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.