I wonder if one unanticipated outcome of the financial crisis and the rescue programs being implemented in the US, Britain* and elsewhere is the (perhaps temporary) victory of Economic Sociology. Ok, what could I mean by that? If Economic Sociology makes one claim, it’s Granovetter 1985 – economic action is embedded in social structure. But if Econ Soc makes two claims, the second is that the market economy has always been embedded in the social and political world, and only became disembedded ideologically, not practically (Polanyi 1944, 1947).
I think recent events have really made that second argument seem almost obvious. As this excellent op-ed points out, the debate is no longer between efficiency (the market) and equality (redistributive European-style socialism), but rather about the central claim of the neoliberal paradigm: that markets are self-regulating, functioning autonomously from the state. Key paragraphs:
Apologists for neo-liberalism assume not only that states should be run like companies, but also that, as far as possible, they should not intervene in the economy. The market, they insist, regulates itself.
But, more than 50 years ago, the Nobel laureate Paul Samuelson contradicted this idealisation of markets in graphic terms: absolute freedom for the market will lead to Rockefeller’s dog getting the milk that a poor child needs for healthy development, not because of market failure, but because “goods are placed in the hands of those who pay the most for them”.
This distributional quandary lies at the heart of the capitalist system, which is one of never-ending competition fuelled by the drive to maximise profits. In such a world, there is no room for a social conscience.
In fact, the market economy can function only if the state does intervene. The US financial crisis demonstrates what happens when markets are given free rein. Rather than regulate themselves, market players destroy themselves, however much they might be marvelled at as golden calves.
Indeed, investment bankers transformed stock markets into a surreal circus. For the most part, they resembled high-wire artists juggling borrowed money without a safety net. They threatened to crash — until the state stepped in. In Fellini’s film La Strada, the circus artists lived on the margins of society; in the “Wall Street Circus”, they lived like gods, making millions.
That’s over for a while. Wall Street has collapsed. The present crisis, the fall of Wall Street, is to neo-liberalism what the fall of the Berlin Wall in 1989 was to communism.
Thoughts? Should we declare victory, and party while the economy goes down in flames? Or at least say I told you so? And what does this mean for the future of economic sociology?
* As John Quiggin at Crooked Timber notes, “The British government has abandoned proposals for non-voting preference shares and is moving towards full-scale nationalisation of the banking sector.” The US, it seems may be soon to follow.