“The Power of Market Fundamentalism”: A Q&A with Fred Block and Peggy Somers

For thirty years, Fred Block and Peggy Somers have been writing about the ideas of Karl Polanyi. In part because of their efforts, Polanyi has become a central theoretical touchstone for economic sociology. In their new book, The Power of Market Fundamentalism: Karl Polanyi’s Critique, Block and Somers collect some of their most influential articles alongside several new chapters exploring Polanyi’s understanding of the political power of ideas, and the ethical importance of recognizing “the reality of society.” Below is the full version of an email interview I conducted with Fred and Peggy; a condensed version will be published in Accounts, the newsletter of the Economic Sociology Section of ASA.*

Q. Let’s start at the very beginning. How did you first come into contact with Polanyi’s work? What did it mean to you at the time?

A. We both read The Great Transformation initially in the 1960’s and we saw Polanyi’s overall political and intellectual sensibility fitting with the kind of humanistic Marxism that was embraced by our part of the New Left. The book made a deep impression and as the relentless rise of Thatcherism and Reaganism began to demean the image of New Deal and Great Society movements and social programs, and the 1960s more generally, we kept coming back to it as we sought to make sense of the political defeat of those earlier movements.

The Great Transformation also resonated as a critical counterpart to Marx’s story of England’s transition from a pre-industrial agrarian economy to the rise of factory production. In the 1970s and 80s, as interest in Marx retreated, many social scientists turned away from political economy altogether and focused instead on the state. In Polanyi we found a home that allowed us to retain the critique of what we call (adapting Polanyi) free-market utopianism, but from a perspective that made the state and social relations the constitutive elements of all market economies. Polanyi thus provided us with the foundations of a political economy that foregrounded politics and culture without any retreat from the centrality of the economy.

Q. Your first joint publication on Polanyi, reprinted in revised form here as Chapter 2, came out 30 years ago. How has your understanding of Polanyi evolved over that time? What do you think is the most important new thing you learned in the writing of this volume?

A. That piece originally explored the Marxist elements in Polanyi’s intellectual project, but we gradually began to appreciate the ways in which Polanyi had in the 1940s grasped the limitations of Marxism. We understand him now as seeking to build a critique of political economy on a different and sounder foundation. We think the key to that new foundation is a deep commitment to protecting and expanding democratic governance to all of society, including especially the economy, to include an enlarged conception of freedom and a commitment to socio-economic rights—the outlines of which Polanyi gives us a vision of in the last chapter of The Great Transformation.

Keep in mind also that it has been during these last thirty years that the very same market fundamentalism that Polanyi thought had been killed off decisively returned like a Phoenix from the ashes. So while Polanyi was an inspiring genius, clearly he was no great shakes as a prophet. Thinking about just how forceful has been the rise of neoliberalism, however, brought us to appreciate in much greater depth Polanyi’s contribution to analyzing the power of ideas as makers and shapers of markets and economic developments, especially those ideas such as classical political economy that we identify as having what we call extraordinary “epistemic privilege.” In Chapter Six, for example, we discuss how the “perversity thesis” was the main causal mechanism that even made conceivable “ending welfare as we knew it,” eventually culminating in the 1996 welfare reform bill and a radical restructuring of the labor market. Our concept of ideational embeddedness is a product of this new appreciation that Polanyi was as much a cultural theorist of knowledge as he was a political economist.

Q. The first chapter of the book is a fantastic overview of Polanyi’s central theoretical ideas. Provocatively, you title this chapter “Karl Polanyi and the Power of Ideas.” I think for many readers, this might come as a bit of a surprise. Polanyi’s reputation is as a theorist of economics and politics – of the formal and substantive economy, the double-movement, the four economic modes (reciprocity, redistribution, householding, and exchange), and empirically his fame was made in terms of explaining reactions to economic crises in the 20th century. Why do you put ideas at the center of your explanation of Polanyi’s work? What does Polanyi have to teach sociologists and political scientists about “the power of ideas”?

A. Thank you for both the comment and the question. One of the least appreciated aspects of The Great Transformation is the pivotal status that Polanyi gives to Chapter 10, “Political Economy and the Discovery of Society.” He situates the chapter at the transition from the historical anthropology of the “Rise of Market Economy” (“Satanic Mill”), to the subsequent double movements for “Self-Protection of Society” and the sociological account of the global market’s subsequent descent into world conflagration. Polanyi demonstrates vividly how that dynamism was propelled by the utopian resolve to achieve a self-regulating market, something previously alien to the polity-centric mind. He reveals how the scheme to create a societal entity that could “self-activate” and “self-regulate” independently of the state depended entirely on a body of ideas—the revolutionary new social ontology of social naturalism–which began in earnest not with the liberalisms of Hobbes, Locke or even Smith, but with the new political economy of Malthus, Ricardo, and the previously unknown Joseph Townsend. The political project was to liberate the economy from the state—and its damnable system of relief that hindered the delivery of a hungry labor force to demanding capitalists. Such a transformational aspiration would have been inconceivable without social naturalism, which turned tradition upside down by displacing rationality and morality as the essence of human agency, and imposed biology and biological instincts in their place. In tandem with this great micro achievement, at the macro level the new naturalistic imaginary collapsed the regularities of the social and political order into the brute realities of the “laws of nature,” making scarcity the virtuous disciplinary necessity upon which rested the very possibility of a willing self-initiating productive workforce. Polanyi’s great revelation here is that “economic society was founded on the grim realities of Nature…the laws of a competitive society were put under the sanction of the jungle” (GT, p. 131).

Polanyi gives us more than a few hints that he considers ideas to be driving forces in his analysis. Thus, for example, in his précis of The Great Transformation’s methodological logic, Polanyi writes “to comprehend German fascism, we must revert to Ricardian England” (p. 32). Note that while he is clearly going to address the rise of the market economy and the industrial revolution, it is the ideational system of Ricardo’s (and Malthus’) political economy that he implies is the dominant characteristic of the era and the force that catapulted history toward fascism. His equally memorable contrarianism that—pace conventional wisdom–the movement to protect society was spontaneous, while “laissez faire was planned,” is another clear instance of the pivotal role in driving forward the utopian venture that Polanyi gives to political economy’s intellectual apparatus, both its social naturalist self-representation and the mantle of spontaneity overlaying its actual instrumentalism. Polanyi is thus unequivocal in attributing to the new political economy and its naturalistic social ontology the power to have propelled forward toward a market society. Of course we’re not suggesting that he believed all ideas could transform economic and social policies, but the significance he gives to those rare ideas with epistemic privilege justifies our concept of ideational embeddedness.

Polanyi is perhaps most famous for contending that throughout most of history before the 19th century the “economy was embedded in social relations,” including politics and law, communities and civil societies. The concept of ideational embeddedness, which gives ideational systems the same capacity to embed markets as those more familiar forms of government regulations and legal restraints, is our way of recognizing Polanyi as a great theorist of the power of ideas. Today, there are new theoretical paradigms that also foreground the causal powers of economic theories to “make markets,” especially the theory of “performativity” associated with the sociologists Michel Callon and Donald Mackenzie. Yet Polanyi was far ahead of his time in arguing that economic theories and social science models do not follow from and merely reflect already existing economic and social phenomena; rather, they can actually govern the shape of markets, economic practices, and indeed entire market societies: “Social not technical invention was the intellectual mainspring of the industrial revolution…The discovery of economics was an astounding revelation which hastened greatly the transformation of society and the establishment of a market system” (p. 124).

Q. What would you most like people to take away from the book? What should we economic sociologists do differently than we are now if we take Polanyi seriously?

A. It is hard to narrow it down to one thing, but we would highlight two themes. The first is the importance of what we’ve already discussed as social naturalism, which has infected the entire tradition of mainstream economics with a view of markets as quasi-natural pre-political entities that are self-equilibrating. We see the effects in Alan Greenspan’s famous confession that his ideology led him to imagine that giant financial institutions would regulate their own behavior and avoid taking on risks that could produce a global financial collapse. Economic sociologists have worked to challenge this view and to understand markets as social institutions that routinely generate perverse and dangerous incentives. But social naturalism is so deeply rooted in Anglo-American culture that even well-meaning analysts can slide back into this way of thinking, even though few if any would be willing or able to identify it as such. Sophisticated social scientists like to believe that old ideas are not taken seriously past a certain sell-by date and thus they underestimate the enduring influence of social naturalism on contemporary political sensibilities and debates over public policy. Yet the appeal of an efficient and unrestrained economy existing in its “natural” untampered with condition is what animates not only the Tea Party movement today but also a large proportion of young people attracted to the libertarianism. None of this would be possible without the ideational strength of social naturalism.

Second, we’d like to impress upon readers the implication of social naturalism for the widespread conviction that the last three decades can be best understood as a period of “deregulation.” One of Polanyi’s most significant arguments is that market self-regulation is a “stark utopia” that can never be realized. It is institutions and government policies that are the constitutive elements of markets, and it is toward them that we need to look to understand prevailing economic realities. Today, many people mistakenly believe that markets actually threw off the constraints of government regulations, and that it is this that explains our current economic predicament—from grotesque inequality to seemingly permanently high levels of unemployment. Taking Polanyi seriously means accepting that there’s no such thing as a “free” market, rejecting the illusion of a “deregulated” economy, and instead recognizing that it has instead been “reregulated,” this time by rules and policies that are simply different from those that prevailed during the New Deal and Great Society decades. Although compromised by racism, those older regulations laid the groundwork for a flourishing middle class, mitigated a level of inequality that looks positively minimal compared to the present one, and established protections for the poor and for minorities that today exist only as shadows of themselves. It is reregulation that has made possible the massive redistribution of almost unimaginable wealth and public resources away from the poor and middle classes to tiny economic elite. The implications for progressive politics are critically important: We need to focus resolutely on those upwardly redistributive government policies and not be distracted by talk of deregulation and the illusion of free markets.

Q. The Power of Market Fundamentalism is, in part, a call for a renewed appreciation of Polanyi and further engagement with his work. Unsurprisingly, the book is very glowing in its praise of his insights. That said, you note two places where Polanyi’s explanations or predictions failed: first, in his historical understanding of the Speenhamland disaster, and second, in his prediction that market fundamentalism’s credibility was forever shot. Are there other things you think that Polanyi got wrong? What other insights from the past few decades should we add to our Polanyian toolkit, beyond Karl’s own ideas?

A. We tend to agree with those who have argued that embeddedness is primarily useful as a heuristic concept by helping us to see that markets are always embedded within particular political and ideational regimes. But it hasn’t proven to be that useful as an analytic tool to compare the operations of different kinds of markets. For that reason, we are drawn to Viviana Zelizer’s “relational work” perspective (see the special issue of Politics & Society, June 2012) because it provides an empirically powerful alternative to social naturalism. Zelizer’s approach focuses our attention on the meanings that actors give to particular exchanges, and that makes it substantially harder to reify markets. What we would like to see is ethnographic work that compares how markets are experienced in different settings with different sets of rules. Is there a difference, for example, in how fast food work is experienced in one labor market where the minimum wage is $7.50 an hour and another where it is $15.00 an hour? Or do women experience surrogacy contracts or egg donation differently in one locality where regulation is minimal and others where the transaction is subject to one or another kind of regulation?

Q. Polanyi has certainly received some attention in recent years, both academically and in the broader political debates. That said, the current big P-name on the intellectual circuit is not Polanyi, but rather Thomas Piketty. I was wondering if there wasn’t something in Piketty’s analysis that troubles the Polanyian interpretation of the last two centuries. Specifically, Piketty’s argument that the past 30 years are a return to the “normal” process of growing inequality and concentration of wealth that has been present for most of capitalism’s history seems to leave little room for an analysis that privileges the role of ideas. Following (at least a certain reading of) Piketty, the past 30 years have seen a return to market fundamentalist policies because those policies benefit the rich, and because the rich have managed to regain their usual place as the puppet-masters of the state, not because of the particular potency of market fundamentalist ideas or the efficacy of particular intellectual entrepreneurs. Do you see conflicts between Piketty’s historical account of the past decades and Polanyi’s? More generally, what response does Polanyi offer to economistic arguments (perhaps in the vulgar Marxist vein, or the more contemporary Piketty-ish one) that reject a strong role for ideas in shaping long-term historical trends?

A. Yes, there are tensions, especially with the way that Piketty talks about the epoch of reduced inequality between World War I and 1970. He attributes this mostly to the disruption of two world wars, and he never credits the pressures exerted by socialist, communist, and trade union activists who forced elites to make very dramatic concessions. And, following Polanyi, we think that both world wars grew out of the deepening class conflicts within the major European powers, so war cannot be disconnected from popular mobilization around issues of inequality.

However, there are also aspects of Piketty’s argument that fit well with Polanyi. His proposed solution—a global wealth tax—reflects a Polanyian understanding of how markets can be brought under control. It requires an expansion of state capacities through global cooperation to identify and measure private wealth holdings and then to impose taxation that cannot be escaped by shifting jurisdictions. And this is only likely to occur through democratic pressures from below that break apart the existing cozy relationships between political and economic elites. This fits with Polanyi’s understanding of socialism as the effective subordination of markets to democratic politics.

Q. As noted above, one of Polanyi’s seeming failures was the failure to predict the return of market fundamentalism. You argue, especially in chapter 6, that the recent debates about poverty and welfare have echoed the exact arguments of the early 19th century. That said, there have been many changes in the intellectual apparatus used to promote market fundamentalism and the “perversity thesis” (the argument that government assistance, perversely, creates the poverty it is designed to alleviate) – from the rise of economics as a mathematical discipline in the post-WWII era, to the emergence of think tanks as important mediators of the role of ideas in policymaking. What important differences, if any, do you see between modern market fundamentalism and the older versions that Polanyi so optimistically believed to be defeated?

A. Before addressing differences, since most social scientists are skeptical that effective ideas can actually be as transhistorical as we claim the perversity thesis to have been in making the 1996 welfare reform act, we actually want first to re-emphasize its extraordinary continuities. As you know, the thesis depends on the social naturalist assumption that those who work by necessity are, in essence, no different from the rest of the animal kingdom in that they are incentivized to labor (and earn wages) only because of their primary biological drive to eat, and they are likewise content to rest once that need has been met. From this perspective, it is scarcity alone that disciplines the unemployed into voluntarily taking up the bitter task of paid labor. If one removes that scarcity by artificial means—by providing food stamps, unemployment benefits, an adequate minimum wage—so too the incentive to work disappears. Hence the refrain made famous during the 2012 election that 47% of Americans are nothing but “takers”; that almost any poverty relief will inevitably turn the safety net into a “hammock”; and that food stamps and other poverty-relieving interventions have turned the “inner city” into a “culture of dependence.” This is the theory of perverse incentives that conservatives used to justify proposing to cut $40 billion of food stamps out of the federal budget, that has blocked the extension of unemployment insurance despite enduring high rates of unemployment, and that explains why Congress will not raise the minimum wage. Anyone would be hard pressed to draw any substantive distinctions between these rhetorical moves in 2012-14, those of the 1980s and first half of the 1990s, and those that flourished in the 1790s and 1800s.

At the same time, we grant your point that the mathematization of economics has been transformative, especially in policy debates such as whether austerity has been the correct response to the global financial crisis. However, when it comes to issues of poverty and welfare, the relevant policy intellectuals are not fancy academic economists but partisans who work at think tanks such as Heritage and Cato. Their language is not that of equations and symbols, but of recycled moral scoldings and conservative shibboleths about human nature.

Q. In chapter 7, you look at the rise of the right-wing alliance between movement conservatives and big business in the recent United States. Somewhat surprisingly to me, you argue that this movement can be characterized as a countermovement: “U.S. government efforts to create and maintain an open world economy and to impose “market-driven” domestic policies have created a powerful protective countermovement that has taken a distinctly right-wing form.” (p. 216) I was hoping you could expand a bit on this provocative claim. I can see how this movement can be understood to have formed in reaction to free market policies. But in what sense is it “protective”? What is it protecting? For example, the Tea Party seems dead-set on opposing any expansion of the welfare state (such as the state Medicaid expansions under the Affordable Care Act made optional by the Supreme Court), and going as far as pushing for the reduction or elimination of food stamp programs and unemployment insurance. The “classic” protective countermovements from Polanyi’s analysis would seem to be those calling for just such sorts of programs to protect vulnerable workers from the failures of markets. What do we gain by understanding the modern conservative movement as a countermovement?

A. Polanyi argues that fascism was as much a countermovement to the crises of global marketization and the gold standard as was the New Deal. This is the great danger that he alerts us to: Protective reactions against markets run wild are just as likely to be reactionary and conservative, as they are to be progressive and socially protective. The difference between them, he writes, “is not primarily economic. It is moral and religious….The issue on which they divide is whether … the idea of freedom can be upheld or not” (p. 267).

This is just as true of today’s movement conservatism as it was in Polanyi’s time. The complexity today is that the modern conservative movement brings together the strategy and resources of the Koch brothers and other oligarchs with millions of ordinary people—many of whom live in the poorest counties in the country, disproportionately located in the South. When those people demonstrate against Obamacare with signs saying,” Keep Your Government Hands off My Medicare,” they are trying to protect their own health care benefits from changes that they see as threatening what they have. When they express deep hostility to immigrants and any steps towards immigration reform, they are protecting their own white privilege. And we must not underestimate the importance of the private welfare arrangements organized by religious congregations including the Mormons and evangelical mega-churches. People who cheerfully give ten percent of their modest incomes to their local church can often be persuaded that paying more taxes to the local, state or federal government would get them nothing in return.

Q. What’s next for you and Karl? What’s next on the agenda for Polanyian economic sociology more broadly?

A. We envision two Polanyian projects, both of which speak to the importance of bringing the term political economy back into the vernacular as a way to reassert the politics and knowledge that is at the heart of all economic phenomena. One of these is to counter the tendency in economic sociology to imagine that empirical studies demonstrating the fallacies of economic orthodoxy will eventually convince mainstream economists, or even partisan public intellectuals for that matter, to think more sociologically. Polanyi teaches us that modern economic science, like its political economic ancestor, has always been something other than a normally falsifiable social science and more a metatheoretical ontology that can never be confirmed or disconfirmed. Economic sociologists need to develop an approach informed by this more Polanyian understanding of the epistemological challenge entailed in taking on such a self-evidential ontology.

Second, we need to bring fresh thinking to the complex relationship between the state and the economy. With a new commitment to a Polanyian political economy, economic sociologists will be able to call attention to the way that it is government policies, and not a return to a “pre-political” condition of unregulated markets, that is responsible for the upward distribution of wealth and income and the concomitant loss of public goods. Here again, note how complementary is Piketty’s attention to how the wealthy rig the political system to reproduce and expand their wealth.

Q. Finally, I want to end where you end the book itself, and where Polanyi ended The Great Transformation: “the reality of society.” I still remember when I first read Polanyi. I loved this chapter, but I didn’t entirely know what to make of it. And none of the secondary literature at the time seemed to address it. Instead, the debates were entirely about the concept of embeddedness or perhaps Polanyi’s history of exchange and reciprocity, or the double movement. What does the reality of society mean to you? Why do you think this concept got lost in the shuffle?

A. Yes, the Polanyi literature has by and large not taken up the challenge of exploring the meaning of the “reality of society.” The phrase is prominent in the oft-cited final pages of The Great Transformation where Polanyi writes that only “uncomplaining acceptance of the reality of society gives man indomitable courage and strength to remove all removable injustice and unfreedom” (GT, p. 268). We think those words are even more relevant today in the context of what Polanyi would certainly see as ever widening degrees of “injustice and unfreedom” wrought by almost four decades of what Goran Therborn calls the “killing fields of inequality.”

At first blush, asking us to accept the reality of society seems fairly trivial, if not self-evident; after all, who today doesn’t? But, inspired by Robert Owen’s contemporaneous rebuke to the political economists in the name of “society,” Polanyi introduced the phrase as a counterpoint to the legacy of Ricardo and Malthus, whose profound denial of the reality of society had careened us into the catastrophe of the Great Depression, fascism, and World War II. Polanyi’s aim was to alert us to how much of political economy’s appeal lay in its concept of freedom, which made it a unique property of free enterprise, privatized public goods, and a minimalist government. The “reality of society” was essential to his effort to reclaim the meaning of freedom, and to link it to democratizing the economy and a wider definition of individual rights, one that would include what Roosevelt famously dubbed “freedom from want.”

To make this point, Polanyi targeted what he saw were the greatest weaknesses of the market fundamentalist doctrine—its denial of the social character of collective human existence (think Margaret Thatcher’s infamous “There is no such thing as society”), and its rootedness in a naturalistic, rather than a sociological and anthropological, approach to social organization.

In insisting on the reality of society, Polanyi is arguing that we exist within complex societies, the essence of which is the interdependence of persons and institutions. Every seemingly singular personal choice has consequences and ripple effects beyond our comprehension, and far beyond one’s own conscience. This changes the moral valence of individual agency and makes us ethically responsible to a common good, often in conflict with our own desires and needs. This kind of world is incompatible with a notion of absolute freedom in which individuals can act at will independently of the social institutions and relationships in which we’re all embedded. While fully endorsing bounded individual rights and liberties, contra the sugary assurances of political economy, Polanyi insists that seeking gain at others expense will risk the entire collective enterprise.

With “the reality of society” Polanyi is also determined to rid us of the curse of social naturalism. For not only does this intractable ideology hold that our economic order will achieve optimal efficiency only in some putative “pre-political” state. We can also credit social naturalism for the three components of the principle that the precondition for all freedom is a world without political power: 1) political power inevitably threatens freedom; 2) only the market operates free of power; 3) the market is the only site of true liberty. By contrast, Polanyi’s critique of social naturalism demands we recognize that political power is not always tyrannical (although it certainly can be when devoid of democratic pressures); that economic justice almost always requires a degree of political and social power; and that we should never minimize just how much power is actually exercised by the economy. The reality of society reminds us that we urgently need democratic politics and social practices as countervailing sources of power to those of economic domination, ones that give support to the social institutions and policies we have devised to protect the poorest and the most vulnerable among us.

Because Thatcher’s “there’s no such thing as society” is no longer merely an omen but an established ideological fact (though not, to be sure, a social one), Polanyi’s plea for us to recognize the reality of society is just as compelling today. But so is his counsel that to do so will take “uncomplaining” resignation. For accepting societal interdependence is still much less appealing than the alternative of hyper-libertarian ethical behavior, which actually enjoins us not to take into account the needs of others at the risk of ensnaring them in traps of dependency. Moreover, because it gives the “makers” full license to rebuff the needs of the “takers” with the self-congratulatory virtue of knowing it is compassionate to deny health care, food assistance, and unemployment insurance, Polanyi cautions us that overcoming the denial of society will not be easy. In the end, by maintaining that it will take uncomplaining resignation” to accept the reality of society, Polanyi is issuing a strong warning: Never underestimate the power of market fundamentalism to seduce.

Q. A bit more tangentially, I think this concept could be useful for integrating analyses that foreground other dimensions of domination than the economic. When you argue that the reality of society shows that “genuine freedom comes from constructing human institutions that protect the rights of each and every one of us” and that such institutions “inevitably involve the use of political power” (p. 240), I am reminded of debates about race, gender, and the state. Take affirmative action for example. Many conservatives argue that the solution to racial inequality and discrimination is color-blindness – if only the state would stop seeing race, then the problem of racial discrimination would be gone forever. Eliminate the explicit domination, the explicit exercise of power by the state, and the market will take care of the rest. The various counterarguments have struggled, I think, to find a compelling way to describe how implausible – shall we call it utopic? – the idea of a colorblind society is. Would it make sense to draft Polanyi’s “reality of society” into a discussion of the need to construct institutions that recognize other forms of power – based on race, or gender, or … – and attempt to maximize freedom through that recognition?

A. Yes, that is an excellent point. The idea that if we ignore race, it will go away is another instance of social naturalism. It was articulated clearly by the late Gary Becker, who argued that the market would by itself produce equilibrium because the self-interestedness of market rationality would simply eradicate the inefficiencies of discrimination and racism. Polanyi does not say very much about gender or about ethnic or racial subordination, but he was acutely aware that these other axes of subordination could not be reduced to or explained as a simple byproduct of class or market dynamics. His realism about society, moreover, led him to warn us of the new forms of power and subordination that he accurately predicted would emerge in the Soviet Union. He focuses on democratic institutions and civil liberties precisely because they provide an opportunity for marginalized groups to wage struggles for social inclusion, as we have seen in the ongoing fight for marriage equality. Thus while Polanyi does not give us much specific leverage on how to make contemporary forms of racism and sexism more visible and more vulnerable to challenge, we find in his work many of the conceptual building blocks for how to construct political strategies with the deepest democratic foundations possible.

* Full disclosure: I was paid to do a tiny amount of editorial work on an early draft of one of the book’s new chapters.

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