to pay for it, which is clearly not a realistic option. Hence default would be inevitable, not just in Greece. In summary, of the three options for resolving the sovereign debt crisis - intensified budget austerity, sovereign default or big bank write-downs and losses - all lead to comprehensive market meltdown.

Budget austerity just leads - in the absence of some "miracle" counter-cyclical source of growth such as a huge oil discovery - to a downward spiral of lower output and still bigger deficits, as already in Greece; sovereign default will precipitate global contagion of bank collapse; big bank write-downs will mean drying up of credit and spill over into general market paralysis and meltdown.

It may be said there is a fourth option – inflation, whereby debts are effectively devalued in a kind of covert default which simply spreads the losses from the creditors to the public at large – but this is highly dangerous socially and has no more chance of avoiding ultimate meltdown than the other approaches.

What do you think of the 50 per cent write-down of the Greek debt? Is this merely a temporary respite?

It's very much a short-term fix designed to avoid a more extensive default - if it went above 50 per cent it would seemingly be classified as a “credit event”, which would activate the credit default swaps on which banks have unwisely gambled, thereby exposing them as insolvent sooner rather than later. In any case it will not enable Greece itself to escape from its basic insolvency, which will intensify as continued austerity leaves it mired in economic contraction.

 What do you mean by emergency intervention?

Whatever is needed to bring a degree of stability and sustain the minimum level of economic activity. It includes exchange controls, which means restricting movements of money across borders and between currencies - we had them in the UK up to 1979. It also means re-regulation at both national and international level, ending - or at least suspending - globalisation as we know it. An example of re-regulation would be renewed separation of retail banking from investment / casino banking. At the limit, emergency intervention could even include price and income controls, state requisition of corporate assets and direction of capital.

It's important to stress this is not an alternative to market meltdown but would be designed to prevent this turning into full-scale economic and social disaster and conflict (Armageddon).

Are you concerned that these emergency interventions could lead to too much state power?

Hardly. If anything I'm more concerned that our institutions have become so corrupted and subverted by laissez faire ideology and private sector lobbying that they won't be able to resist the pressure to bend the rules or succumb to conflicts of interest, such as the recent scandal over Goldman Sachs & HMRC in the UK, rather than uphold the public interest with integrity.

Do you think that Occupy protests, which have spread to 951 cities in 82 countries offers the beginning of real resistance. Where can it lead?

It's too early to tell. I'd say obviously the establishment can't violently disperse peaceful demonstrators as long as the bankers are left at large to commit more crimes and governments remain without a credible strategy for dealing with the economic crisis. With luck their continued presence on the streets will serve to concentrate the minds of political leaders on finding an alternative approach which extends beyond satisfying the financial and corporate establishment. But I doubt the resolution will be any quicker than it's proving in Egypt.

The Occupy the London Stock Exchange protesters have issued a statement saying they refuse to pay for the banks' crisis, say the cuts aren't inevitable or necessary, want genuinely independent regulators, and are calling for structural change towards global equality. What do you think of these demands and what more would you add?

The OLSE statement is fine as far as it goes. Incidentally, Occupy Wall Street are rightly very strong on the political corruption issue. But given it is impossible for them to start with a coherent set of demands, as with any ad hoc revolutionary movement, it is nevertheless  important to try to state certain priorities which would be essential features of a more democratic, "post-capitalist" new order.

In line with the analysis set out in my book Beyond the Profits System these priorities should begin with banning private contributions to political party funds other than flat-rate individual member subscriptions, the amount of which would attract pro-rata state funding according to a common formula.

GDP growth and full employment, which is unattainable, should be rejected as economic policy priorities in favour of guaranteeing all individual citizens an unconditional, flat-rate, basic subsistence income, to be paid out of taxation. This could be financed not only by higher rates of direct tax, personal and corporate, but by big savings on administration, no more means-testing of claimants, and from ending subsidies to investment, employment and wasteful "development" projects such as the London Olympic park. It is undeniable that the idea of guaranteeing everyone a basic income from the state regardless of their employment status will be a hard sell for most people who reasonably regard themselves as the hard-working, responsible majority. But as more and more grasp the futility and high cost of trying to push people into increasingly scarce, low-paid and pointless jobs, this attitude is bound to change.

In future extending state protection, guarantees and subsidies to enterprises will only be justified on the basis that enterprises in receipt of such protection, including limited liability, will be far more accountable to the public than hitherto and subject to publicly determined approval of their decisions – such as on investment, pricing, profit margins. Given the absence of economic growth - which will in any case limit the scope for profitable reinvestment of surpluses - such restrictions will tend to inhibit traditional private investment and require more collective and community enterprise, local as well as national, to fill the gap.

Immediately, as indicated, emergency interventions will be needed just to enable the economy to function at all at a minimum tolerable level. This will obviously involve a dominant role for the state as it moves to stabilise the situation and clear up the mess. The difference from 2008 must be that it will no longer be assumed that the private sector must be bailed out so it can resume "business as usual". Hence we must have a vision of the type of alternative model we collectively wish to arrive at once the crisis has been brought under control.

Economic growth is seen as the Holy Grail that all government avidly pursue. But what causes economic growth or its absence?

The short answer is that, in a market economy, growth is only possible where there are sufficient economic actors with both the desire and the capability to purchase extra goods and services from among those available, what Keynes called effective demand. While it is possible to use policy to restrain demand, or consumption, growth, contrary to the belief of some Keynesians it cannot be stimulated artificially; attempts to do so – for example by extending loans to those who manifestly cannot repay them or by subsidising excessive investment – inevitably end in tears. Put another way, you cannot eliminate the business cycle.

Is economic growth something society can do without? How?

Since it is increasingly unattainable, however much market forces are distorted in pursuit of it, leaving aside any environmental constraints, we shall have to do without it. This will require effective redistribution of income on the basis of much greater equality than exists in virtually all countries. In addition to the introduction of a basic or citizen's income and other redistributive measures acceptance of limits to economic expansion will entail restricting access for both individuals and enterprises to employment and market opportunities – both within and between countries. This will call for an ideology explicitly emphasising cooperation rather than competition and limitations on market access across borders.

What do you think of Tim Jackson’s ideas for Prosperity without Growth? Are they feasible?

The remarkable thing about this 2009 work is perhaps that it was sponsored by a UK government quango - the Sustainable Development Commission, subsequently abolished by the Tories. Thus it has given official respectability to the idea -hitherto considered heresy - that in order to have a sustainable future for humanity we shall need to abandon growth as the supreme objective of economic policy. What Jackson fails to confront, however, is the stark reality that a low or no-growth economy would be death to capitalism, for which growth is the very oxygen essential for its survival. Hence he doesn't come near identifying the radical implications of doing without growth in the design of a new order.

To boast when we should be ashamed. The mind binding of capitalism in Catch 22

“Can’t you see it from my point of view?” pleads Milo Minderbinder, the irrepressible capitalist, in the novel Catch 22.

He is hurt that Yossarian, the Second World War airman who has this insane desire not to be killed, can’t appreciate the intricacies of capitalism. Milo’s M & M Enterprises has a contract with the Americans to bomb a bridge from the air and a contract with Germans to shoot down the aircraft.

Contracts have to be honoured even if people get killed.  Like the dead man, whose belongings lie untouched in Yossarian’s tent, shot down over the bridge the day he arrived.

I didn’t kill him, insists Milo adamantly. I wasn’t even there. Can’t you see it from my point of view?

“ ‘No,’ Yossarian rebuffed him harshly”

Catch 22, the blackly comic story of an American bomber squadron on the Italian island of Pianosa in 1944, has entered everyday consciousness. In the novel, Yossarian fakes insanity to get out of combat, but his desire to avoid combat is taken as proof of his sanity. Catch 22 is being trapped in an inescapable paradox. At the end of the novel, it is revealed that Catch 22 does not really exist, but everyone acts as though it does, so its non-existence doesn’t make any difference.

Published in 1962, and written during the 1950s, Catch 22 was seen as a wonderful satire of inhuman bureaucracy. But like all great novels, different features stand out depending on the age in which it is read. Now what shines through is Joseph Heller’s treatment of the contortions of capitalism, and its seductive accomplice, public relations. Heller worked in advertising while he was writing the novel and it shows.

Colonel Cathcart and Colonel Korn, who run the squadron and keep raising the number of missions the men have to fly, are obsessed, above all, with how they will be perceived. They congratulate themselves on dealing with the embarrassment of Yossarian missing the target on one mission, by awarding him a medal and making him a captain.

“You know that might be the answer – to act boastfully about something we ought to be ashamed of. That’s a trick that never seems to fail,” Korn says.

The trick is still not failing. Alastair Campbell storms into a news studio to register his outrage of the BBC’s exposure of the government’s sexed-up dossier on non-existent Iraqi WMD. The Conservatives resolutely pledge to fix a “broken society” with tougher prison sentences demands that the unemployed look for work 23 hours a day to get £60 a week. Society is indeed broke, and we know who broke it.

The figure of Milo Minderbinder and his wounded bemusement that his beneficence is not understood, embodies today’s capitalists’ shameless refusal to see the terrible consequences of what they do. Milo boasts when he should be ashamed. Worse, he simply cannot see why he should be ashamed.

Milo becomes the mess officer for the squadron and forms a syndicate to buy fresh food through the black market. But M & M Enterprises grows and grows until Milo signs a contract with the Germans to bomb his own sides’ planes and men.

At first, the public in the US in outraged but they are turned around when they realise just how profitable M & M Enterprises is. “Everybody has a share,” is Milo’s constant refrain about the syndicate, a metaphor for how post-World War Two capitalism justified itself. Forget about how wealth is produced, just look at the money.

But “everybody has a share” no longer works as a trump card, a way to silence misgivings. Everybody plainly doesn’t have a share. The American middle class, for example, is rapidly disappearing

John Yossarian is the “hero” of Catch 22, the reluctant subversive, who finally refuses to fly any more missions. Yossarian doesn’t understand Milo, but his refusal is not heroic, simply human. While figures like Milo and Colonel Cathcart embrace malignant social roles and others like Major Danby know better but don't resist, Yossarian follows his instincts into eventual rebellion.

Late in the novel he is psycho- analysed by an army doctor, Major Sanderson. “You don’t like bigots, bullies, snobs or hypocrites,” concludes Sanderson. “You’re antagonistic to the idea of being robbed, exploited, humiliated or deceived ... Don’t try to deny it.”

“I’m not denying it, sir”, says Yossarian. “I agree with all you’ve said.”

That’s why Yossarian doesn’t understand Milo, because he retains human reactions and is not indoctrinated.

“Can’t you see it from my point of view?” plead banksters, hedge fund managers, private equity investors and food speculators.

No.

Build us lots and lots and lots. How to stop the countryside turning into a giant chicken

Dead folk singer Phil Ochs once acidly suggested that liberals “were ten degrees to the left of centre in good times, and ten degrees to the right of centre when it affects them personally.” 

The Daily Telegraph’s “Hands off our Land” campaign against Tory plans for a planning free for all, suggests that the opposite is true of rural conservatives.

But the campaign also shows that political schizophrenia is not an answer to society’s ever more urgent problems. One eye is one too few.

The UK government’s Draft National Planning Policy Framework says that “decision-makers at every level” need to “assume that the default answer to the development proposal is ‘yes’”. The Torygraph and its rural readers fear the countryside, protected since the 1940s, will be submerged in new houses.

For the Conservatives, it’s all about the need to reinvigorate economic growth. The government “can’t be ambivalent about growth” says the misnamed “planning” minister Greg Clark, while growth rates linger in the doldrums of 0.2 per cent

But the trouble with economic growth is that it’s a zero sum game, when you are both participants. When you win, you lose too.

Economic growth is not the result of passive consumers or greedy entrepreneurs. Entrepreneurs may well be greedy, but everyone who is not independently wealthy, has an interest in economic growth happening in this society.

Suppose the Tories are right and ripping up planning laws gives a spurt to economic growth. Millions of people whose livelihood depends on the building industry will breathe a sigh of relief. Architects, plasterers, roofers get jobs. There will be a ripple effect for everyone connected with the housing industry – those who provide furniture, decoration etc. If you work for B&Q you have an “interest” in more homes being built.

As everywhere in capitalism, there is a choice. Get work and watch while England’s green and pleasant land is covered in concrete and asphalt. Or live with the alternative of declining growth, as poverty and homelessness spreads, and society gets nastier and nastier.

Which would you prefer, asphyxiation or drowning?

The trouble with the George Osborne growth logic is that it will only become more desperate to prove it works, even as it conspicuously fails. All the evidence suggests we are in the middle of an economic depression, that economic growth might have temporary positive blips, but won’t return to the black durably.

But that won’t stop the Tories trying. It won’t end with ripping up planning laws and building on the green belt. Once that experiment doesn’t provide enough satisfaction, then other “restrictions” and regulations will begin to look tastier and tastier like the man who turns into a giant chicken in the Charlie Chaplin’s The Gold Rush. Expect exemptions to the minimum wage. And if that doesn’t work, we can always send children up chimneys.

Under the present rules of the game, we can’t do anything but lose one way or the other. “Notice the trap in which we’re placed,” the social ecologist Murray Bookchin once said.

“We are told that we must have jobs. If we must have jobs we have must economic growth. Now why are the two co-related except for the fact that we live in a world based on private property, organized around corporations, which, in turn, have to grow or die? At that point, by playing according to these insane rules, we are always going to be the losers, because there can’t be enough growth to supply enough jobs to supply enough means of life within the framework of this kind of set-up.”

The first step is to recognise the double bind. Most of us need paid jobs to physically survive. But even without the recession, jobs are becoming more scarce as the technological need for them declines. Computerisation has increased productivity, and thus corporate profits, whilst at the same time reducing employment. Last year, the economic advisor to Barack Obama, Laurence Summers, said US unemployment was “structural”, not just “cyclical”. Translated, this means a lot of unemployment will endure after the economic downturn is over.

But you still need a job to survive. While this frantic need remains ripping up planning laws and tarmacing all over the countryside is a solution of sorts. The default answer is yes. But for the Conservatives to claim it’s “sustainable” is a supreme example of doublespeak. It couldn’t be more unsustainable. It can’t go on forever.

The only sustainable solution is to break the current, to severe the connection between the unavoidable need for income and its sating in paid employment. Economist Harry Shutt talks about “dethroning the god of growth”.

“Working – in the sense of having or seeking a job – should no longer be seen as an essential precondition of the right to exist in human society,” he says, “and that alternatively all should be entitled to as basic income as of right.” Enterprises would have to serve a public purpose and not exist to make a profit for shareholders.

While we’re “starving” for jobs, the countryside will always have a tendency to turn into a giant chicken.

Here, for no good reason, is a trailer for a documentary about Phil Ochs. It's not about houses but it does feature Billy Bragg

The end of blind improvement, Karl Polanyi and today, part two

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 19^th 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 21^st 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.

The Great Repetition? Karl Polanyi and today

“Some books refuse to go away” it says in the introduction to the 2001 edition of The Great Transformation by the Hungarian economist Karl Polanyi.

Painstaking research sponsored by Google reveals that those words were written by a historian called Charles P Kindleberger, who with a name like that has to be American, in 1974.

If in 1974, The Great Transformation was obstinately sticking around, by now it is snaking out of book shelves across the world, screaming “Read me!”

Written as the Second World War was raging, The Great Transformation:  the Political and Economic Origins of Our Time, to give its full title, is a book that becomes more prescient the older it gets.

The book is about another age that is frighteningly reminiscent of our own. Its subject is the creation, in the nineteenth century, of what we would call now free market capitalism, molded and justified by the ideology of economic liberalism. It shows how that free market, liberal civilisation reigned supreme for a while but then imploded in the 1930s, as Fascism took over.

In keeping with the best Hollywood tradition, the plot of the sequel is uncannily similar to the original.

Then there was economic liberalism, now there is neoliberalism. Then, Fascism and Stalinism were in the ascendancy, now there is a fear that totalitarianism will return as neoliberalism flails ineffectually, unable to deal with the consequences of the society it has created.

Polanyi says the only humane alternative to the utopian fantasies of economic liberalism and the nightmares of totalitarianism, is socialism. He defines socialism as the conscious subordination of the free market to the demands of democratic society.

As such, The Great Transformation has provided inspiration to those who want to re-regulate capitalism. Maurice Glasman, the English political thinker behind Blue Labour is a “Polanyian”. The preface to the latest edition is by Joseph Stiglitz, the American Keynesian economist, who believes that government intervention will make capitalism stable and just.

But The Great Transformation can be interpreted in more than one way. It has also influenced more radical thinkers like the libertarian socialists Murray Bookchin and Noam Chomsky, who see in the book an appreciation that for almost all of human history, capitalism was rejected as a way to run society. And why should the future not draw on the wisdom of the past?

What The Great Transformation does is to destroy the notion that capitalism is a natural way to be, that a market economy automatically emerges when the restraints are taken away and people’s innate competitiveness is allowed to surface unimpeded. On the contrary, free markets are conscious creations, dependent on the destruction of older, more stable forms of society. Human nature, according to the evidence that exists, is not naturally competitive about the means of life.

Capitalism is an artificial economic system, in exactly the same way Communism was. And what has been created, can be uncreated.

Polanyi looks in detail at the first society that experienced this “great transformation” – England during the Industrial Revolution. He was able to study this history first hand because he fled to England from Vienna in the 1930s.

A market economy was pitilessly created by systematically annihilating the old society. Peasants were forced off the land and into the ‘dark, satanic mills” by government enforced enclosure of the open common lands on which their livelihood depended. Craft guilds, which set wages and established the quality of products, were abolished. A labour market was created by repealing laws which restricted workers’ mobility, obliged employers to provide seven-year apprenticeships, and enforced annual wage assessments by public officials.

In this blog, it has been asserted that the market economy is a myth, that the economy is not the scene of an entrepreneurial, Dragons’ Den-style, battle of the fittest among individuals, but a place where large corporations, controlled by tiny elites, seamlessly work for their own advantage.

But in the eighteenth and early nineteenth centuries, the market economy was not a myth. There was a transformation from an ordered, hierarchical and static society to an immensely fluid society in which new inventions could change the fortunes of people and the society around them. Industrialists often came from ordinary backgrounds, although they were soon swallowed painlessly into the British aristocracy. Corporations did not come into being until the 1850s.

This market economy did two things that are often not contemplated together. One was to create the dependency of millions of people on the fortunes of an economic system. In pre-capitalist societies, people were not threatened by society with starvation unless they made enough money. They were economically secure, although not rich. This changed with the creation of a market economy. People’s livelihoods and, often lives, were dependent on the kind of employment they could find. In Marxist terms, masses of people were turned into proletarians, surviving by selling their labour. The Left in the nineteenth century called it “wage slavery”.

The second was to create “unheard of material welfare.” For the first time in history, production based on machines became dominant and people were compelled to work for it, on threat of starvation. This raised the possibility, if not the actuality, of material abundance for everyone. “At the heart of the Industrial Revolution of the eighteenth century there was an almost miraculous improvement in the tools of production,” says Polanyi “which was accompanied by a catastrophic dislocation of the lives of the common people.”

This feature of capitalist societies, economic insecurity in the midst of material plenty, is an essential fact of life today. Most people are in an economically precarious situation – they are one or two payslips away from insolvency - but the economy produces an immense superfluity of goods.

The Great Transformation shows how the Industrial Revolution in England, which became the model for the rest of the world, was justified and shaped by the ideology of economic liberalism. Shaped because the idea of a laissez-faire economy, in which everything was a commodity and there was no outside intervention, became the unimpeachable principle of the age. England’s cotton industry, for example, initially got off the ground with the help of protective tariffs on imports, but later in the nineteenth century, free trade was supreme.

Economic liberalism sought validation in the past. It, finally, was liberating an elemental feature of human nature, which had been artificially held down by “civilisation” for thousands of years, the desire for individual gain. Adam Smith, who inspired free market philosophers, based his thought on man’s “propensity to barter, truck and exchange one thing for another”.

But this idea, though immensely powerful as a spur to action, was a gigantic error. “No society could, naturally live for any length of time unless it possessed an economy of some sort,” says Polanyi, “but previously to our time no economy has ever existed that, even in principle, was controlled by markets.”

Primitive societies lived through reciprocity. There was division of labour – different people performed specialised tasks – but not markets. A person coming back from a hunting or foraging expedition shared their spoils. Later, they would take as others gave. There was no motive of gain, or labouring for remuneration.

Later societies, even those horribly oppressive like the despotism of Egypt under the Pharoahs, were based on distribution in kind, rationing, not markets.

In Europe after the 15^th centuries, markets in towns were created, but they were deliberately prevented from trading with the surrounding countryside.

Past societies were not more altruistic or selfless, but non-economic purposes were paramount.

The historical falsity of economic liberalism means that its fabled concept of laissez-faire is also false. Laissez-faire has come to mean that if society is left alone by government, a market in which everyone competes and some people inevitably emerge victorious, will naturally come into being. Government regulation stops this natural competition happening. Much as laws against assault stop physical aggressiveness happening.

(Although notice the inverted logic, government stops market competition happening so it should get out of the way. Laws stop assaults happening, without them there would be mayhem, so they are necessary)

There is nothing natural about laissez-faire. What Polanyi shows is that laissez-faire can only happen once other ways of reproducing life, are destroyed. And then a laissez-faire, free market economy can come into being, rigorously policed by the state, so that it is not improperly interfered with. Economic liberals in Britain in the 1830s/1840s were fanatically opposed to extending the vote to the working class. And trade unions were illegal because they interfered with labour, now seen as another commodity, finding its price on the market. Neoliberals hate trade unions for exactly the same reason.

“For as long as that system [the market system] is not established, economic liberals must and will unhesitatingly call for the intervention of the state in order to establish it,” says Polanyi, “and once established, in order to maintain it.”

As the former New Labour health advisor, Paul Corrighan, put it in 2010, “The state has to actively create a market, they don’t appear of their own account.”

The experience of India under the British Empire illustrates what Polanyi is trying to get across. Millions of people died in famines in late 19^th and early 20^th centuries. The natural reasons for crop failures had not changed but the effect was far more devastating.

The explanation is that whereas in the old feudal arrangements of the past, there were stores of grain in case of famine, in the new market system, they were destroyed. Millions of people had to buy what they could on the market, where prices rocketed because of shortage.

“The three or four large famines that decimated India under British rule since the Rebellion were thus neither a consequence of the elements, nor of exploitation, but simply of the new market organisations of labour and land which broke up the old village without actually resolving its problems,” writes Polanyi. “While under the regime of feudalism and of the village community, noblesse oblige, clan solidarity, and regulation of the corn market checked famines, under the rules of the market the people could not be prevented from starving according to the rules of the game.”

So the great transformation was justified by piling fiction upon fiction. Humans weren’t naturally economically competitive, laissez-faire wasn’t just leaving things alone so that liberty could flourish, the power of the state didn’t diminish under the free market.

But balancing above all this was a still more fundamental fiction. Under a free market system, everything has to be a commodity and find its price on the market. Humans and nature were treated as commodities like everything else. But they aren’t commodities. They are, in Polanyi’s description, fictitious commodities.

A commodity is something – like a mobile phone – produced for sale. But human beings and the natural world are not produced for sale. They are not “produced” at all. But in the world of economic liberalism, they were assumed to be commodities, just in the same way that cotton was. Owners of land could do what they want with it. People had to get the means to live by selling their labour. If they can’t find a job or the economy goes into downturn, they can’t sell their labour commodity, and person irrevocably attached to that commodity, starves or is reduced to poverty.

Polanyi’s point, and one reason why he is extremely relevant today, is that people naturally rebel against being treated as commodities. “To expect that a community would remain indifferent to the scourge of unemployment, the shifting of industries and occupations and to the moral and psychological torture accompanying them, merely because the economic effects, in the long run, might be negligible, was to assume an absurdity,” he writes.

But as The Great Transformation shows, that rebellion can take different forms. It can be a civilised transition to what he calls socialism. But it can also entail scapegoating minorities, armed conflict and totalitarianism. In the 1930s, that rebellion meant the American New Deal but also Nazism and the Second World War.

Treating people as commodities, that periodically are not needed, has effects. What economic liberals said in the Great Depression was that if trade unions and the government stopped interfering, wages would naturally drop, in the long run, to allow profit to be made and the economy would eventually return to health. Theoretically, they have been right. But, in the long run, as John Maynard Keynes, said we’re all dead. What was said about Marxism by the Darwinist psychologist Edward Wilson, is now most descriptive of free market capitalism: “wonderful theory, wrong species”.

In part two, we will look at how economic liberalism gave way to totalitarianism in the 1930s. And what not treating human beings as commodities, really means.

"When she went there, the cupboard was bare" the exhaustion of policy

“No policy of any kind – whether imposed by a dictator, produced by democratic consensus, or anything in between – can ‘fix the problem’” said economist Richard Wolff in 2008.  “No policy ever did”.

The world is now realising this. “Policy” is exhausted. The only company with good prospects at the moment is the one that makes the t-shirt of Karl Marx saying, “I warned you this would happen”.

According to broker Louise Cooper, “the horrible reality is that those leaders in charge of our economy have no answers”.

 If policy can’t solve anything, then it’s time to look again at economists who never believed it could, like Richard Wolff and Harry Shutt, whose books have been reviewed in this blog.

There were only three policy tricks. The first was supply-side economics. This was the right-wing idea that the reason why companies don’t expand, or individuals create businesses, is that they are taxed too much. In the UK in 1973, the corporate tax rate was 53 per cent. It will be 23 per cent in 2014. The Con-Dems’ enterprise zones, with zero business rates for five years, spring from the same contorted and remorseless logic – tax cuts will conjure up economic growth.

The problem is reality. Economic growth was much higher in the ‘60s and ‘70s before supply-side economics took hold. Attempting to answer the paradox that to open a factory in South Korea in the early ‘90s required 299 permits, while the country had grown at over six per cent for three decades, the South Korean economist, Ha-Joon Chang, said: “Strange as it may seem to most people without business experience, business people will get 299 permits, if there is enough money to be made at the end of the process … in contrast, if there is little money to be made at the end  of the process, even twenty-nine permits may look too onerous.”

For permits, read taxation. If there is money to be made, taxation, won’t deter expansion. The trouble is, there isn’t.

Trick number two, was interest rates. They are lower, in Britain, than they have been for 400 years. The United States Federal Reserve has tried to halt huge stock market falls by promising to keep interest rates at near to zero until 2013  At that miniscule level, they are meant to bring about spending and borrowing and make saving an unattractive option. But with personal borrowing at historically unprecedented levels, £1.46 billion in Britain, this doesn’t work either. And if consumer spending doesn’t rise, you can reduce corporate taxation to zero (which might well happen given the mentality of “policy-makers” in the UK and US ) and it won’t magically revive economic growth.

The last trick was the cruellest of all. Take trillions of pounds of private sector debt and transfer them to the public. In Britain, the government has a debt of £2.3 trillion and, £1.5 trillion of that stems from the banking bail-out. Gordon Brown was lauded as the saviour of the global economy. But the economy wasn’t saved from depression. Banks prospered temporarily, but the recovery didn't apply to jobs or spending. And nothing, as we are now seeing, was solved. According to the UN, $18 trillion was added to public sector debt. And just what, it will increasingly be asked, did that unprecedented spending achieve? To delay the inevitable by three years?

The reality of the exhaustion of policy is not pleasant or easy to face. In one way it is an admission of impotence. “The world is now embarked on a supposed recovery strategy that is both self-contradictory and doomed to failure,” said Harry Shutt in 2010. The only comparable experience, he says, was the Great Depression, which lasted a decade and was only ended by the Second World War.

Richard Wolff also likens what is happening now to the Great Depression. Then the reaction was far more creative. The US government employed directly 11 million people, some as singers, poets, painters to take culture around the US. But that far more interventionist policy didn’t solve the Great Depression.

“Policy” solutions are like closing the stable door after the horse has bolted. We can reject the self-imposed policy strait-jacket of western governments, and call for new ones. We can all become Keynesians again, re-regulate finance, ban derivatives or hedge funds. Corporations can be taxed properly and tax havens closed. That might conceivably help with the next downturn but we are still in the middle of this one.

“The whole idea of policy is bizarre,” wrote Richard Wolff in 2008. “The ‘right policy’ represents an absurd claim that that this or not that law or regulation can somehow undo the many different factors that cumulatively produced this crisis. Policies are ‘magic potions’ offered to populations urgently demanding solutions to real problems.”

Wolff attributes the 2007 economic crisis to the fact that US wages had stagnated for thirty years. Huge amounts of borrowing to compensate for this change enabled debt-based financial instruments to become so dominant. And when defaults began as interest rates rose, the contagion spread, causing the “credit crunch”. No government policy could “somehow undo” these trends.

Which is why Wolff’s answer doesn’t involve policy, but rather a shift out of capitalism. Only that can really “solve” the crisis. He wants workers to become their own board of directors. That post-capitalist settlement can change the factors that made the economic crisis happen in the first place.

For Harry Shutt, the problem is related but larger. Capitalist economies like ours are subject to the business cycle. The incessant recycling of profit to make more profit eventually produces more than can be absorbed by consumers.

But the downside of the business cycle – recession - has been evaded for years by government and business.  Now it is happening and will be more severe for having been eluded for so long. One consequence of the business cycle not being allowed to take its natural course, is that people, and governments, are overloaded with debt, and can’t bolster spending even if they wanted to.

Financial speculation is now more profitable than actual production. The upswings of future business cycles will be brief. So, he too, wants a transition out of capitalism, and end to the requirement that for an enterprise to exist it must make a profit, and the severing of the link between a liveable income and paid employment.

These solutions are now out of sight. But if governments have no answers to what will happen, then inevitably attention will shift to those who have some kind of explanation, and a solution, however radical it appears at the moment.

Milton Friedman, who was one of the gurus of neoliberalism, said in 1976 that “brute experience proved far more potent than the strongest of political or ideological preferences” in ending Keynesian economic policies and ushering in free market policies.

In other words, brute experience has a way of altering minds in a way that argument and debate can’t on their own. We shall see.