Karl Polanyi against the ‘free market’ dystopia
Social Europe, 23rd April 2024
https://www.socialeurope.eu/karl-polanyi-against-the-free-market-dystopia
Sixty years on from Polanyi’s death and 80 since his classic text appeared, it is time to reassess the Hungarian social scientist’s legacy.
In April 1944, Karl Polanyi published his magnum opus. He died precisely 20 years later, on April 23rd 1964.
Polanyi might seem an enigmatic figure in the social sciences: he became influential well after his death and his fame is the result of a single book, The Great Transformation, which came to inspire a new generation of intellectuals in the neoliberal era. For a thinker identified with the phrase ‘double movement’, this double anniversary provides an opportunity to reflect on his life and his outstanding contribution to political economy.
A life in three chapters
Polanyi’s life is like a trilogy. The first part is his upbringing, youth and study in Hungary, his developing political consciousness and experience. The second begins with his departure and includes the decades of European emigration, when the rise of fascism is the key issue for politics, economics, society and eventually the fate of the international order. Volume three is his life in the United States, where the ageing Polanyi continues his research in economic history and anthropology while engaging in the intellectual dialogue on the cold war and ‘peaceful coexistence’ with the Soviet Union.
Polanyi grew up in Budapest, speaking German and Hungarian—and very quickly learnt English, French, Latin and Greek as well. As a student, he was influenced by the great Hungarian intellects of the time: Ervin Szabó and Oszkár Jászi. The librarian Szabó was a father figure for Marxists, anarchists and syndicalists, while Jászi was the beacon for progressive liberalism. Polanyi became the first leader of the Galileo Circle, committed to collective learning and activism.
By the time of the war, Polanyi considered himself a liberal socialist, in the footsteps of German thinkers such as Eduard Bernstein and Franz Oppenheimer. In 1919, he left Hungary to receive medical treatment in Austria. Meanwhile, a shortlived Budapest Commune was overthrown and displaced by a ‘white’ counter-revolution, making return impossible. In ‘red’ Vienna, Polanyi and Ilona Duczynska married (in 1923) and he started working as an editor of the prestigious economics journal Der Österreichische Volkswirt (Austrian Economist). He became a critic of the market-fundamentalist ‘Austrian school’ of economics, represented among others by Ludwig von Mises and Friedrich Hayek.
The move from Austria took three years for the whole family, but Polanyi had to leave quickly after the Nazi takeover of Germany (1933). In England he worked as a journalist and a tutor, carrying out extensive research and collecting most of the materials for the book. The move from England to the US was also very complicated, since Ilona was not given a US visa (due to her earlier political activity and independent-minded communist outlook). Eventually, they ended up living in Canada, from where Karl commuted to New York to teach. Columbia and Chicago universities were practically competing for him. Columbia offered more and Polányi found himself in company with the crème de la crème of post-war American sociology: Robert Merton, Seymour Martin Lipset and C Wright Mills.
In the 50s and 60s, Polanyi turned to economic history and anthropology, which produced his book Dahomey and the Slave Trade (published posthumously in 1966). But he also engaged with the key debates of the time: the effects of new technology, industrialisation and modernisation in economic sociology and the cold war in international relations. He worked hard to launch a new journal, Coexistence, with collaborators such as the Cambridge post-Keynesian economist Joan Robinson. He aimed to bring together authors from east and west, deepening mutual understanding and convergence, but a terminal illness prevented him from seeing the blossoming of this project.
Polanyi’s life became inseparable from politics but he always remained a scientist, researcher and professor. From his youth, he was inspired by Hamlet, which also had an influence on his method: he favoured complex analysis, while refusing to imagine himself, in a ‘time out of joint’, as ‘born to set it right’. He handed over his legacy to outstanding students at Columbia: David Landes, Abe Rotstein, Terence Hopkins, Immanuel Wallerstein. And a long list of economic sociologists and post-Keynesian economists were to be influenced by him—starting with Joseph Stiglitz, who wrote the preface for the 2001 edition of The Great Transformation.
The Great Transformation
Through this journey, the two most important companions of Polányi’s life were Ilona and his brother, Michael. Between the communist wife and the liberal brother, Karl was the socialist: close to the British Fabians, appreciating the US New Deal and assuming that European social democracy remained committed to its ‘maximum programme’. Through lively debates with Ilona in the 1920s, his views on the market evolved and became more critical. He discovered the ‘Christian content’ in Marx’s works, and tended to agree that the market economy was embedding class divisions within society. By the time of moving to England, Polanyi already associated markets with chaos and suffering, rather than efficiency and justice.
In The Great Transformation Polanyi did not only elaborate on the fall of laisser-faire and the outbreak of World War I but connected the two as the collapse of 19th-century civilisation. The book was written in Vermont during the second world war. It explains the contradictions of the ‘self-regulating market’ and the ‘gold standard’ currency regime, which he holds responsible for the human tragedies of the last century. The book provides deep economic and social analysis but not a political programme, so—according to Polanyi’s biographer Gareth Dale—it ‘can legitimately be read either as an anticapitalist manifesto or as a social-democratic bedtime story’.
The title that made Polanyi so famous actually came from the publisher. His own provisional title was ‘Origins of the Cataclysm: A Political and Economic Inquiry’. Another possibility was ‘Anatomy of the 19th Century: Political and Economic Origins of the Cataclysm’. Others were ‘The Liberal Utopia: Origins of the Cataclysm’ and, the simplest, ‘Freedom from Economics’. These speak volumes about what the author wanted to express through concepts which have since become famous, particularly the ‘double movement’ of the marketisation drive and the regulatory response.
Coming from central Europe, Polanyi was directly affected by the rise of fascism. He did not however reduce this political degeneration to cultural or intellectual factors but connected it with the failure of economic policy. In The Great Transformation, he highlighted that ‘the victory of fascism was made practically unavoidable by the liberals’ obstruction of any reform involving planning, regulation, or control’. It is one of the most oft-cited sentences of the book—the connection between ‘liberal obstruction’ and rising fascism is not only a question of history. Polanyi appears as immensely prescient about the era of neoliberalism (the ‘Washington consensus’) and perhaps even more visionary as a predictor of various counter-movements.
In his 2001 preface, Stiglitz highlighted that for Polanyi the main target of examination and criticism was the market, and that beyond the market system there was a broader economy and beyond that a broader society. In other words, a really-existing modern economic system is always an amalgam of the market and other mechanisms, including government planning and the social and solidarity economy, and the combination of these (their sizes, strengths and shares) defines what kind of society we live in. Stiglitz is not alone in stressing that the description of the economic system as a hybrid of various mechanisms—irreducible to self-equilibrating market transactions, conceived as akin to barter, as in neoclassical economics—is one of the most important Polanyian insights.
A social-scientific star
Polanyi may have thought that the discredited doctrines of his time about the self-regulating market would never regain their dominance. From the ‘stagflation’ 1970s, however, the increasingly hegemonic neoliberal trend revived many elements of pre-Keynesian economics. After the fall of the Berlin wall the neoliberal revival was globalised, but the sustainability of this was questioned by many.
For all those sceptics, Polanyi represented the social-scientific alternative to the platitudes of Francis Fukuyama, who claimed that ‘free market’ capitalism, allied to liberal democracy, would carry all before it. He now provides a framework for contemporary authors to elaborate on all the different types of systemic malfunction, from finance to climate. The grave consequences of neoliberal globalisation explain why, since the 1990s, The Great Transformation has appeared in many more languages and editions, and why Polanyi has become a star, if not a cult figure, for social scientists outside a privileged mainstream.
The British political scientist Andrew Gamble highlights his relevance this way:
Recent analyses inspired by Polanyi suggest that neo-liberalism can be understood as the first phase of a new double movement, with neo-liberalism emerging initially in the 1970s as a reaction to the excesses of the welfare state and Keynesianism, creating in the 1980s—through the application of its ideas—a new era of free-market dominance. In turn, it is suggested, this will be followed by a reaction to curb the excesses of neo-liberalism and reimpose political controls over the market.
Polanyi’s critique of the gold standard has also appeared highly relevant in the context of the ordoliberal European economic and monetary union. Just as maintaining gold parity at all costs meant inflicting austerity on depression-era Britain, so the requirements of EMU forced Greece into the ‘internal devaluation’ of cuts in real wages and pensions amid the eurozone crisis.
In the contemporary European context, the generation-long half-cycles of the double movement have been replaced by much shorter periods of liberalisation and socialisation. Instead of the long cycles of Anglo-American economic history, we can observe short cycles of a European pas de deux: the establishment of the single market is followed by EU-level labour legislation and cohesion policy, the Stability and Growth Pact is followed by the Lisbon strategy, the eastern enlargement is followed by reviews of the posted-workers directive and the eurozone crisis triggers the adoption of the European Pillar of Social Rights (EPSR).
The balance between liberalisation and socialisation in the European context must be further studied. Most certainly, the EPSR is not a full answer to the failure of the initial model of EMU, which explains why in the recent period a new discussion has begun about the need for a European ‘social union’ that would offer an EU-level safety net for the social-security systems of the member states. Karl Polanyi may not offer a practical guide, but he most certainly provides the intellectual inspiration for this envisaged new transformation.
László Andor is secretary general of the Foundation for European Progressive Studies and a former member of the European Commission.
