Polanyi

The Role of the State in Economic Organisation

Until the 19^th century the economy was a subsystem of society and subordinated to politics and social relations. With the adoption of Smithian economics and self-regulating markets this dynamic changed dramatically as liberal economists sought to disembed the economy from the restrictions imposed upon it by society. Polanyi (1944) argued that this process is never truly completed, because to do so would expose both man and nature to market forces leading them to exploitation and eventually destruction.

The market treats labour and land as though they are commodities that are manipulated to the requirements of firms to produce output in the most efficient manner. This definition is entirely fictitious, labour makes up the society for which goods are produced and land makes up the environment which they exist in, exploiting these factors in such a manner has consequences which are beyond the mechanisms of the market. The free market use of these ‘fictitious commodities’ brings about reactionary counter movements to protect them, reigning in the economy and re-embedding it in society.  “laissex faire was planned, planning was not.” (Polanyi 1944) Liberalism required states to forcibly create conditions in which self-regulated markets could exist. Imposing the free market required the transfer of risks to the population in the form of either lower wages, precarious employment, unemployment or environmental degredation. When these risks become unacceptable to society it creates a movement of state policy to minimise these risks. There will always be two forces in society, one for laissez faire and another protective counter movement that will be set in motion as an unplanned spontaneous response by society to avoid disaster. As a result liberalism will always have a voice as they can always claim that the lack of a strong willed state causes the failure in capitalism. This ‘liberal market creed’ cannot be dislodged as there is no historical evidence.

Examples of Liberalism and Counter-Movements: the Gold Standard

The Gold Standard (GS) was a radical new way for countries to encourage trade in the late 19^th century. By each country backing their currency with gold it allowed traders to have confidence in doing business across borders because the foreign money they received was literally “as good as gold”. The system relied on three golden rules:

     1.       Value currency to a fixed amount of gold

           2.       Domestic money supply should be based on the quantity of gold   

           3.       Each country will give its residence freedom to operate and trade internationally

In theory if the citizens of a country imported more than they earner then the country would simply be losing gold to another. As a result domestic money supply would fall, making it harder to get finance, causing the price of money (interest rates) to rise. This cuts down current consumption (people would rather save then spend) so prices fall, and so do wages. This makes demand for imports decline and the country’s exports more competitive directing the economy back to equilibrium. Nation states could decline as the world became borderless and everyone would benefit as a result.

Unfortunately the opposite occurred; the GS imposed economic costs on people which were highly destructive. Deflation was one of the implications for countries with a trade deficit, leading to declining wages, unemployment, reduced consumption, higher business failure rates and a lower standard of living. Ultimately leading to an unstable and uncertain lifestyle for people which governments found intolerable, they broke the third golden rule in attempts to protect their people from the ravages of the self-regulating market. Introducing protectionism such as tariffs reduced the sensitivity to trade but created an incentive to empire. By colonizing governments could exploit raw materials and markets in the colony without competition from other nations. It was a direct reaction to the GS as states could shift any negative consequences onto their colonised people and protect their domestic interests. Empire bubbles were created and expanded until they were forced to clash into one another, leading to conflicts such as WWI. Fascism was another reaction to this problem, protecting society from the market at the cost of human freedom was another way to protect against the consequences of the gold standard that took place in the 30s.

Contemporary examples

Block (2001) wrote that a similar process could be observed today. Integration of the global economy makes national boundaries irrelevant.  Free trade is creating a global market place with free movement of goods and factors in a similar vein to the expected benefits of the GS. Neoliberalism now calls for less interference with markets, allowing for a flexible labour market as once again the risk of employment is shifted from firms to workers in the form of precariarity. As before demands are made which ordinary people cannot face and eventually the state will be needed to intervene for example as a lender of last resort. “Without such institutions particular economies and perhaps the entire global economy will suffer crippling economic crisis” (Block 2001).

Neoliberalism has already had widespread protest as people attempt to resist economic disruptions and this will intensify as people call out for a counter movement to protect them. Eventually states or society may find another solution, possibly by diverting discontent to internal or external areas of society, resulting in conflict. For example Civil wars in Africa, the occupy movement or the Arab spring being possible examples of such reactionary movements.

Conclusion

Polanyi wrote that the solution was to stop social life being subordinated by the economy. Unions, social security, minimum wages, and environmental regulation can all be seen as measures by which society sought to protect itself. Government roles should be used to protect the ‘fictitious commodities’ and prevent them being exploited by the market. Such intervention is vital to prevent disaster 

Primitive Accumulation

Primitive accumulation was only briefly mentioned by Marx in the Manifesto, It is defined as the process by which capitalists separate producers from their means of production and can be used to explain the initial endowments of capital at the beginning of the capitalist era. Marx used it to criticise the Smihian assertion that accumulation of capital occurred at some point in the past, before the division of labour. He stated that division of labour exists across history, and thus to define endowments as ‘previous accumulation’ that existed in “a mythical past that lies beyond our ability to challenge” (Perelman 2000:25). In actuality there is a very real and brutal historic experience of separating people from their means of production to create a capitalist system.

Explaining inequalities and uneven development by primitive accumulation

Initially Primitive accumulation occurred so that people were forced to join the labour force. By divorcing people from the means of social production on a subsistence scale accumulation forces them into wage labour to make the surplus capital held by the bourgeoisie productive. In effect Capital manipulates the extent to which the proletariat can provide for themselves, making them unable to maintain their previous livelihoods, and altering the social division of labour as a result. 

There is however inconsistency here in Marx’s analysis of the problem. He seemed claimed that primitive accumulation was an on-going process, yet also that separating workers from the means of production was necessary for the establishment of capitalism, but that it abruptly stopped when this society was created, Indicating perhaps that Smith was right to treat it as an event which occurred in a previous time period. One argument made by Perelman (2000) is that Marx wanted to portray a sense of unfairness in the establishment of markets and the ‘fairness’ that they bring, and that examining primitive accumumlation as a continuing phenomenon would distract from the accumulation proper that was caused by the market system. This perhaps showed that while market forces were progressive in the long run in paving the way for socialism, in the short term they were even crueller than dispossession.

Is PA on-going and a necessity for capitalism?

Glassman (2006) presented two possibilities. Firstly that we may at present be reaching the final stage of primitive accumulation, we near the fully globalised capitalist development that would allow for the proletarian struggles and revolution that Marx outlined and when such a point was reached PA would end because it would no longer be necessary.  Alternatively, and in his view more likely was that common property would continue to be exposed to capitalist appropriation.

Luxemberg (1951) went further than suggesting that PA was a continuing phenomenon, stating that it was in fact a requirement for capitalist society. The crisis tendencies of capitalism meant that the conquest of non-capitalist territories, the expropriation of raw materials or the appropriation of capital from the working classes was required as an avenue for surplus capital to be invested in. Amin (1976) claimed that while this was an option that was beneficial for the core at the expense of the periphery it was not a requirement for continued stable development because capital could find other locations to use its surplus.

Wallerstein (2000) asserted that PA could not continue forever as capitalists would not want to pay the full cost of all the social reproduction that labour required as it would raise costs to a less productive level. Glassman (2006) states that it was likely but never required as those suffering from PA would always resists and disrupt the forces of full proletaianization leaving them with some means to produce that capitalists would try to exploit. De Angelis (1999 and 2004) built on this and suggested that PA would become less prominent in society because accumulation proper, by market mechanisms was in fact far more effective in confiscating the means of social reproduction from the proletariat than PA had been. So in this respect accumulation of capital from workers was necessary for development as Luxemberg (1951) had said, but that the mechanism for this appropriation was different.

Modern Geography of PA

Perelman (2000) listed examples of PA in modern life using the example of packed urban dwellings and their lack of space for washing. Previously workers would do their own laundry, but without the space to do so they were forced to make use of laundrettes. People have to increasingly spend time in employment to afford to pay for services that they previously provided for themselves. Eventually society develops such that more women enter the labour force, the result being more money is spent on childcare and domestic services further shifting the work to non-work balance towards the former. As these processes continue Labour loses the ability to provide even basic social reproduction and as a result industries are created such as fast food to accommodate this.

Walker (2004) wrote about PA In the context of Californian agriculture. The commodification of labour is one of the most basic examples of PA, in the US case groups of imported labour were used to allow for low costs in the agricultural industry. The labour market oversupply forced wages down and the high turnover of different immigrant groups in the sector prevented them from becoming organised and collectively bargaining for higher wages. This process was reinforced by extra economic forces such as government laws forcing Japanese POWs to work in the fields or looser immigration laws for Mexicans in the agricultural sector.

Harvey (2003) wrote about the continuous nature of PA in terms of the new US imperialism. Privatisation is an example of capitalists accumulating previously common property in what Harvey refers to as accumulation by dispossession. Imposed in the global south by organisations such as the IMF it allows capitalists another way to avoid the crisis of over accumulation by finding investment opportunities for surplus capital. Spurred by declining profitability in the Post-Fordist era capitalists have been forced to find alternatives to restore profitability and this is one option they have exercised. 

Modern Marxism and Imperialism

Marx and Engels (1848) stated that a modern capitalist society had become a two class system. The capital owning, rich Bourgeoisie, and the labouring, poor proletariat. Initially Bourgeoisie eliminated the Feudal guild system in exchange for a system whereby workers could exchange their labour for money in the form of wages. The classes initial starting points were defined by primitive accumulation, a subject that Harvey (2000) writes a criticism of, stating that the Manifesto lacks depth in this area. Primative accumulation was essentially any appropriation of capital that led to the initial endowments across society.  

In a bourgeois society the Proletariat only exist to sell their labour. They are treated as a commodity, without right and require maintenance in the form of wages to sustain them, but they exist only to further the productivity of capital, and earn profit for the bourgeoisie. They become like a part of the machine they work with and all workmanship loses its appeal. The bourgeoisie compete between one another in an attempt to expand the market they sell their goods in; eventually this competition forces them to lower prices. Lowering prices reduces their margins. To maintain competitiveness the bourgeoisie lower costs, as the main cost they face is the wages to the proletariat they seek to reduce this cost by lowering salaries and cutting jobs. Inefficient firms begin to fail, leading low level bourgeoisie (shopkeepers etc) to fall into the proletariat increasing the labour supply and further diminishing its price. Labour starts to concentrate in centres where work is available, leading to urbanisation (Harvey 2000)

Yet labour is not like capital, reducing the disposable income of workers on a microeconomic scale leads to problems on a macro scale. Effective demand for goods falls and a crisis of over accumulation occurs in which workers cannot afford to buy the goods they sell their labour to produce and the economy comes to crisis. Excess capital and labour stocks form, but with no seemingly productive means of interacting. In such a case there are two solutions: either the destruction of these factors, by the destruction of capital or the starvation of labour forces, or to conquest new markets.

This conquest of new markets manifested itself in the form of imperialism (Hobson 1902, Lenin 1916). Imperialism is the asserting of some form authority over an empire or nation.  The theory states that competition lead to capital becoming increasingly concentrated in the hands of smaller number of people. Monopolies begin to form which can use their market power to enforce low wages. Excess capital begins to build up and the bourgeoisie look for labour outlets to make this capital productive by exploiting emerging nations. Furthermore governments can use patriotism and underling discriminatory views to appease it’s proletariat into passive acceptance of their poverty, by shifting the blame to those in its colonies. Lenin went even further than this and stated that governments in core countries could afford to pay off members of its own proletariat to enforce inaction.   

The two authors however disagree on the solution to the problem. Hobson argued that the problem could be avoided by the application of policy which addressed this false economy of distribution. By taxing the rich capitalist bourgeoisie and redistributing this to the proletariat economies can stave off the need for imperialism as there is still effective demand for goods provided on the national scale. Keynesian economics comes from this analysis and leads to the logical need for a welfare state.

Lenin however said that monopoly is an inherent tendency and hence so was imperialism. The socialisation of production would eventually lead to socialist revolution. But this could not occur in the core countries due to the rentier bribes to proletariat. Hence it must start in peripheral regions. This analysis created the Bolshevik revolution in Russia.

Authors such as Pantich (2009) and Eagleton (2011) write about how theories of Marx can be applied to the contemporary crisis. Consumer demand was fuelled by increasing in cheap borrowing staving off crisis of overaccumulation for a number of years while the movement of society towards a more isolated and individualised approach prevented the potential revolution marx and lenin outlined. While traditional imperialism was not observed in the modern crisis there were instances where foreign powers exerted control over other nations. Invasions of Iraq and Afghanistan by the US, IMF lending for specific marketized projects in Africa, Asia and Latin America, and offshoring of production by multinational corporations all exists as examples of contemporary imperialism

Harvey (2001) wrote about a “spatial fix” which could be used to prevent capitalist crises. In this context the fix refers to the terms meaning with reference to drug addicts. Who need a fix to return to normal functioning. Some kind of geographical fix could be used to prevent the crisis of over accumulation, imperialism was the fix in the 1900s and the solution was the new imperialism outlined above in the latter half of the 20^th century. If lack of effective demand was about to cause a crisis then expanding into new markets was the fix, if surplus capital is the cause, then investment abroad is the solution. However, as with the drug addict, the fix is not permanent. The craving soon returns and the capitalist economy needs another fix to avert crisis.