In his book “The Great Transformation,” Karl Polanyi (2001, p. 57) argues that “a market economy can function only in a market society.” Essentially, this means that the market economy introduces changes to the social sphere and thus can not be viewed in separation from society. One of the aspects of the social change which requires closer inspection is the separation of the political and economic spheres.
Separation of Society
Before we proceed with determining the basis for his allegation that the national economy demands the institutional separation of the political and economic segment, we need to first locate his understanding of the market economy and, more importantly, market society.
Polanyi’s understanding of the market is consistent with the common scholarly definition: it is a set of rules which regulate the process of participating in an exchange of goods and services. The market economy, then, is “an economic system controlled, regulated, and directed by markets alone” (Polanyi, 2001, p. 68). However, while the market relations in a market economy are usually perceived as natural and universal, Polanyi challenges this assumption by exposing the underlying obligations resulting from it. To illustrate the seemingly voluntary nature of the market economy, he uses the example of Enclosure, or, rather, its aftermath. This process, which the author calls “revolution of the rich against the poor” (Polanyi, 2001, p. 35), is essentially a legally-justified land grab, the process involved market relations on initially uneven terms: the poor were theoretically given the same opportunities as the rich, which did not make any sense considering the resources at the disposal of both parties. However, this is not Polanyi’s chief concern – instead, it is defined to further clarify his views on the social role of the market.
Another important concept, which is arguably more relevant to the discussion, is market society. For the author, once the market economy is introduced to the society, it gradually becomes changed towards a market-oriented one. In other words, it starts to adjust to the principles dictated by the market. Notably, the process is not a natural one: the Enclosure (according to Polanyi – the onset of the market economy) is both initiated and sustained by the power and authority of the Government, with major resistance from the commons. The dependence of market society on the market economy for Polanyi is two-directional: the market relations reshape the environment – via destruction, as, according to the author, “the fabric of society was being disrupted” (Polanyi, 2001, p. 35) but later relies on the new entity and depends on it to continue to exist. Again, the process is not fully self-sustainable, since it requires enforcement. Nevertheless, the benefits of it are also visible and at least for some participants, highly motivating. For instance, the industrial revolution exemplifies the systematic and rational nature of the ongoing change characteristic of the market economy: among other things, such systematic approach is responsible for the profitable trade and plentiful production which ensued once the market society is established. On the other hand, Polanyi argues that such plenty has a double-sided effect since it relies heavily on a massive resource base – in this case, the necessity for expensive equipment.
However, production is not the only manifestation of the commodity which is necessary for the creation of a market society. In fact, Polanyi’s concept demands full commodification, including such important aspects as land and labor (Polanyi, 2001). When taken one step further, such view assumes the rethinking of both one’s activities and environment as being a commodity rather than an intrinsic component or manifestation of life. In Polanyi’s view, the inclusion of labor and land in market relations creates a setting where both the social unit (the initiator of labor, or simply an individual) and the environment (the land, or “nature”) become the part of the economy (Polanyi, 2001). Considering the two comprise the entire fabric of the society, the market economy becomes dominant over every aspect of life.
Such setup allows Polanyi to perceive a market society as the one whose social side is determined by the economy rather than accompanied by it. This means that economy is socially embedded in non-economic institutions – it underlies the decisions, actions, and relations of the society rather than complements them. In the alternative scenario (detailed in the next section), the market is not absent from society but plays a secondary role, serving as a support for the social structure rather than defining it.
Interestingly, while social embeddedness necessarily becomes more prominent in the course of establishment of a market economy, the political sphere becomes gradually separated from the economic one. While it may sound unintuitive, the former actually leads to the latter. As the economy becomes embedded in society, it requires less external support. Thus, it distances itself from the political system, since the two are in control of the same entity (society) but use different means to produce the same result. The example chosen by Polanyi to illustrate this describes the post-Enclosure society, where “the government of the Crown gave place to government by a class – the class which led in industrial and commercial progress“ (Polanyi, 2001, p. 38). In other words, the political hierarchy is redefined from the viewpoint of gain rather any other previously valued characteristic. Naturally, as the economy becomes more self-regulating, the political sphere takes a more abstract, external approach. Over time, it becomes treated as a formal institution rather than an intrinsic quality of the reality, since unlike economy it does not produce tangible reward (or, at least, does it on a much smaller scale than the former).
Alternative Principle of Economic Organization
Polanyi’s stance regarding the undesirable consequences of market society is clear. Thus, as one of the possible alternatives, we can look at the society which he chose to exemplify the effect of the introduction of the market economy: the Commons prior to the Enclosure. The British society in the early 18th century was governed by somewhat different principles. The market relations, the commodities, and property were present in it, but differed to some extent from their contemporary definitions, with the latter arguably being the biggest difference. For example, instead of being in full control of the owner, the land utilized by the community through a complex and multi-layered set of rights. These rights were mostly issued by the landlord but were not directly influenced by the matter of financial gain, as is usually the case in the market society according to Polanyi. Instead, the political, social, and environmental aspects were taken into consideration. The compliance with the rights was maintained by both sides, with regular checks issued by the users and owners. The multi-faceted nature of rights is partially explained by the involvement of several interested parties, including the governing body, which is important for our argument.
At this point, it is important to clarify the role of market in such society. The process of exchange of goods and services was certainly present in England prior to the Enclosure – in fact, no society could “live for any length of time unless it possessed an economy of some sort” (Polanyi, 2001, p. 43). However, unlike the society with an established market economy, the exchange does not play a dominant role in it – rather, it supports the functioning of the community alongside other systems, including the political one. As a result, the government takes part in establishing social norms (including rights mentioned above) but does not monopolize its influence. Thus, the first notable difference is the inclusive nature of governance under such conditions. In other words, the English society did not see the separation of economic and political spheres prior to the Enclosure.
Admittedly, the complexity and multitude of stakeholders involved in the governing process complicate matters significantly. In our example, the rules which defined the use of commodities were complex to the point where they were sometimes contradictory. At the same time, the diversity of stakeholders leads to diversity in decisions, while in the market society, gain becomes the leading goal. Certainly, in the pre-industrial 18th century England (as well as in the majority of primitive societies highlighted by the author) another motivation can be isolated as a leading one: that of survival of community. Nevertheless, the means of reaching this goal do always focus on efficiency (which would undermine the humane underlining of social functioning, among other things) and consider multiple factors, including sustainability and impact on environment. This latter point is obviously limited by the technological and scientific basis of the era but is still visible.
The efficiency of production is another difference which enjoys attention from both the supporters and critics of Polanyi’s work. The market economy and the focus on individual gain forced the people to maximize as well as optimize production. The agricultural segment and the wool industry are just two examples: after the onset of “marketization” of society, the output in both fields has increased dramatically. However, the same narrow focus has led to some adverse effects. In agriculture, for instance, the maximization was done by increasing the dynamics of the operations, which in the long run has led to the exhaustion and erosion of soil. While this can be downplayed to some extent by implying that such consequences are avoidable now and thus can be prevented, the countermeasures would actually violate the principles of market economy. In other words, the introduction of more sustainable agricultural practices should be viewed as a deviation from the principles of market society rather than its evolution. In fact, according to Polanyi, such proceedings are inevitable, as the existence of the market economy in its pure form “would result in the demolition of society” (Polanyi, 2001, p. 73).
Next, social and cultural norms would be different in such societies. This becomes evident once we examine the changes brought by the Enclosure. While the law was granting the nobles the right to enforce their right for a sole ownership of the land, a theoretically legal process was regarded as inhumane and defying the long-established tradition by the folk. For the people, as well as for the author, the enforcement looked more as though “lords and nobles were upsetting the social order, breaking down ancient law and custom, sometimes by means of violence, often by pressure and intimidation” (Polanyi, 2001, p. 35). Again, while it is viewed by some historians as a by-product of the time, Polanyi argues that such proceedings are inevitable regardless of the cultural level or the fundamental governing principles. In essence, the same diversity which is responsible for the overall integrity of the production techniques, warrants that the market relations do not deviate significantly from the acceptable level. Essentially, the rights which existed in the pre-marketized England were conceived with attention to intangibles such as kindness and humanity. While it certainly undermined profitability and, in some cases, sustainability, at least in the short run, it also was responsible for the creation of what is now perceived as established social norms. In a theoretical “pure” market society, such reactions would either be absent from the onset or gradually subside as people would get accustomed to them. Nevertheless, such society would differ dramatically in its fundamental characteristics from the ones we are accustomed to.
The Role of State
Finally, since such society would not be characterized by the separation of the economic and political spheres, the role of the government would be significantly different. However, its influence takes two opposite forms. On the one hand, the mercantilism was the reason for the emergence of a self-regulating market. In simpler terms, the government was responsible for the onset of the new phenomenon in the first place. This is somewhat paradoxical since we now know that one of the consequences is the loss of its share in the social influence. On the other hand, the state later made an attempt to minimize the impact of the newly emerging trend by “employing the power of the central government to relieve the victims of the transformation, and attempting to canalize the process of change so as to make its course less devastating” (Polanyi, 2001, p. 38). This fact confirms Polanyi’s assertion that the influence of the self-regulating market economy was undesirable even for the entity which triggered it. Besides, it suggests that the consequences of this process were poorly understood and at the same time significant enough to be resistant to the more or less organized attempts of control.
Conclusion
According to Polanyi, the concept of market economy possesses a set of qualities which distinguish it from other market systems occurring in human societies. The first one is its dominant role in multiple spheres of human life (in contrast to supporting secondary role of other market relations). The second is its self-regulating nature. Combined, these two characteristics create a social construct which leaves immediate and direct impact on the social aspects of life. The latter creates a situation where the social norms are defined by the commodification of labor and land, monetary gain, and profitability. The other spheres of influence, e.g. the political governance, are withdrawn on the secondary plane and, over time, lose their power completely. Interestingly, according to Polanyi, switching to the market economy is not a natural process, which means that it requires the participation of the state on the initial stage. Thus, the authority is responsible for the creation of market economy but loses its share of decision-making power. The resulting society termed “market society” by Polanyi, is both the direct consequence and the necessary environment for the market economy to thrive. In other words, a market economy is only possible in a market society.
Reference
Polanyi, K. (2001). The great transformation. Boston, MA: Beacon Press.