The economy should serve the people

In 2013 the influential Atlantic website in a commentary Pope Francis’ Theory of Economics said the economist who most closely reflects the Bishop of Rome’s thinking was sociopolitical economist and anthropologist Karl Polanyi.

Oct 26, 2019

By Anil Netto
In 2013 the influential Atlantic website in a commentary Pope Francis’ Theory of Economics said the economist who most closely reflects the Bishop of Rome’s thinking was sociopolitical economist and anthropologist Karl Polanyi.

Karl who? A quiet, thoughtful and well-educated man was born in Vienna in 1886, then the capital of the Austrian-Hungarian Empire. He took an Fabianism and Christian socialism, and as a social emigre moved to London, then to the US and finally to Canada.

While in the US, he published a book in 1944 called The Great Transformation looking at the changes in developed and later emerging countries. The book was received with some acclaim, but it was only much later that more people began to realise how relevant it was to our times.

Economic activity used to be embedded in society. In other words, markets used to be just one component of human social relations. Initially, these markets, because they were embedded, were regulated by the government or social relations.

But as the markets developed in 19th Century industrial England, they because more powerful and “dis-embedded” from society. The spread of market forces created social displacement, upheaval and misery and eventually environmental degradation.

In his writings, Polanyi noted how land and labour turned into “fictitious commodities”. This has damaging consequences for society. People become subject to the dictates of the market while nature is exploited in the service of the market.

Polanyi came up with the idea of a “double movement”.

Economic liberalism is about the expansion of the role of market forces.

But as markets are freed or dis-embedded from government or social control, there is a backlash from social forces as they become more displaced and dislocated.

These social forces then call for more social protection in the form of social and welfare protection especially for the most vulnerable people. In other words, they call for more government regulation of the markets – to re-embed the market to serve the people and subject it to tighter government regulation.

This is an ongoing struggle.

After market deregulation and the “free markets” eventually resulted in the crash of the Great Depression and the widespread suffering of the 1930s, there were attempts to re-embed the market with government regulation.

For a long spell, the developed world experienced “embedded liberalism”. British economist John Maynard Keynes talked about government’s increasing public spending to boost economic activity.

In the United States, then President Franklin D. Roosevelt came up with the New Deal to boost public works spending, financial reforms and strengthen regulation. The government intervened in the market to once again rein in the market in a form of “embedded liberalism”. This resulted in the boom years of the 1950s and the 1960s.

But all that came crashing down by the end of the 1970s, with the emergence of neo-liberalism especially promoted by then British Prime Minister Margaret Thatcher and then US President Ronald Reagan. Once again, regulation of the market was loosened, privatisation expanded and social protection undermined and removed.

People and nature and land increasingly fell under the dictates of market forces. Before we knew it, people and nature and land had turned into commodities to be bought and sold or exploited by market forces for profit maximisation.

Once again, this deregulation of the market culminated in full-blown market capitalism, eventually resulting in the Asian financial crisis of 1997 and then the financial crash of 2008.

Much soul-searching ensued. At the heart was what role the market should play in human relations. As it stands, it is hard to put the genie of market forces back into the bottle.

We have been so conditioned into thinking that the market is the best way of organising a society. Free market ideologues believe that market forces offer the best way forward to higher economic growth, greater international trade and prosperity.

But the Market is not God. And higher economic growth itself may not be in the best interests of everyone.

Polanyi teaches us that a market society is not something natural that can be positioned in economics. Markets by themselves are not selfsustaining or inevitable. It is not about a struggle between the state and the market.

It is not just about market regulation versus deregulation. Much depends on political decisions and policies and legal reforms to further the common good. For example, just because we have a budget deficit, it does not mean we have to slash social spending. Rather the decision to cut or which area to cut is a political decision and that determines to what extent society will benefit or lose.

Polanyi highlighted the social and environmental costs of thinking of people and nature as components of the production process in the market economy.

Do we really want more and more people to serve the economy and become embedded into the market system (rather than the other way around)?

Do we want nature to be a component of market forces, to be exploited at will so that the wealthy can profiteer while turning our world into a toxic wasteland?

Do we really want the concept of public service, public healthcare, public utilities and public education to be “commodified” and placed at the mercy of market forces?

Or should market forces and the economy serve the people and be re-embedded into social relations and the larger ecology?

Long before we became “labour” and then “human resources”, we were People. The world as we knew it was Nature. The market was just a sphere of human activity, embedded in social relations.

So how did the markets get dis-embedded and rise and take control of both people and nature? What happens if the needs of ordinary people and nature are different from what the markets expect of labour and land?

For that matter, when did labour, land, water, the sea and the forests and people become “commodified” or turn into components or “factors of production” in service of the market?

How can politics and social relations govern the market to yield improvements for the common good?

Polanyi’s legacy was that he gave us the conceptual language to look into these important areas. That’s not all. He believed that the world could be a much more progressive place, if we come up with the correct political decisions that promote the common good.

You can see how much these is in common with what he is saying and the economic thinking of the Bishop of Rome – and how relevant they are to our times.

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