Karl Polanyi for President

Karl Polanyi for President

Whether they realize it or not, millions of Bernie Sanders supporters across the country have embraced a version of socialism developed by political economist Karl Polanyi in his 1944 classic, The Great Transformation. Dissent explains.

Karl Polanyi teaching at the Workers' Educational Association, c. 1939. Sketch by William Townsend.

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Should health care and education be rights, or products that those with enough money can purchase in markets? About seventy-five years ago, in response to the Great Depression, Franklin D. Roosevelt offered, through the programs of the New Deal, an expanded definition of freedom founded on economic security—immortalized as “freedom from want” in his famous speech of 1941. In our own time, severe inequality and the most serious economic crisis since the Great Depression have once again brought the issue of what should count as a right to the surface of political debate.

One candidate, Bernie Sanders, has argued explicitly that health care and education—two things that the New Deal mostly left alone—should be rights and therefore accessible to all. While public policy pundits fight over the specifics, they miss that Sanders, by discussing these things as rights instead of just policies, has changed the nature of the debate. This key distinction helps explain why tens of thousands have turned out to Sanders rallies across the country—not to mention the millions who have supported him online and at the polls—demonstrating enthusiasm for a politics that he explicitly identifies as “democratic socialism.” But what kind of socialism?

The vast majority of Sanders’s supporters are not Marxists clamoring for a dictatorship of the proletariat or the nationalization of industry. Most are, probably without knowing it, secret followers of Karl Polanyi. Polanyi’s classic, The Great Transformation, was published in 1944—the same year that FDR promised a “Second Bill of Rights” guaranteeing employment, housing, social security, medical care, and education to all Americans. Today, Polanyian arguments are once again in the air. Since his ideas seem to be everywhere but he is rarely mentioned, a (re-)introduction to his thinking, and its relevance to politics in 2016, is in order.

So wait: Karl who?

Karl Polanyi was born in 1886 in Vienna and educated in Budapest, twin capitals of what was then the Austro-Hungarian Empire. A soldier during World War I, he supported an anti-aristocratic revolution in 1918 in Hungary known as the Aster Revolution, but fled the short-lived Communist government headed by Bela Kún in 1919. Arriving in Vienna, he lived out its years as a “socialist municipality,” governed by Social Democrats, which featured workers’ cooperatives, public housing, free health care, and a flourishing municipal culture. That formative experience came to an end with the rise of fascism; Polanyi fled to England in 1933, where he taught adult education through the Workers’ Educational Association. In the early 1940s, he spent time in Vermont, and a two-year grant from the Rockefeller Foundation allowed him to complete The Great Transformation. He taught at Columbia University before retiring to Canada in 1953, where he died in 1964.

The Great Transformation? What is that? A book about magic?

It’s a book about political economy. It’s one of the most important books on the topic, in fact, and should be viewed as part of the canon of left thought.

Here’s a story that we hear all the time. The free market is the most effective way of ensuring prosperity. We can ensure that the market is free by getting the government to simply get out of the way, or, at most, fix a few market failures here or provide some economic security. The more parts of life that become like markets, the better. That’s not just because markets are the best for ensuring the good life—it’s that free markets are also a foundation for liberty itself, because economic freedom is political freedom.

Polanyi’s work dismantles this argument in two important ways. The first is to show that markets are planned everywhere they exist. Economic organization is always the result of the state. “Laissez-faire,” he writes, “was planned. . . . [The] laissez-faire economy was the product of deliberate state action.”

Polanyi says that the economy is “embedded” in society—part of social relations—not apart from them. He believes that a pure free market society is a utopian project, and impossible to realize, because people will resist the process of being turned into commodities. In fact, he calls labor a “fictitious commodity,” along with land and money. And this process of turning fictitious commodities into market commodities can only be carried out by the state.

But I’m involved in markets for land, money, and labor all the time!

Yes, but Polanyi argues that none of these things were created for the purpose of being a commodity to be exchanged. As Polanyi writes:

Labor is only another name for a human activity which goes with life itself, which in its turn is not produced for sale but for entirely different reasons, nor can that activity be detached from the rest of life, be stored or mobilized; land is only another name for nature, which is not produced by man; actual money, finally, is merely a token of purchasing power which, as a rule, is not produced at all, but comes into being through the mechanism of banking or state finance.

Markets and trading in commodities are a part of all human societies, but to get to a “market society” in a meaningful sense (what some would just call capitalism) these fictitious commodities have to be subject to a larger, coherent system of market relations. This is something that can only be accomplished by state coercion and regulation. For example, lands once held in common as part of a community are enclosed and privatized, turning land into a commodity.

When looking at the economy as completely embedded within society there is no way to escape the question of how it is governed. Deregulation in this sense is simply reregulation, changing the authority of who gets to carry out what kinds of actions. In The Great Transformation, Polanyi spends a lot of time discussing the late eighteenth-century and early nineteenth-century English Speenhamland system of poor relief, which essentially provided a basic income, and its replacement with the New Poor Law of 1834, which removed that income support. Historians now doubt that Polanyi accurately characterized some of the problems of Speenhamland, but his core argument remains valid—that changes weren’t “natural,” but simply replaced one set of actors who have power with another. Taking away Speenhamland’s protections made labor a commodity, but that didn’t end state involvement: it was simply that governance was outsourced to the labor market and private actors after the New Poor Law.

But if Speenhamland had problems, shouldn’t Polanyi have liked the market society that came after?

He didn’t like either, for reasons that are connected to his second, equally important argument: that the move to markets is inherently destabilizing. Rather than a font of liberty and freedom, markets are also a source of coercion, instability, precarity, and worse. Subjecting all of life to the market wouldn’t result in the freest society but instead one defined by the collapse of social life.

As Polanyi writes:

To allow the market mechanism to be the sole director of the fate of human beings and their natural environment . . . would result in the demolition of society. For the alleged commodity “labor power” cannot be shoved about, used indiscriminately, or even left unused without affecting the human being who happens to be [its] bearer.
. . . In disposing of a man’s labor power the system would, incidentally, dispose of the physical, psychological, and moral entity “man” attached to the tag. Robbed of the protective covering of cultural institutions, human beings would perish from the effects of social exposure [and] social dislocation. . . . Nature would be reduced to its elements, neighborhoods and landscapes defiled,
. . . the power to produce food and raw materials destroyed. Finally, the market administration of purchasing power would periodically liquidate business enterprise, for shortages and surfeits of money would prove as disastrous to business as floods and droughts were in primitive society.

Polanyi says that a market society is impossible to achieve, in any case, because people resist being turned into commodities. When they are exposed to too much of the market—when markets try to “disembed” from society—people resist, demanding protection from excessive commodification. Lives are more than commodities for those who are living them. This is what Polanyi describes as the “double movement”—the drive for laissez-faire inevitably produces a protective countermovement that insists on shelter from the damaging effects of the market. Welfare and different forms of social insurance are canonical products of this resistance; Polanyi believed fascism was another possible response.

Polanyi’s been dead quite a while. Can he really help explain today’s economy?

Yes. There’s been a focus in academic literature on a stage of capitalism described as “neoliberalism.” In one story, neoliberalism is an elite reaction to the economic crises of the 1970s, one that resulted in a wholesale change in the way markets were structured. Lower taxes, global capital mobility, fewer regulations, the weakening of unions, the abandonment of full employment policies and a move away from the Keynesian framework that governed the midcentury period are all characteristic of this story.

What puts the “neo” in neoliberalism is the view that this was meant to be an explicit project of the state to ensure markets worked this way in a way Polanyi would understand.

Recent research has shown that the way the economy is situated has been one of the major drivers in the growth of inequality since 1980: the rules matter. Financial deregulation drove the doubling of the share of finance workers in the top 1 percent. There was a major shift in the compensation of CEOs during this time, one that went with an engineered shareholder revolution that changed the nature of whom the firm works for. High marginal tax rates were cut, which led to skyrocketing high-end incomes. The resulting higher capital income from deregulation and weaker worker power is one of the main drivers of inequality.

Some might argue that there is nothing to be done about all this. According to a libertarian way of thinking, the product of the market is just while taxes are a form of theft. The pre-tax distribution of income is fair, while the post-tax one is the result of government “interference” in the economy. But to a Polanyian, this is nonsense, because the pre-tax distribution of income is just as much a product of social and political institutions as is the post-tax distribution. States don’t interfere with markets—they create them. That doesn’t mean that all markets are bad, and Polanyi never imagined that they would all end. It just means that if markets are interfering with other social priorities (like democracy, for example), or producing bad outcomes, you can change the rules that govern what parts of society operate with what kinds of markets.

Polanyi might also point out that even when the market is supposed to be “natural” and self-sustaining, states need to step in to ensure that they work. This was clearly the case in the financial crisis, when the financial markets imploded rapidly, putting the entire payments system and healthy firms at major risk. But it’s also clear in the European Union. The central bank controlling the euro took specific actions to drive Spain and Italy into market chaos to force austerity and neoliberal reforms. This didn’t simply happen on its own; the state had to intervene through markets.

This is long, can we have a musical break?

Sure, here are Sharon Jones & the Dap-Kings performing a famous song about land as a fictitious commodity.

Okay, that was a little too exciting. Please explain how academics are making use of Polanyi today.

There’s been a wide range of interest from academics in Polanyi. There are several relevant projects that are worth mentioning.

First, Polanyi’s analysis provides a useful set of tools for exploring the history of capitalism. For example, as historian Sven Beckert writes in his award-winning Empire of Cotton, a state “that could protect domestic markets, forge access to remote markets, and create an infrastructure that facilitated manufacturing was the distinctive feature of early industrial leaders.” Beckert argues that the cotton-centered Industrial Revolution could only have taken place where states “forged the institutions necessary to underpin industrial capitalism—from markets for wage labor . . . to property rights” to “expanding domestic and foreign markets, and protection for national industries from the uncertainties of the global market.” Beckert’s, like many other recent histories of capitalism, makes clear that markets don’t make revolutions on their own—states have to make markets first.

Major scholars in contemporary development economics, like Joseph Stiglitz and Dani Rodrik, have also been influenced by Polanyi. Stiglitz even wrote the introduction to one of the modern editions of The Great Transformation. One of the key critiques that Stiglitz and Rodrik take from Polanyi is that the creation of markets is socially disruptive—and that international rules and institutions that impose austerity on countries in crisis do not give societies the time to develop new coping mechanisms.

Gøsta Esping-Andersen made a different use of Polanyi in his groundbreaking The Three Worlds of Welfare Capitalism, published in 1990. He found that the right way to understand the differences between the welfare states of the United States, Sweden, and France isn’t necessarily to look at how much money they spend, but at how much they decommodify labor. Decommodification, for him, means that “a service is rendered as a matter of right, and when a person can maintain a livelihood without reliance on the market.” The United States actually spends a lot on welfare, but mostly for people who already have jobs—in the source of income boosts, tax-free benefit packages, and the like—so this spending does little to decommodify labor.

Polanyi also offers a method of left analysis that doesn’t invoke Marxism. Polanyi was influenced by Marxism but his framework doesn’t sit easily with it; for example, he defines classes as cultural formations rather than by their relationship to the means of production. For this reason, as the writer Peter Frase notes, Polanyi has been more popular with theorists and academics seeking “a non-Marxist form of social democracy” that is robust and deeply theorized. Historians like Sheri Berman and James Kloppenberg have written books precisely in that vein.

Polanyi has also developed a following among critical theorists trying to analyze related but distinct problems in our economy. As Nancy Fraser argues, we face an ecological crisis, a crisis of financialization, and a crisis in social reproduction as carried out through care and affective labor. Polanyi’s “fictitious commodities” approach opens a way of viewing the subjection of social life to markets—a process that encompasses all three—and to draw parallels between them. Fraser uses Polanyi but then tries to improve on him, making the case that his communitarianism was insensitive to other problems of domination that occur within communities, whether they lie outside of markets or not.

Lastly, there is recent work on Polanyi himself: Fred Block and Margaret Somers’s The Power of Market Fundamentalism (2014) and a new biography by Gareth Dale, out this month.

So more people are talking about Polanyi than I thought. But can he really help us understand the 2016 presidential election?

Certainly! First, Polanyi wouldn’t have been surprised by the rise of Trump. He knew that the double movement—the protective steps that people take when exposed to too much unfettered capitalism—does not always benefit the left. Trump supporters clamoring to make America great again reflect one version of this; they hearken to a time when life was more secure and stable, at least for certain types of working- and middle-class whites.

In fact, one of the reasons that Polanyi rushed The Great Transformation to press was to warn post–Second World War policymakers that poor economic institutions could lead—through the double movement—to disastrous consequences for democracy. For Polanyi, it would make sense that the Sanders and Trump insurgencies happened simultaneously, and that there are some people who would rank those two as their favored candidates, in spite of them seeming to come from opposite ends of the political spectrum. Both campaigns are based in part in complaints about the corrosive effects of exposure to global markets. Both are against so-called “free trade” and skeptical of open borders, though only Trump’s campaign is shot through with xenophobia and only Sanders wants to reform the Wall Street practices responsible for the Great Recession. Still, in spite of all their differences, both Sanders and Trump look like expressions of “double movement” politics.

Is Bernie Sanders the only “Polanyian” Democrat?

Not at all. Democrats have taken up Polanyian arguments in response to many of the market-fundamentalist notions that the Tea Party has helped to circulate in recent years. The most notable example might be President Obama and Elizabeth Warren’s “you didn’t build that” faux-controversy from 2011 and 2012. Warren, who first made the argument, was speaking out against the idea that calling for higher taxes on the rich constitutes class warfare, saying:

There is nobody in this country who got rich on his own—nobody. You built a factory out there? Good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory—and hire someone to protect against this—because of the work the rest of us did.

This is a fundamentally Polanyian point about the embeddedness of markets in society, and the always unnatural nature of income distribution. Polanyian arguments arise pretty naturally as rebuttals to certain libertarian notions of how economies should work, which may be one reason that certain Democrats sometimes sound like Polanyi.

But Polanyi also helps explains some of the tensions within the Democratic Party. One of the divides within the Democratic primary between Bernie Sanders and Hillary Clinton has been between a social-democratic and a “progressive” but market-friendly vision of addressing social problems. Take, for example, health care. Sanders proposes a single-payer system in which the government pays and health care directly, and he frames it explicitly in the language of rights: “healthcare is a human right and should be guaranteed to all Americans regardless of wealth or income.”

Clinton, meanwhile, describes affordable health care as a right. Clinton also wants higher education to remain a market commodity, because she says that if the government paid, it would needlessly be giving a free ride to the children of the wealthy and the upper-middle class. Clinton’s reasoning appeals to ideas of market efficiency, while Sanders, in stating that “Education should be a right, not a privilege,” appeals to ideas of community beyond markets.

Sanders here offers a straightforward defense of decommodification—the idea that some things do not belong in the marketplace—that is at odds with the kind of politics that the leadership of the Democratic Party has offered more or less since Carter and the narrow policy “wonk” focus that tends to dominate coverage.

Whether or not Sanders has read Polanyi—similar language about economic and social rights was also present in FDR’s New Deal, which Sanders argues is the basis of his brand of socialism—Polanyi’s particular definition of socialism sounds like one Sanders would share:

Socialism is, essentially, the tendency inherent in an industrial civilization to transcend the self-regulating market by consciously subordinating it to a democratic society. It is the solution natural to industrial workers who see no reason why production should not be regulated directly and why markets should be more than a useful but subordinate trait in a free society. From the point of view of the community as a whole, socialism is merely the continuation of that endeavor to make society a distinctively human relationship of persons.

Sanders’s particular notion of a political revolution—in which people use democracy to change the rules governing our national political economy—is very Polanyian. Polanyi’s socialism has a certain modern appeal when the more traditionally Marxist idea of having the state seize the means of production has been abandoned even by most who identify as socialists. Instead, Polanyi’s relevance for today lies in his arguments that markets need to be subjected to democratic control, that human beings resist being transformed fully into commodities, and a fully realized market society is both impossible, undesirable, and at odds with genuine liberty and freedom.

Sanders’s campaign has shown that a political platform favoring decommodification and a retreat from the extremes of society’s subordination to markets has deep appeal. The future of the party does not belong to Bernie Sanders himself, but the Karl Polanyi Democrats are here to stay.

Patrick Iber is assistant professor of history at the University of Texas at El Paso. He is the author of Neither Peace nor Freedom: The Cultural Cold War in Latin America (Harvard University Press, 2015). Mike Konczal is a fellow at the Roosevelt Institute and a contributing editor at Dissent.

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