As the recession begins to really kick in, the apparent rebirth of the ‘interventionist’ state has been one of the most fascinating aspects of recent events. Long derided by business types as inimical to the efficient operation of the market, we see British and US governments wading into the fray to try and offset the damage caused by reckless bankers, short-selling hedge fund managers and other reputed financial experts. The public purse has been emptied out in order to bring stability to what many of its supporters have long-insisted is a free and self-regulating system.
Much of this is intervention seen by market liberals as potentially damaging – dangerously socialist even – as the state now appears to be ‘meddling’ in the affairs of the free market, ‘distorting’ the operations of money and the economy. But what these interventions underline is not that the state has suddenly ‘returned’ – but that it never goes away, and, if capitalism is to proceed, never can and never will.
Such a view was long-ago advanced in Karl Polanyi’s wonderful book The Great Transformation. Here, Polanyi showed how the growth of a market society was dependent on the actions of the state in creating the social and legal frameworks that allowed markets to freely operate. Polanyi famously argued that ‘laissez faire was planned’ – observing that the market was not a ‘free’ and self-regulating entity but actually required the provision of a new set of institutional arrangements and social relationships in order to enable its apparently ‘free’ hand to work.
These were not only regulations around what constituted fair and free trade, the drafting and fulfilment of contracts, financial regulations and so on, but involved state management of the supply of money and credit, as well as rules and regulations regarding the provision of land and labour (these latter constituting what Polanyi termed ‘fictitious commodities’). In short, the market relied on the state to provide the field conditions that enabled it to work.
Without state interventions ‘free’ markets cannot survive
Polanyi argued that trying to separate or ‘disembed’ the market from state and society (as market liberals are wont to do) was to misunderstand how markets work. Markets are part of society and cannot work without the legitimation and structures that states provide - nor the protection that states can offer from various crises and negative social impacts of market systems. Without state interventions ‘free’ markets cannot survive.
Polanyi also identified what he called a ‘double movement’ at work in the heart of the capitalist system. As the market became dominant, state and society sought to find ways to protect people from what Polanyi termed ‘the ravages of this satanic mill’:
Social history in the nineteenth century was thus the result of a double movement: the extension of the market organization in respect to genuine commodities was accompanied by its restriction in respect to fictitious ones. While on the one hand markets spread all over the face of the globe and the amount of goods involved grew to unbelievable dimensions, on the other hand a network of measures and policies was integrated into powerful institutions designed to check the action of the market relative to labour, land and money... a deep seated movement sprang into being to resist the pernicious effects of a market-controlled economy.
From The Great Transformation, pages 79-80
Market-led societies corresponded with the growth of a whole new social and welfare apparatus that could guarantee workers for the factory, but also protect them from excesses of capitalistic zeal. The idea that market-led societies must always contain measures for their moderation and repudiation (policies around work, welfare, housing, health and education) in order to stave off social collapse (and allow markets to continue functioning) is central to Polanyi’s approach.
On the one hand, this could be seen as an apologetic for capitalism, but should more roundly be seen I think as an analysis of the constant potential for conflict that exists between market forces and social values. Polanyi wanted to show how the market and society existed in related tension, and particularly how, since markets were embedded within societies that contained non-market organizations and values, society had the power to shape and reform market operations – much like UK and US governments are attempting to do today.
The economist Fred Block has suggested a nice metaphor for Polanyi’s approach:
In this sense one might say that disembedding the market is similar to stretching a giant elastic band. Efforts to bring about greater autonomy of the market increase the tension level. With further stretching, either the band will snap – representing social disintegration – or the economy will revert to a more embedded position
At present, we seem to be entering a period where the tension on the band has been released – since the market liberals have stretched things too far – and states are attempting to temper the market in the interests of society. Whether this will work - and how far the band retracts - remains to be seen.