Global Studies 120 Short Paper

4 TURNING THE TABLES

Polanyi’s Critique of Free Market Utopianism

In The Rhetoric of Reaction, Albert Hirschman (1991), identifies three distinct “rhetorics” that conservatives have used to discredit reform movements since the French Revolution. Chapter 6 of this volume is devoted to the “rhetoric of perversity”—the claim that a reform will have exactly the opposite of its intended effects and will hurt the intended beneficiaries. The second, “the rhetoric of jeopardy” is exemplified by Friedrich Hayek’s The Road to Serfdom (2007 [1944]). It is the claim that a reform will erode the freedoms we depend on. Hirschman’s third is the “rhetoric of futility”—the insistence that a reform is literally impossible because it goes against everything that we know is natural about human beings and social arrangements. This is the ploy that Mal- thus used in his Essay on the Principle of Population (1985 [1798]) to challenge the egalitarian ideas of William Godwin. Malthus professed to admire the beauty of Godwin’s vision, but he ultimately dismissed the vision as impossible. It was futile because Malthus declared it to be against the laws of nature—in other words, utopian.

The rhetoric of futility is the main weapon that conservative intellec- als have wielded against socialists and communists for more than two nturies. They contend that an egalitarian social order would destroy ly incentives for effort and creativity, which makes it utterly inconsis- nt with human nature. But while these arguments are open to debate, ere is one aspect of the right’s critique that has proven compelling.

This is the claim put forward by Marx and Engels and other theorists of the left that ending the class power of the bourgeoisie would also bring 98

Turning the Tables 99

an end to political conflicts and the exercise of political power. As Shel­ don Wolin (1960) and others have noted, a deep hostility to politics led socialist thinkers to imagine mistakenly that it was possible to escape the necessity of governmental and political power.

Oi^ neglected-aspect of Karl Polanvi’s thought is his showing the paral­ lels between market liberalismand Marxism with respect to their utopian wews ot state power. They both disdain ifand imagmelEat it is'possIBleto escape from governance and political constraint, and they both prioritize the economy as the central organizing force in society. To be sure, they differ in their normative evaluation of the economy. Economic liberalism celebrates the absolute freedom of unfettered markets as the means to transform politics into a purely technical exercise of maintaining optimal market conditions. Marxism, of course, associates the capitalist econ­ omy not with freedom for all but with unfreedom for most, even while it upholds the redemptive powers of a stateless socialist economy.

There is certainly nothing novel about arguments that Marxism is utopian. Where Polanyi is utterly original is in his startling claim that the self-regulating market—the central precept of free-market doctrine—is a utopian idea. A self-regulating market, according to Polanyi, has never and will never exist, making its prescript!ver^iemands for market^ver- nance wholly futile. Years before Hirschman’s typology of conservative rhetorics, Polanyi mobilized the rhetoric of futility against free-market thinking. ’ ~~ ~ -----------------

A strong indication of the prescience of Polanyi’s rhetorical move was that Friedrich Hayek—arguably the thinker most central to the revival of free-market ideas in the twentieth century—openly embraced utopianism just a few years after the publication of The Great Transformation (hereaf­ ter GT). In a 1949 University of Chicago Law Review essay entitled “The Intellectuals and Socialism,” Hayek proposed his own sociology of knowl­ edge to explain why so many intellectuals had come to embrace socialism. His argument is that, notwithstanding the impracticality of socialism: “ . . . theirs has become the only explicit general philosophy of social pol­ icy held by a large group, the only system or theory which raises new problems and opens new horizons, that they have succeeded in inspiring the imagination of the intellectuals.” Moreover, according to Hayek, the socialists have been able to drive political debate continually to the left by contrasting the status quo to the ideal world of the socialist utopia. ^

Hayek asserts of his fellow market liberals, “What we lack is a lib­ eral Utopia, a program which seems neither a mere defense of things as

100 THE POWER OF MARKET FUNDAMENTALISM

they are nor a diluted kind of socialism, but a truly liberal radicalism which does not spare the susceptibilities of the mighty (including the trade unions), which is not too severely practical, and which does not confine itself to what appears today as politically possible.” He goes on to say: “The main lesson which the true [market] liberal must learn from the success of the socialists is that it was their courage to be Utopian which gained them the support of the intellectuals and therefore an influence on public opinion which is daily making possible what only recently seemed utterly remote” (Hayek 1949, 432-433.) So, in fact, Hayek and his col- 'l€agues proceeded through the 1950s, 1960s, and 1970s to follow this counsel and repackage market liberalism as a utopia. Rather than propos­ ing mild and incremental reforms, they called for radical new measures to overturn what they saw as the drift towards socialism. And just as the socialist utopia had been grounded in a deep moral commitment to equality, the market liberals rooted their utopia in constant appeals to expanding personal liberty. And lo and behold, Hayek was vindicated; free-market ideas made deep inroads among Western intellectuals.'

The Elements of Utopia

Ever since Thomas More first coined the term, utopian thinking has been linked with the unrealistic starry-eyed idealism of radical and socialist philosophers who, against all evidence, insist on the achievability of what the Oxford English Dictionary (OED) defines as “an impossibly ideal scheme ... a place, state, or condition ideally perfect in respect of politics, laws, customs, and conditions.” In light of the association between utopia and anti-capitalist movements, how does Polanyi jus­ tify attributing an unattainable perfectionism to classical and neoclas­ sical economics? Economics is the discipline, after all, that consistently played a major role in defeating even the tamest of progressive reforms, using its self-confident claims to scientific foundations to accuse move­ ments for social justice of utopianism.

To make his intellectual turnabout even more paradoxical, Polanyi makes Robert Owen the hero of GT. Robert Owen was the early nine­ teenth-century English industrialist turned philanthropist, socialist phi­ losopher, and architect of the first cooperative industrial village (New Lanark, Scotland). He has long been held up as the poster child for nineteenth-century utopianism. Yet Polanyi insists that it is Owen who is the realist, for it is he who recognized that it is both necessary and

Turning the Tables 101

right for government to intervene in the economy. By contrast, Malthus and Ricardo, Polanyi insists, are the true Utopians, notwithstanding the fact that Thomas Carlyle labeled their political economy as the “dismal science” because of its gloomy predictions about future wage levels and the disasters that would inevitably be wrought by overpopulation. A century of political economy’s disciplinary development changed little, in Polanyi’s estimation. He applied the same label of utopianism to von Mises and Hayek as he had to Malthus and Ricardo rather than the communists and socialists that they vilified in Vienna.

To get a deeper understanding of Polanyi’s meaning and motivation here, we turn to the passage that follows right after he first labels the self-regulating market as a “stark Utopia”: “ . . . such an institution [a self-regulating market] could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man and transformed his surroundings into a wil­ derness” (GT, 3). Polanyi is insistent that the free market utopiajs not a harmless fantasy; heTTBlunt ancTgfajphic in~cHaracferizing its conse­ quences as producing a dystopia—“a society characterized'Bydraraan misery, as squalor, oppression, disease, and overcrowding."”^

To understand why and how Polanyi predicts this inevitable slide from utopia to dystopia, it is useful to return to and deconstruct the OED’s characterization of utopianism as an “impossibly ideal scheme for the amelioration or perfection of social conditions.” Parsing this carefully, we can divide its conception of utopia into three distinct parts—it is an “ideal” of social “perfection,” it is a “scheme” to achieve amelioration or perfection, and it is a tragic “impossibility.”

The Utopian Ideal

Free-market fin r>n three assumptions—that pdwer resides exclusively in the state, that political power is a chronic threat to freedoth and commerce, and that the economic sphere does not entaitThenexercKir of'powefritls the dream of eliminating the need for political powef~6r^~vernmenrthatTnakes diese assumptions utopian. ItTs~a dream "irTwhicITgovernance and social order are left exclusively to the putatively noncoercive workings of the self-regulating market (Hirschman 1977). Indeed, it is the absence of political power that they see as the precondition for individual liberties, societal prosperity, and the freest of all possible worlds.

102 THE POWER OF MARKET FUNDAMENTALISM

jPqlaoyii rejects these assumptions and the normative ideal of a world without power. For him, no society is possible without politicaLpower and constraint (GT, 266). He shows historically Tiow government pol- icles“'and-the^xplicit use of compulsion are necessary to construct and maintain markets. But he pushes this analysis to a more profound phil­ osophical level by asking why anybody would think it desirable in the first place to minimize the role of tfiFstate vi^re maximizing reliance on markefiSlf^fegulafiim. His explanation centers on ^s^ciaTnaturali^, ” a foundatiohir tenet of classical political economy and modern market fundamentalism (see Chapter 6).^ocial^naturalis^is a way of viewing the world built on the assumption that the laws governing natural phenom- ena also govern human society. Social naturalism can be distinguisHed from naturalism—^heTneffioHoTogical postulate that, because nature and society exhibit the same kinds of regularities, there should be a unified method applicable to both. Social naturalism, by contrast, insists that society is governed by those natural laws rather than by institutional rules and social rationalities. For social naturalism, society is not “like” the natural world; the social and natural worlds are one and the same and are subiect to the s^me~tawFand ejggefiCiesr-Sociarnaturalism^liceptuainr subordinates society to nature, and society is seen as regulated by natural laws in the same way as falling objects and the evolution of species.

Social naturalism realigns the traditional Enlightenment view of human rationality. It blurs the line between humans and animals by first and foremost defining people first and foremost as animals motivated by the biological instincts to eat and reproduce. Against the rational­ ist belief that political intervention can alleviate social problems, social naturalism makes scarcity, poverty, distress, and famine inexorable. For Malthus, nature necessitates an endless struggle for scarce resources, but when nature is left to its own devices, it creates a perfect balance of sup­ ply and demand. When humans finally abandon the folly and futility of trying to impose their own will over nature, they will find that while not always benign, nature is always a wise governor. “Man” cannot reason with nature because it is nature’s utter indifference to reason that distin­ guishes it from humanity.

The roots of social naturalism can be traced to Joseph Townsend’s apocryphal fable about the struggle for survival between goats and dogs on a Pacific island—two originally sparring species that eventually learned to live in harmony only because there was no political interfer­ ence with the natural condition of scarcity. Polanyi captures the link

Turning the Tables 103

between social naturalism and government policy in memorable prose: “Hobbes had argued the need for a despot because men were like beasts; Townsend insisted that they were actually beasts and that, precisely for that reason . . . [n]o government was needed to maintain this balance; it was restored by the pangs of hunger on the one hand, the scarcity of food on the other” (GT, 119).

Since the human poor are biologically indistinguishable from the goats and the dogs, and thus subject to the same laws of nature, their survival should likewise be left to the wisdom of nature without the Poor Law’s artificial removal of natural scarcity. Society, as fundamentally biolog­ ical, is a self-regulating system that when'untouched by political inter- vehtToirwill tendT6war<Tequilibrium and order: “Essentially, economic societyw^ToundetHnrthegfrm feallfies of Nature; if man disobeyed the laws which ruled that society, the fell executioner would strangle the offspring of the improvident. The laws of a competitive society were put under the sanction of the jungle” (GT, 131).

While talk of social naturalism may sound alien to our contempo­ rary political discourse, it is an essential part of free market utopianism. Without social naturalism, there could be no rhetoric about a self-ad­ justing market regulated by its own natural laws, and about market societies capable of self-governing without a meddlesome government. Social naturalism is also the foundation for the utopian belief in the self-regulitin£.jnarket’s b£jugn.A¥Sterm of incentives that operate freely without the exercise of power. Social naturalism underlies the mar­ ket-state binary with its privileging of the market and its precept rather than insistence that these must be separate and autonomous realms.

While Mirowski and Plehwe (2009) advance a different view than ours about the relation between the classical economists and twentieth-century market fundamentalists, they acknowledge that Hayek, Friedman, and their allies “ . .. did agree that for purposes of public understanding and sloganeering, market society must be treated as a ‘natural’ and inexorable state of humankind” (435, emphasis in original). Hayek and Friedman evoke social naturalism because it is the source of one of the most pow­ erful political weapons of market fundamentalism—the perversity thesis (Hirschman 1991). Founded on social naturalism, the perversity thesis holds that the “normal” or “natural” state of the market is an equilibrium of self-adjustment. The perversity thesis—or the “perverse-effects doc­ trine”—holds that any public policy aiming to change market outcomes, such as prices, wages, or inequality, automatically becomes a noxious

104 THE POWER OF MARKET FUNDAMENTALISM

interference with nature’s equilibrating processes. Much stronger than talk of random “unintended effects,” the perversity thesis makes perverse outcomes inescapable; the very measures intended for good inevitably will leave the world in a worse shape than prevailed before any “reform” had been instituted (Hirschman 1991). We revisit in Chapters 5 and 6 the bat­ tle over the English Poor Laws which were a precursor to struggles over modern welfare benefits waged through the rhetoric of perversity.

Malthus was only the first of a long line to successfully turn the per­ versity doctrine into a full-scale political campaign to remove or pro­ hibit government-initiated regulations, reforms, and interventions. In the 1880s, Herbert Spencer amplified his attacks on an enlarged fran­ chise with the claim that “uninstructed legislators have in past times continually increased human suffering in their endeavors to mitigate it” (Spencer 1940 [1881]). Von Mises reprised the doctrine by articulating the free-market opposition to unemployment benefits. He argued that if benefits provide livelihoods to the jobless, they will have an incen­ tive not to seek employment but rather to comfortably adjust to a new found leisure (Dale 2008, 512). Finally, Milton Friedman perfected one of the most popular uses of the perversity thesis in his claim that setting a minimum wage induces unemployment and drives down all wages: “Minimum wage laws are about as clear a case as one can find of a mea­ sure the effects of which are precisely the opposite of those intended by the men of good will who support it” (Friedman 1962,180). Friedman’s more popular writings show that behind all of the modern bells and whistles of the Chicago School, their policy arguments rely on the same social naturalist-inspired perversity thesis that Malthus elaborated at the end of the eighteenth century.

At the level of ideology, free-market utopianism’s promise of a soci­ ety organized exclusively by the laws of nature eliminates altogether the need for political power to structure or govern human society. In reality, however, the elites who embraced political economy in Mal- thus’s era had no intention of abandoning control over the populace. Their motivation was to eliminate only the protective social policies that interfered with the poor’s full exposure to the labor market. With the exception of the socially protective role of the state, they freely used political power to reinforce the logic of markets. To obfuscate this selective anti-statism, free-market utopianism tells a story about how the market’s natural mechanisms will not only make for economic prosperity, they will also take over the work too important to trust

Turning the Tables 105

to government such as providing social order and protecting individ­ ual liberty, all without exerting power. After all, if the natural and the social world are organized by the same laws of nature, and these laws are always preferable to the potential tyranny of arbitrary political will, then not just the economic but also the governing functions of society would be better served by the market.

For Polanyi, the idea of a society free of power is an impossible deceit; it is based on the false claim that, in contrast to government, markets and economic relationships are free of the exercise of power. It is uto­ pian not merely because of the idea that society did not need political power; rather it was in the conceit that the market, by contrast, is a site free of power. To characterize it as such plainly reveals free-market uto­ pianism’s bias in favor of a definite kind of power.

Utopianism as a Planned Project

Classical political economy staked its appeal not only on the fanciful utopianism of social naturalism’s world without power. It also justified its defense of a laissez-faire economy by telling a story about how the historical development of the market economy in the nineteenth cen­ tury was an entirely natural, spontaneous, and unplanned phenomenon: “Their [economic liberals] whole social philosophy hinges on the idea that laissez-faire was a natural development” (GT, 148). Whereas mar­ kets as places of barter and exchange had long existed as elements of all societies, Polanyi’s well-known argument is that these were historically always embedded within and regulated by the larger system of social relations. Nineteenth-century political economy claimed that the trans­ formation of these isolated local markets into one big, national market economy was the natural result of their innate tendencies to expand. This was seen as the inevitable result of the even more basic instinctive traits of human nature to barter and exchange.

Classical political economy insists that ever-expanding unregulated markets are the natural condition of society, and—^were they left to flourish without interference—the prosperity brought on by self-regu­ lating market economies would be a constant of history. However, a series of corruptions in the form of perverse political and legal interven­ tions blocked this happy outcome. Examples include the efforts of the Tudor monarchy to slow down the enclosure movement and the milder but equally damaging laws restricting the movement of labor. History,

106 THE POWER OF MARKET FUNDAMENTALISM

according to this view, entails an epic battle on the part of social natural­ ists to undo the “collectivist” perversions of political power that inter­ fere with the otherwise spontaneous and natural working of markets. The eventual arrival of laissez-faire and a market economy in the early riihefeehfh century was not an act of politics or law; if vyasjathejLthe belated restoratoh'dEiHe natural. ' The reality is that political economy was a grand and calcidated scheme foFthe state to actively remake contained and regulated mar- Tcets intcy a coordinated self-r^ulating market society. The irony of this^rticular utopian scheme is that it violates the very essence of the social naturalist ideal. Not only were laissez-faire and the free mar­ ket not natural but planned; they were, as we discussed earlier, imple­ mented through political interventions: “ ... laissez-faire economy was the product of deliberate State action” (GT, 147). Reveling the histor- ical planning at the heart of the free-mar^et utopia undermines both itsjp^rnaturalist self-representation and its mantle of spontaneity. It also lays bare oihce agaiiTthe Tiypocritical conceit at its core. The zeal­ otry against the use of state power is selectively conceived and applied. The self-regulating market abhorrs and challenges; when it comes to aiding the poor. For the government to alleviate poverty artificially is to use power in the abuse of nature. But there is no hesitation whatsoever to use powerful instruments of government coercion to create a new legal regime that enforces the logic of markets. Polanyi thus disposes of the fiction that market economies are natural. The market fundamen­ talist world without power lives exclusively in the utopian ideology of social naturalism.

Nor, moreover is political power a onetime exercise in jump-starting a market economy, only to give way to the natural workings of the market once it is nicely humming away. The market was never and can never actually be disembedded.^olitical power is a constitutive element at the hearyof any functioning market; it can no more be removed than cWthe price mechanism. The question is nev^ wFeiFer the ecraomy is'pljlifrcaTly einbedded, rather it is what kinds of political interven­ tions are used and to whose benefit do they operate. Polany argues that despite the utopian ideal’s anti-statist zealotry, the irony is that political power is the necessary mechanism to maintain and creatively adjust the institutional conditions that maintain the appearance of a free-mar- ket: “The introduction of free markets, far from doing away with the

1

Turning the Tables 107

need for control, regulation, and intervention, enormously increased their range. Thus even those who wished most ardently to free the state from all unnecessary duties, and whose whole philosophy demanded the restriction of state activities, could not but entrust the self-same ^ state with the new powers, organs, and instruments required for the establishment of laissez-faire” (GT, 146-147).

While it is political power and legislative coercion that exercises the actual heft in this planning process, the ideational scheme is the force that drives that power. The market is not only politically always embedded; it is always ideationally embedded (as we argue in Chapter 6 below). Ideational embeddedness, helps us understand how major transformations are ideationally-driven. Put slightly differently, ideas have causal powers. Polanyi was far ahead of his time in recognizing, for example, the central role that the new ideas of social science played in the Industrial Revolution. “Social not technical invention was the intellectual mainspring of the Industrial Revolution. The decisive con­ tribution of the natural sciences to engineering was not made until a full century later, when the Industrial Revolution was long over. . . . The triumphs of natural science had been theoretical in the true sense, and could not compare in practical importance with those of the social sciences of the day” (GT, 124).

Then, almost as if anticipating how today’s academics would react, he remarks wryly: “ . . . unbelievable though it may seem to our gener­ ation, the standing of natural science greatly gained by its connection with the humane sciences. The discovery of economics was an astound­ ing revelation which hastened greatly the transformation of society and the establishment of a market system. ... It was thus both just and appropriate than not the natural but the social sciences should rank as the intellectual parents of the mechanical revolution which subjected the powers of nature to man” (GT, 124-125.) Polanyi here is insisting that economic theories and social science models do not represent and generalize already existing economic entities but rather makes markets, economic practices, and indeed entire market societies. Today, there are new theoretical paradigms that follow Polanyi’s path-breaking under­ standing of the causal powers of economic theories, especially the the­ ory of “performativity” associated with the sociologists Michel Gallon and Donald Mackenzie (Gallon 1998; MacKenzie 2006; MacKenzie, Muniesa, and Su, eds. 2007).

108 THE POWER OF MARKET FUNDAMENTALISM

Utopianism as Tragedy

Even if utopian dreams are ultimately unrealizable (if a society is to survive), Polanyi warns us that attempting to achieve the unachievable nonetheless produces dystopian consequences. The horrors of early industrialization included dark Satanic mills, children maimed and dis­ figured from sixteen- to eighteen-hour workdays, and the squalor and filth of early industrial cities. For instance, the misguided dream of eco­ nomic liberals to restore the gold standard after World War I produced a global depression that generated fascism and a second world war. And the last thirty years of market fundamentalism has now produced another dystopian global calamity—a nearly catastrophic financial collapse and a global recession that has thrown millions out of work, and increased hunger and misery in every corner of the globe. But how does Polanyi connect these social tragedies to the utopian project? His answer is not simply that the “best laid plans” will always have unex­ pected and unintended consequences. It is a more specific argument that the particular utopian ideal of a self-regulating market society cre­ ates a dystopiamri^marerrhe key link is his conception oP^fictitious

Polanyi argues that to create a self-regulating market economy, labor, land, and money must all be subjected to market mechanisms. He calls these the nucleus of a culture “formed by human beings, their natu­ ral surroundings, and productive organizations” (GT, 170). Labor and land are “no other than the human beings themselves of which every society consists and the natural surroundings in which it exists.” Since commodities are things that are produced to be bought and sold on the market, none of these three vital social entities are true commodities. To include these fictitious commodities in the market mechanism means to^ubdrdmate the substance of society itself pDjhe laws of the market. Polanyi ar^ei that this theoretical sleight of hand places human society at risk as it threatens to annihilate the human relationships on which soqety rests.

TStanjomentifies the noncontractual foundations of contract as nec­ essary for both markets and for human communities to thrive. This is because the humans who are expected to participate in markets are incapable of performing any labor without a life-enhancing social envi­ ronment and access to social and public goods such as clean air and water, safe working conditions, education, and medical care. In its rush

Turning the Tables 109

to transform labor into a true commodity, however, market fundamen­ talism systematically undermines these noncontractual foundations on which human society depends. The tragedy of this is most obvious in the case of turning human beings into labor, which Polanyi says is “only another name for a human activity which goes with life itself” (GT, 75).

In the early years of England’s Industrial Revolution, men, women, and children were for the first time treated as commodities subject only to buying and selling on markets. To become commodities, they had to be subjected to the “free labor contract,” which required they be ripped away from their prior attachments to families, cultures, and communi­ ties. In discussing the process of early marketization in England, Polanyi writes: “[Marketization] was best served by the application of the prin­ ciple of freedom of contract. In practice this meant that the noncontrac­ tual organizations of kinship, neighborhood, profession, and creed were to be liquidated since they claimed the allegiance of the individual and thus restricted his freedom. To represent this principle as one of nonin­ terference, as economic liberals are wont to do, was merely the expres­ sion of an ingrained prejudice in favor of a definite kind of interference, namely, such as would destroy noncontractual relations between indi­ viduals and prevent their spontaneous reformation” (GT, 171).

When rural industry in southern England collapsed in the eighteenth century, thousands of displaced workers were expected to simply relo­ cate to another village, another city, another region, or even another continent to find work. Some economists argue that mass displacement brought with it higher wages, thus making it uniformly advantageous for the working class. Polanyi responds to this dubious claim by illus­ trating in grim detail that social livelihoods cannot be reduced to mate­ rial quantification. The Industrial Reyolution^was ajGultural catastrophe that stripped people of the social and cultural supports on which they relii^d: “The human degradation of the laboring classes under early capi­ talism was the result of a social catastrophe not measurable in economic terms” (GT, 302). Indeed, he frequently makes the analogy between this early English cultural catastrophe and the devastating consequences on indigenous communities during the European colonization of Africa and Asia: “The catastrophe of the native community is a direct result of the rapid and violent disruption of the basic institutions of the victim (whether force is used in the process or not does not seem altogether relevant). These institutions are disrupted by the very fact that a market economy is forced upon an entirely differently organized community;

110 THE POWER OF MARKET FUNDAMENTALISM

labor and land are made into commodities, which, again, is only a short formula for the liquidation of every and any cultural institution in an organic society” (GT, 167).

But even under less extreme circumstances, treatog labor as a pure commodity has tragic consequences. It strips people of protection from the periodic^outs of unemployment that are an inevitable consequence of the down phase of the business cycle. It leaves people hungry and unable to feed their families while they wait for employers to once again be interested in their services. And workers who are disabled or ill are simply discarded like any other defective commodity.

Over the last thirty years of market fundamentalism in the United States, the same undermining of noncontractualized social life has occurred. Under the influence of Milton Friedman, a conscious policy of tax cutting has been a principle method of attack (Block 2009). This strategy has been given a name—“starving the beast.” It is so dubbed because, as tax cuts inexorably increase government deficits, campaigns are suddenly mobilized to balance budgets by waging ideological com­ bat against “excess spending.” But once again, note the selectivity of the anti-statism: the label of excess spending is applied only to social expen­ ditures that support working and middle class people. In the U.S., where the individual states provide many of the critically important protections and public goods, this strategy has proved devastatingly effective. Even after the election of Barack Obama indicated a shift in national mood, state governments—constitutionally required to balance budgets—have engaged in round after round of intense budgetary austerity (Somers 2008,93-95).

From a Polanyian perspective, the tragic consequences of financial commodification were also predictable. Although it was the financial elite and their political accomplices that pushed the economy over the cliff, the Great Recession took its worst toll on the poor, the middle, and the working classes as unemployment soared. Among the rich Western countries, U.S. residents bear especially painful consequences, as state governments one after the other have eliminated or drastically reduced what little is left of the nation’s social safety net. Europeans, we are reminded, do not lose their health care when they lose their jobs: “[Americans] find themselves with essentially no support once their triv­ ial unemployment check has fallen off. We [Americans] have nothing underneath. When Americans lose their jobs, they fall into the abyss. That does not happen in other advanced countries, it does not happen, I want to say, in civilized countries” (Krugman 2009a).

Turning the Tables 111

This is free-market utopianism’s tragic denouement. When social in­ stitutions and public goods are defunded by governments, health, ed­ ucation, and personal safety become accessible only to those who can pay. The result is the “liquidation” of a community’s noncontractual foundations. The poor and minorities have long been subject to this kind of strategic defunding of social support. Somers (2008, ch.2) recounts the example of New Orleans in the aftermath of Hurricane Katrina, a recent tragic demonstration of this process. She conceptualizes this development as the contractualization of citizenship. Citizenship rep­ resents a bundle of rights and obligations, especially the rights to those noncontractual supports necessary for full and equal social inclusion in civil society (Marshall 1964 [1950]). These rights are the legal glue that binds civil society’s noncontractual foundations to its people. They are the necessary elements for the essential freedoms and “capabilities” (Sen 1999) that people require to live as equal members of society. For all but the wealthy, government-provided rights to protection against illness, for access to education and literacy, for freedom from hunger and want are the only hope for any semblance of true equality. When these rights are contractualized, they become subject to the rules of quid pro quo market exchange, rules that demand something of equivalent value to be exchanged for full citizenship rights. They are thus no longer rights but conditional privileges only available to those who have something to exchange that the market deems of equivalent value, usually money or labor (Somers 2008, ch.2).

Hurricane Katrina shows us what happens to those who have noth­ ing of sufficient market value to exchange for what are no longer rights but now privileges. The indifferent response to the social catastrophe of government at all levels shows what happens to those communities that lack the kind of resources that qualify as worthy of contractual exchange. Quite simply, when rights to public goods dissolve, so too do the rights to inclusion. People are literally cut loose from membership in the broader civil society. Once excluded, they no longer are granted the recognition by others as moral equals; they become superfluous and disposable. As we watched the tragedy of Hurricane Katrina unfold over the course of days, weeks, now years, the status of the largely Afri­ can-American impoverished population of New Orleans as a superfluous and disposable people was painfully and shamefully exhibited (Adams 2013). No social tableau has better publicized the tragic consequences of commodifying human beings and contractualizing their noncontrac­ tual relationship—especially that between government and the people.

112 THE POWER OF MARKET FUNDAMENTALISM

Hurricane Katrina shows us in extremis what thirty years of free-market utopianism looks like; once having been witnessed, no one can claim ignorance of its inexorably tragic endings (Somers 2008, ch.2).

Polanyi was equally visionary with respect to the second of his ficti­ tious commodities, as he anticipated the dangers that exist with the full commodification of land and nature. For nature to be commodified into property, human habitats must be carved up into parcels; if there are profits to be earned, some of these parcels will be subjected to suffering the most extreme environmental degradation. When ayiculture ceases to be a way of life and-becomes, simply a profit-making^ activity.,,,enti^ p^ula^tipns willJSiiid thenj^elyes at risk of staryatiqn because market sig- nals mean that land will be exploited for raising industrial raw materials rather rban fnnk-Today. the scale at which nature is being commodifiS has expanded to such a degree that planetary annihilation through rad­ ical climate change seems almost inevitable.

Finally, Polanyi’s designation of money as the third fictitious commod­ ity helps us to make sense of the financial market meltdown of 2007— 2008. When the production of money and credit is left entirely to the bankinglystem, it is practically guaranteed that banks and other finan­ cial institutions will recklessly multiply the supply of credit in'searclrof higher and higher profits, putting the economy at risk of a devastating crash when investors suddenly lose confidence. This is whardrove the severe boom and bust cycles of nineteenth-century market societies and ultimately led to strong central banks and regulations designed to place limits on the ability of financial intermediaries to carry out unsustain­ able expansions of the supply of credit.

During the current reign of market fundamentalism in the United States, most of these restraints on the ability of financial intermediar­ ies to expand the supply of credit have been systematically dismantled. Seeing the possibility of previously unimaginable profits, financial actors used the efficient markets hypothesis to create a finance-knows-best reg­ ulatory climate. This included the dramatic expansion of new financial intermediaries, including hedge funds and private equity funds, largely exempted from any regulatory oversight. Under the eighteen-year reign of Alan Greenspan at the Federal Reserve, the government systemati­ cally relaxed the rules that allowed the largest financial institutions to hold substantial liabilities in “off balance sheet entities” and to expand exponentially their ratio of debts to assets. The predictable consequence

Turning the Tables 113

was that when the inevitable rush to safety by investors finally came, virtually the entire financial system faced insolvency. Only government lending at a previously unimagined level averted a complete financial collapse (Skidelsky 2009; Wessel 2009).

In sum, free-market utopianism’s effort to govern society by the laws of supply and demand inevitably subverts necessary forms of social pro­ tection and embeddedness. Precisely for this reason, in the course of the nineteenth century, institutions emerged to protecfsociety from the dangers of treating nature, labor, and money as if thejy were actually true commoditi^. Criticr"or~IreeTmarket utopianism understood that government is the only institution capable of regulating the supply and demand of these fictitious commodities. Policies were set in place that allowed governments to manage shifting demands for employees by providing relief in periods of unemployment, by educating and training future workers, and by influencing migration flows.^ With respect to land and our natural environment, governments maintained continuity of food production by insulating farmers from the pressures of fluctu­ ating harvests and volatile prices, and they regulated land use to avert environmental destruction. And the rise of central banking was a delib­ erate effort to manage the supply of money and credit to moderate the cycles of boom and bust.

In the late twentieth century, free-market utopianism undermined the government’s ability to manage and protect labor, land, and money. By playing off the deep fears of government-induced unfreedom, it has once again blinded us to the freedoms and human capabilities that only government can ensure. As we discuss in Chapter 8, recognizing what Polanyi calls the reality of society is our hope for societal repair.