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July 2, 2011
THE LOGIC OF MARKET UTOPIANISM: WHEN “BUSINESS” TURNS BAD FOR SOCIETY
“To allow the market mechanism to be the sole director of the fate of human beings and their natural environment indeed, even of the amount and use of purchasing power, would result in the demolition of society.” Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time, 1944.
Dear Citizens and Elected Officials:
If you are like us, and have been following the evolution of Paul Krugman’s commentary in his regular New York Times columns, then you’re watching something courageous unfold, especially over the past two years. Yes, it’s true, Dr. Krugman writes from the security of a tenured teaching position at Princeton, and with a Nobel Prize for economics under his belt as well. Nonetheless, his arguments on behalf of the unemployed and foreclosed upon, directed to the current policy orthodoxies inside the White House, and inside the Beltway, and, we must add, implicitly inside the economics profession itself, are something to behold, and doubtless have generated a wave of pushback, something he doesn’t write about. (And here’s a sample pushback at http://nymag.com/news/politics/paul-krugman-2011-5/ .)
Three fairly recent columns from 2011, in particular, caught our attention for their audacity. The first, from March 7th, “Degrees and Dollars,” had the subtitle “the hollow promise of education.” He wasn’t arguing that we should ignore the need “to fix education,” especially the places where poorer Americans are trapped, but rather that “education” couldn’t deliver the society of “broadly shared prosperity” that its advocates were saying it could. That’s a message that many Democrats don’t want to hear, especially here in Maryland, but elsewhere as well. Whatever the motivation of those who want to focus entirely on it, that direction keeps the emphasis on the shortcomings of individuals, seen through the eyes of the labor market and the employers which control it, and not on the nature of the markets themselves, or on how the idea of full employment has been driven to the margins of not just public policy but also the economics profession. (Although Krugman didn’t write about worker “re-training,” the same could be said about the limitations of that policy, and both William Greider (in Who Will Tell the People, especially in the chapter called “Citizen GE”) and James Galbraith (in The Predator State) have addressed it.
The second came on April 11, “The President is Missing,” with nearly perfect timing as the cascade of reader comments (690) and “recommendations (2,279) showed, as he blasted the President for “conspicuously failing to mount any kind of challenge to the philosophy now dominating Washington discussion” – that philosophy being one of austerity. We don’t know whether there was a direct connection between the column, and the most effective presidential speech in some time which followed just two days later on April 13th, when President Obama took on the Paul Ryan Medicare proposal very directly, and, very successfully. Unfortunately, the broader claims made by some for the speech are over-stated; there hasn’t been a major change of philosophical direction at the White House.
And the third came on Monday, May 30th, Memorial Day, in “Against Learned Helplessness,” when Krugman attacked the policy paralysis over unemployment, calling it a “continuing tragedy,” and writing that in “a rational world bringing an end to this tragedy would be our top economic priority.” But he didn’t stop there; he went on to rub some salt into this festering wound spreading among the Western societies placed on austerity watch: “…someone needs to say the obvious: inventing reasons not to put the unemployed back to work is neither wise nor responsible. It is, instead, a grotesque abdication of responsibility.” And then, a bit further on, he went out on a limb that few of his profession have the courage to climb out on, when he called for, among other remedies, “W.P.A. type programs…” (Thus joining fellow Nobel Laureate Joseph Stiglitz, and economists James Galbraith and Randall Wray, commentators like Robert Reich and Bob Herbert (whose last column at the NYTimes was March 26 and fittingly entitled – “Losing Our Way,”) and investors Leo Hindery, Jr. and Jeremy Grantham, among others…). Just in case you might have missed them, here are links to the three columns:
Krugman’s efforts are having an impact, as more and more liberal-progressives have come to realize that solving the unemployment crisis is our number one mission, followed closely by the related private debt/foreclosure crisis. Over at OurFuture.org, Robert Borosage had a good article on jobs - “It’s Past Time to Get Loud and Surly” – which nicely captures the changing mood, and calls attention to the Progressive Caucus’s “12-city summer jobs tour,” as well as the “People’s Budget.” On the same day, Isaiah Poole featured an interview with Rep. John Conyers, who has introduced his “Humphrey-Hawkins 21st Century Full Employment and Training Bill,” and what we like about it, among other things, is that the funding would come from a financial transactions tax, which nicely makes one of the chief causes of the crisis (Wall Street) pay for its effects – mass unemployment. Here are the links at http://www.ourfuture.org/blog-entry/2011062414/jobs-its-past-time-get-lo...  ; http://ourfuture.org/blog-entry/2011062414/demand-full-employment-agenda 
Meanwhile, over at The Nation, the magazine has come out with a timely special issue, just to show you what is on many people’s minds, entitled “Reimagining Capitalism,” edited by William Greider, and the very first suggestion for reform comes from Maryland’s own Jamie Raskin, “Plan B for Corporations.” The issue carries a print version date of June 27th, but you can also find it online here at http://www.thenation.com/article/161267/reimagining-capitalism-bold-idea...  Because of our own focus, the second recommendation we read after Senator Raskin’s was L. Randall Wray’s “The Job Guarantee,” here at http://www.thenation.com/article/161249/job-guarantee-government-plan-fu...  .
So, as we write near the summer solstice, when the shadows at noon are the shortest, that’s the good news. But most of the good news comes tinged with a longer wintery shadow thrown by the political “reality principle,” even by a perpetual optimist like Bill Greider, revealed in his introduction to the “Reimagining Capitalism” edition: “The problem, of course, is that none of these ideas have any traction in regular politics. Both parties are locked in small-minded brawls, unable to think creatively or even to tell the truth about our historic economic crisis.” That’s the same note we see time and time again, often right after a listing of what polls tell us “the people” out there in “the nation” are feeling. Thus in the May 9th edition of The Nation, when the People’s Budget was the lead editorial, it began this way: “In poll after poll Americans consistently list the economy and joblessness as the most important problem facing this country, far ahead of the deficit. Solid majorities of Americans also oppose cuts to Medicare and Medicaid, Social Security, Planned Parenthood, the EPA, healthcare and education. Indeed, according to a WashingtonPost/ABC New poll, the only aspect of President Obama’s deficit reduction plan that enjoys strong support is his proposal to raise taxes on the rich.”
In one sense, Bill is right; in terms of the nation’s most pressing problems - unemployment and foreclosure - and the full range of the possible solutions contained along the political economy spectrum, the Republican focus on the national debt and current deficit is “small-minded,” and, as we will all find out the hard way, tragically wrong in economic (and human) terms. But their strategic ability and philosophical tenacity (or, if you prefer, their fanaticism), their ability to set the agenda in the wake of a crisis that flowed directly out of that philosophy is hardly an example of being “small-minded.” By every measure of historical precedent, this is a party which ought to be cowering in a defensive crouch, like the Republicans of 1929-1935, but they’re not; how can that be?
The answer, in good part, is that this isn’t just a political party, it’s a philosophical movement, and a radical one, despite the window dressing curtains displayed by its cultural conservatism. We think Paul Krugman had the correct diagnosis way back in 2003, in the Introduction to his book called The Great Unraveling, although we don’t recall seeing it resurface in his many columns since then, and very few others mention it or bring anything nearly as powerful to the causal analysis table. Here’s a sample of how he went about it: “…to talk about economics requires, more and more, that one write about politics. And there’s a political story that runs through much of what has happened to this country lately – the story of the rise and growing dominance of a radical political movement, right here in the U.S.A. I’m talking, of course, about America’s radical right…”
Then, in a subsection labeled “A revolutionary power,” Krugman makes a brilliant and very ironic connection. He is going to view the Republican Right through the same historical lens that Henry Kissinger used in 1957, in his book A World Restored, where he wrote about how conservative Europe contained Revolutionary France between 1789-1815, and later throughout the 19th century, how it contained the ideological offspring of that revolution, especially socialism. This was no mere academic exercise on the part of Kissinger; not so indirectly, he was talking to our Cold War establishment about how to contain revolutionary Russia – the Bolsheviks. Bringing things up to date, Krugman wrote that “if you read the literature emanating from the Heritage Foundation…you discover a very radical agenda: Heritage doesn’t just want to scale back New Deal and Great society programs, it regards the very existence of those programs as a violation of basic principles.”
Now doubtless some old time Marxists, and other stickler types, will say that the Republican Right is reactionary, not revolutionary, because they want to take things back to the 19th century, to the days of McKinley, as Bill Greider and others have noted, picking up on something Karl Rove once said. We grant the point, but give the match to Krugman here, as we hope to demonstrate in this essay. We don’t think the McKinley 1890’s analogy captures the radical essence of what the Right is about today. To get to the proper frame, one has to go even further back in time, to the nation which first industrialized – England - from 1790-1846, when “classical” economics was first intensively applied to public policy in an attempt to remake an entire social and economic order. And we make that connection by our conscious choice of the term in our title, Market Utopianism.
If we have any bone to pick with Paul Krugman, and certainly progressives and liberals have had many over the years before he became a columnist, especially over his defense of globalization, it would be his failure to see the effect of neo-liberalism’s Market Utopianism upon the economics profession itself, and nowhere more so than in its evisceration of the idea (and ideal) of full employment, which bears so heavily on his frustrations over the policy failures today. Now it may be that he has spoken to this point in his more academic writings, but if he has, we certainly haven’t picked up the trail in his columns. And so we intend to help bridge the gap with one of the books we review and recommend for your summer reading pleasure.
A Text-Less Left?
Now, having given Mr. Krugman his due, it’s time to offer our readers, and hopefully the broader public, a deeper and more systematic framework than Paul does, good as his work is. You may recall that earlier this year, in commenting on the dozen or more speakers, some quite prominent ones, at a jobs conference held at the National Press Club, we thought it was remarkable that none of them recommended a book, or text, as a reference or further guide. (And how unlike the Right and its “texts.”) But that does seem to be the progressive Zeitgeist, and there is a consistent strain of that in Bill Greider’s thought too - modest as he is in not pressing some of his own works as guides. (We’re going to correct that a bit later in this essay.) But we have to disagree with Bill on this point. He has his own hopes, something short of utopian, that somehow, as at local Industrial Areas Foundation meetings (that would be the Saul Alinsky inspired groups), the path forward will emerge spontaneously from the people themselves, as they find their voice and self-confidence. Indeed, that’s a wonderful way to proceed at the community organizing level. And we wish that it would happen along those lines, at the national level. The problem is that the IAF organization and that model have failed – as so many before it have – in formulating anything as sweeping and convincing as the Right’s program – or vision; have failed to develop a comparable national economic vision/agenda. (And maybe we should be grateful for that, some would say.) Here’s Greider in the last chapter of his 1992 book, Who Will Tell the People, speaking about his hopes for political renewal, much in the same way that Kevin Phillips did just two years later in his Arrogant Capital: “This renewal, if it occurs, will not come from books. A democratic insurgency does not begin with ideas, as intellectuals presume, or even with great political leaders who seize the moment. It originates among the ordinary people who find the will to engage themselves with their surrounding reality, and to question the conflict between what they are told and what they see and experience. My modest ambition for this book is that it will assist some citizens to enter into ‘democratic conversations’ with one another, asking the questions that may lead them to action.”
Well, we’re going to put our own experience to work, including some first hand with the Alinsky folks back in Jersey City, NJ, and other community reform organizations, especially the affordable housing folks, and say that Bill gets it half right. Ideas do matter (and matter more in his own books than he here admits…and after all, that’s the idea behind the current “Reimagining Capitalism” series isn’t it?) , and matter greatly, as the absence of them in the current state of the Obama administration, and the broader left so clearly demonstrate; but they do have to walk hand-in-hand with the citizen engagement Greider so movingly describes (in this passage, and again, in 2009, in his Come Home America). And both sides of this dynamic will be altered, perhaps dramatically, for the better, in the back and forth between them.
Krugman at the White House
We’ll say a bit more about the state of ideas on the left, especially the economic ones, but for now, we have to say, whatever that state, vigorous or incoherent, the recent mash-down on Krugman (“What’s Left of the Left: Paul Krugman’s Lonely Crusade,” by Benjamin Wallace-Wells in the April 24, 2011 edition of New York Magazine) describes another anti-climactic meeting between President Obama and his leading economic critics, at a time, this December, just after the catastrophic November election, when it would seem most likely that he would be open to alternative ideas. Here’s how the author of the hit job describes what was supposed to be a “90 minute off-the-record audience” at the White House, with Paul Krugman, Joseph Stiglitz, Robert Reich, Jeffrey Sachs, Alan Blinder and Larry Mishel making up the field: “Krugman couldn’t even build a consensus among six-like minded economists, let alone convince a Democratic president. “‘I have no idea what Jeff was talking about,’ he says.”
We want to be precise here, as we noted before, that, given the history of the left, we don’t want to be presenting anything as “the text,” which is why we use the plural, but we are now going to nominate work one as the leading text among a number of recommendations, one which is perhaps the deepest guide to the economic troubles of our day, and that captures very well the spirit of Krugman’s declaration that with the Republican Right we are dealing with a radical, Revolutionary force, one rooted in a Market Utopianism that acts as an intellectual and political super-charger to the long-standing free-market inclinations of American business. (And it’s one that Bill Greider has quoted favorably from in both One World, Ready or Not (1197) and The Soul of Capitalism, 2003).
Karl Polanyi, the “other” Austrian Economist
So why chose Karl Polanyi’s 1944 book, The Great Transformation: The Political and Economic Origins of Our Time as the lead recommendation for the “text-less” left, and vacillating middle independents? Well, we have a number of reasons, and they have become more compelling over time as the current economic crisis drags on and on, unresolved, here and in Europe. Polanyi, who was Hungarian by birth, was an economist who wrote in Vienna for the Central European equivalent of the Wall Street Journal/Financial Times. He was also a first-hand witness to the economic catastrophes of the 1920’s and 1930’s, and, as he explains, the final collapse of the gold standard orthodoxy of the “long 19th century” dominated by classical “liberal” (that is to say conservative) economic theories. Here in America he is the unknown “Austrian” economist, even though he was a contemporary of Ludwig von Mises and Friedrich von Hayek, who both ended up in the post-World War II United States, where their work celebrating free-markets and condemning state interventions were just the thing anti-New Dealers and anti-Keynesians were looking for. And it just so happens that von Hayek published his famous book, The Road to Serfdom, in the same year that Polanyi’s The Great Transformation came out. However, unlike the “no compass” American left, the supposedly anti-intellectual Right has made a great and continuing celebration of The Road to Serfdom, along with the novels of Ayn Rand, who presents an even more extreme celebration of the romantic entrepreneur. The only author on the left to hold a candle to their continuing popularity was the late John Kenneth Galbraith, and he was fading from his top form by the mid-1970’s, challenged ably in debate, and print, by the rising star of Milton Friedman. Despite the success of columnist Paul Krugman, his books, popular and academic, have never attained the reach of Hayek’s and Rand’s. (Readers who want some more background on von Hayek’s and von Mises’ careers in the US would profit by visiting Kim Phillips-Fein’s Invisible Hands: The Making of the Conservative Movement from the New Deal to Reagan, which we review here at http://www.amazon.com/review/R24XOZ0QXANH8H  ).
But what is it exactly that has made The Great Transformation grow in importance just now, since we’ve been citing it for about three years in several of our previous essays? Let’s be clear: it doesn’t offer a 12 step program to revitalize the left, or tick off a “to do” list for legislation, by any means; it’s not a prescription, although it gives, near the conclusion, an impassioned defense of Social Democracy as its answer to the Hayekian charge that state interventions to help the victims of market excess always end up turning down “the road to serfdom.” Polanyi’s final chapter – “Freedom in a Complex Society” is as fine an answer to the Right’s attempted monopoly of that word (and Liberty as well) as we are ever likely to see from the left. (The finest contemporary answer to the Right’s monopoly of the words is Eric Foner’s The Story of American Freedom, 1998, but it doesn’t Twitter so well…) But that’s not at the heart of Polanyi’s rise in relevance. His great value for today is the framework he provides to evaluate the Right’s elevation of “the market” to be the arbiter of all of human society, not just the economy, where markets have, he acknowledges, always played some role in human economic activity, varying over time and circumstances. And that’s how Polanyi introduces one of his two main frameworks for understanding what happened during the Great Transformation – the Industrial Revolution in England, 1790-1850, what he calls the traditional “embeddedness” of markets in the broader society.
Embeddedness: it sounds daunting, but it really isn’t. By the term, Polanyi means that throughout human history, economic institutions, especially markets, were subordinated to other broader and deeper societal values. The relationship changed over time, but the broader values of the society, and often this meant religious values, kept the markets subordinate to the overall common good. Although the exact balance varied with time and culture, it’s fair to say that commerce was most subordinate to religious values during the Middle Ages, with commerce growing more and more powerful during the Renaissance and the Reformation (Luther was still condemning usury, but Calvin’s more accommodating view won out) yet still pushing up against the restraints of throne and pulpit during the peak of mercantilism, the economic “era” which preceded the Industrial Revolution. In the realm of human labor, a similar movement can be followed through time away from the regulating guilds of the Middle Ages, which set standards for craftsmanship, quality, quantity and price (for their products, at least), all under the banners of group identity and solidarity. Yet the traditionally buffered labor market was moving, especially with the growing number of surplus rural poor (the “middle class” yeomanry of England being long gone by the late 18th century) towards its ultimate negation, with what Polanyi called perhaps the “most ruthless act of social reform…in all human history” – the Poor Law Reform of 1834.
The Grand Project of the Classical Economists
That reform, Polanyi says, which was intended to drive the surplus rural poor into the new “Satanic Mills” of the Midlands, no matter how low the wages paid there, was the lead project not only of the factory owners, but also of the “classical economists,” the founders of economic liberalism, which for us today, in terms of ideology, translates into market “conservatives.” (And who can fail to hear echoes of this in China, the 21st century England of our era, with the enormous shift of the rural poor to the booming manufacturing cities; it’s happening around the globe too, but in most other places, there is no stepping-stone industrial work: China has gobbled up the lion’s share. Mike Davis can tell you a bit about that in his Planet of Slums, 2006).)
Unfortunately for the society of the time, and us, there was nothing conservative about their project. They intended to turn their social and economic world upside down, although even they at first perhaps did not realize that it couldn’t be achieved by just turning human labor into a commodity; the project grew to encompass all of world trade, and the means of exchange; in that sense, and in the sense that Krugman uses the term “revolutionary,” they were. And now readers, you can understand a bit more about the rise of Polanyi’s star. For the great intellectual and political movement of our age has been, since the mid1970’s, the return of classical liberalism in economics (now called neo-liberalism) several generations removed from the founding classical fathers, but embarked on no less grand a project: to make the market and its demands the ruler, not the servant, of not just the political realm, but all aspects of modern culture. So whether you are shocked by or admire the audacity of the attempt to crush labor unions in education, and in the public sector, and to impose austerity upon those least responsible for the near collapse of the Western financial system in 2007-2009, and to literally remake Greek society to fit these neo-liberal ideals, it makes sense to revisit the opening historical act of their ideas, those which set out to remake England between 1790 and 1845.
So who were these classical “economists” (stretching the term to fit the amateur field, for it was hardly a profession yet) who were determined to make sure the poor stayed busy at their newly assigned tasks at the mills, with the emphasis on women and children at first, because the displaced males, still rooted in the relative dignity of the old rhythms of the countryside were more resistant, not having any illusions about their loss of standing in the “transformation,” and not anxious to embrace the hundreds of five and six storied factories, each with a belching chimney at infamous places like Manchester (as Eric Hobsbawm describes it in his own account of “the birth of the industrial revolution,” Industry and Empire)? Well, there was Joseph Townsend, Thomas Malthus, David Ricardo, Jeremy Bentham and Edmund Burke at the head of the field, and despite widely differing outlooks, they all agreed, Polanyi tells us, that “the self-regulating market was now believed to follow from the inexorable laws of Nature, and the unshackling of the market to be an ineluctable necessity. The creation of a labor market was an act of vivisection performed on the body of society by such as were steeled to their task by an assurance which only science can provide.” Polanyi raises his eyebrow at the unlikely partnership “of ultra-reformer Bentham and the ultra-traditionalist Burke” but says “what made economic liberalism an irresistible force was this congruence of opinion between diametrically opposed outlooks.” Come to think of it, that’s not so unlike the strange alliance of Right and Center today for “market-based” solutions, and their mutual abhorrence of “interventions” that would directly create jobs. Please note that Adam Smith is surprisingly not on this list. Polanyi specifically exempts him from the indictment, saying he clearly stood for an economy still “embedded,” subordinate to the needs and values of the broader society, notwithstanding his prodigious efforts to free it from the worst aspects of mercantilism. And so it was that Smith did not live long enough to witness the horrors of the English Midlands of the 1840’s: he died on July 17, 1790, in Edinburgh, Scotland.)
That’s not all which recommends Polanyi’s work to us today, however. In a way that seems remarkable for a Central European writing during World War II (although the book was written in Vermont and Polanyi would go on to teach at Columbia University), he was able to catch the special intensity of this effort to place the market at the directing center of society, a fervor that still resonates in contemporary America with figures such as Rush Limbaugh, Grover Norquist, Larry Kudlow, Stephen Moore and the Club for Growth, Dick Armey, and the congressional Pauls (yes the movement blends easily with libertarianism, on economic issues), just to name a few of the brightest flames amidst the general revolutionary conflagration, who carry on with the fundamentals dictated by von Mises and von Hayek, and the academic missionary and part-time popularizer Milton Friedman. Here’s how Polanyi puts it in the Chapter entitled “Birth of the Liberal Creed”:
Economic liberalism was the organizing principle of society engaged in creating a market system. Born as a mere penchant for nonbureaucratic methods, it evolved into a veritable faith in man’s secular salvation through a self-regulating market. Such fanaticism was the result of the sudden aggravation of the task it found itself committed to: the magnitude of the sufferings that had to be inflicted on innocent persons as well as the vast scope of the interlocking changes involved in the establishment of the new order. The liberal creed assumed its evangelical fervor only in response to the needs of a fully deployed market economy…Only by the 1820s did it stand for the three classical tenets…for a labor market, the gold standard, and free trade. ..The utopian springs of the dogma of laissez-faire are but incompletely understood as long as they are viewed separately. The three tenets…formed one whole…the true implications of economic liberalism can now be taken in at a glance. Nothing less than a self-regulating market on a world scale could ensure the functioning of this stupendous mechanism…No wonder that economic liberalism turned almost into a religion once the great perils of this venture were evident. (Pages 141-145.)
This would be interesting enough to keep the attention of a contemporary reader who has lived through our era celebrating globalization, and the writings of Thomas Friedman, who at times seems to express the spirit of these early market proselytizers, although he has had the good sense to jump ship on the issue of global warming. But many now are having second thoughts about how “pure” free-trade and globalization are working out, thanks to the Jupiter like effect China is having on the old theories, which is especially sore point here in the U.S, but is generating pain around the world by stealing manufacturing, mitigated only partially by its omnivorous search for raw materials. It’s a good introduction to another of Polanyi’s guiding frames, the concept of “double-movement,” which has a touch of Hegel without the grandiosity or mystifications, and of George Soros’ new theory on how markets behave, his concept of reflectivity. Although the specific term is not employed until later, on the very first pages of Chapter One, Polanyi makes its meaning clear:
Our thesis is that the idea of a self-adjusting market implied a stark utopia. Such an institution 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 wilderness. Inevitably, society took measures to protect itself, but whatever measures it took impaired the self-regulation of the market, disorganized industrial life, and thus endangered society in yet another way. It was this dilemma which forced the development of the market system into a definite groove and finally disrupted the social organization based upon it.
Double-Movement & The Role of the State: Intervention
This “double-movement” - of the market’s bid for complete supremacy over society - and the resistance it triggered from different parts of that society - leads logically to the examination of the role of the state in this first great experiment of laissez-faire, with some surprising findings. If you have an ear for the dynamics of the debate between left and right today on matters of political economy, you are sure to hear ample portions which will find direct resonance in Polanyi’s work, with the Right’s avowedly anti-statist theory being very much at odds with the growth of prisons (and all the accompanying mechanisms required to put people there and monitor them upon release), the military, and most recently, the staggering national “surveillance state,” and we warn you: you will be surprised at the federal scope of the efforts to support the small businesses of the nation, visible at the Small Business Administration’s website (and mirrored, and interacting with similar efforts in most states) or how many millions of your tax dollars work over at the Commerce and State Departments to support “free trade,” and our Export-Import Bank. And so this train of thought arrives very quickly at a station called “Intervention,” which is not listed on the map usually supplied with the laissez-faire line, but nonetheless appears, with much denial, and actually out of deep necessity. Here’s how Polanyi conducts us along the first journey, and its surprises:
The road to the free market was opened and kept open by an enormous increase in continuous, centrally organized and controlled interventionism. To make Adam Smith’s ‘simple and natural liberty’ compatible with the needs of a human society was a most complicated affair. Witness the complexity of the provisions in the innumerable enclosure laws; the amount of bureaucratic control involved in the administration of the New Poor Laws…the introduction of free markets, far from doing away with the 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. This paradox was topped by another. While laissez-faire economy was the product of deliberate State action, subsequent restrictions on laissez-faire started in a spontaneous way. Laissez-faire was planned, planning was not. (Pages 146-147.)
What follows in the remainder of Polanyi’s remarkable chapter, “The Birth of the Liberal Creed,” grounded in the unfolding of that “double-movement” in 19th century England – and Europe – can serve as decent stand-in, with only minor adjustments, for the current debate between the Republican Right in Congress and the Centrist Obama administration, especially on the nature of the “interventions” of the Obama administration to save the economy, and what should be done, since we are on the verge of drowning again. It also could serve as the debate between the left and the right during the tumultuous 1930’s, between Roosevelt and his business critics, especially after 1936, although you won’t catch us equating President Obama with the New Deal or FDR – far from it, as our readers know. To give you an even better sense of the depth and fairness of Polanyi’s insights, listen now as he lists the objections of “the economic liberal” (that is, the conservatives of 19th century political economy) to “intervention”, ticks them off sounding as if they are rolling off the tongue of House Speaker Boehner today; about all that’s missing is the “uncertainty” word:
For who could deny that government intervention in business may undermine confidence? Who could deny that unemployment would sometimes be less if it were not for out-of-work benefit provided by law? That private business is injured by the competition of public works? That deficit finance may endanger private investments? That paternalism tends to damp business initiative? This being so in the present, surely it was not different in the past…but for the unholy alliance of trade unions and labor parties with monopolistic manufacturers and agrarian interests…which in their shortsighted greed joined forces to frustrate economic liberty, the world would be enjoying today the fruits of an almost automatic system of creating material welfare… (Page 150.)
Polanyi, who was a supporter of FDR and the New Deal’s response to the Great Depression, then concludes by a careful examination of the motivations and nature of the various interventions into the English economy prior to the 1870’s and 1880’s, and he finds that they were driven by pragmatic needs and responses to the damage which the Utopian market project had brought down upon society: “the sponsors of these legislative acts were as a rule uncompromising opponent of socialism or any other form of collectivism,” and we would add that the New Deal’s response in the 1930’s was similarly pragmatic – and experimental, built upon the American reform traditions of agrarian populism and a more urban oriented Progressivism, although its achievements went too far for the more conservative progressives of the 1900-1914 period.
And finally, there is the relevance of Polanyi’s handling the collapse of the gold standard in the 1930’s, one of the three main anchors of the “liberal” economic program launched in the 1820’ & 30’s. For what the gold standard did, playing its role as the “automatic” regulator of trade and budgetary imbalances, was to force nations to defend their currency values at all costs, no matter the unemployment rate and the cascading deflation in prices – and accompanying collapse in consumer demand. This almost always meant balancing the budget. Thus it serves quite nicely as the equivalent for the “austerity” being preached by the Republican Right and the European Central Bank, and leading to Krugman’s accusation of the “learned helplessness” of the policy makers (and the Federal Reserve too). And we can justly ask of Ireland, Great Britain, Spain, Portugal and especially Greece: how well is it working? About as well as it did for the French trying to defend their currency in the 1930’s. No wonder that first Britain, and then the U.S. abandoned the gold standard early in the Depression, and found their way, however haltingly and pragmatically, into the safer currents of more Keynesian waters, although Keynes despaired of Roosevelt’s somewhat erratic course, and FDR never came fully into port until Pearl Harbor was wrecked, when it then became safer to say, implicitly, that deficits didn’t matter so much. (The U.S.’s cumulative debt never approached the record of England’s at the end of the Napoleonic Wars, which hit something on the order of 230% of Gross Domestic Product, but did not end in any calamity; as Polanyi lays out for us, the great crisis of the 1830’s and 1840’s, lay in consequences of the great Utopian market project. Ours reached about 120-140% of GDP at the end of World War II.)
America’s Most Insightful Critic of the Political Economy
We said earlier that we weren’t going to recommend just one text, good as we think Polanyi’s is, and we’re going to stick to that promise. What we’d like to do now is to think out loud about the work of perhaps America’s most insightful contemporary critic of the conventional “wisdom” in matters of political economy, William Greider. No one has done more over the past quarter century to enlighten and engage the average citizen in remaking our political culture and done so with work of such high quality: Who Will Tell The People: The Betrayal of American Democracy, 1992; One World, Ready or Not: The Manic Logic of Global Capitalism, 1997; The Soul of Capitalism: Opening Paths to a Moral Economy, 2003; and, most recently, Come Home America, 2009. Yet there is no one whose work has been more ignored by professional economists, with perhaps the exception being his Secrets of the Temple, the book about the Federal Reserve, published in 1987. We suspect that’s largely because Greider is a “populist” in the broadest and best sense of the term as it pertains to the political economy: that the economy is meant to serve the broader society’s goals, and its effectiveness measured by the fate of the working poor and the middle class portions of society. Unfortunately, there is no term in the American political vocabulary that is more likely to cause indigestion, anxiety and even outrage from our status-guarding professional economists than that one, despite the fact that Bill already saw, in pretty clear outlines, the shape of what was to unfold in 2007-2009, in his book One World, Ready or Not.
In part three of that work, “Manic Capital,” Greider worried out loud about where the global economy was headed, and was spot-on correct in his choice of that adjective which emphasized the growing irrationality of financial speculation, and the private debt which fueled it, ahead of professional economists like Robert Schiller, whose Irrational Exuberance did not come out until March of 2000; Greider wasn’t in the index, or his books listed as a reference, although we note that even “Pliny the Younger” got a plug. Readers have to remember that One World was written between 1994-1997, and came out just before the Asian financial crisis hit in the summer of 1997, so the more the world has unfolded – or should we say “unraveled” - since then, the better his calls look. Here’s a sampling of the warnings:
In the history of capitalism’s long expansionary cycles, it is finance capital that usually rules in the final stage…and the rising prices in financial markets gradually diverge from the underlying economic reality. Since returns on capital are rising faster that the productive output that must pay them, the process imposes greater and greater burdens on commerce and societies –debt obligations that cannot possible be fulfilled by the future and, sooner or later, must be liquidated, written off or forgiven… The present industrial revolution of ‘one world’ has now reached this pathological stage…If my analysis is right, the global system of finance and commerce is in a reckless footrace with history, plunging toward some sort of dreadful reckoning with its own contradictions, pulling everyone else along with it…(Quotes are from pages 227,228, 316.)
On the closing pages of the chapter that preceded the section on “Manic Capital,” Greider quotes from an economist we have also occasionally cited, Christopher Whalen, about the topic which got him in the most trouble with young hot-shot economists like Paul Krugman: the growing global imbalance between productive capacity, and supply, and faltering consumer demand, which we now know, especially in the U.S., was being propped up by all sorts of fantastical borrowing and lending, especially credit cards and mortgage related re-financing:
‘We are headed for an implosion,’ Christopher Whalen, a conservative financial economist in Washington, predicted. ‘If you keep lowering and lowering wages in advanced countries, who’s going to buy all this stuff? You look around and all you can see is surplus labor and surplus goods. What we don’t have is enough incomes. But the only way people find out there are too many factories is when they wake up one morning and their orders are falling. If this keeps up, we’re going to face a lack of demand that’s worse than the1930’s.’ (Page 221.)
And then finally, on the very last page of the book, Bill Greider, the perpetual optimist, put his natural inclination aside for the moment and spoke the truth about what he saw coming: “In short, if I am compelled to guess the future , I would estimate that the global system will, indeed, probably experience a series of terrible events – wrenching calamities…” and then, in a paragraph which has heightened interest for us today because it reminded us so much of the remarkable “ear” Karl Polanyi had for the religious and Utopian overtones of the “free-market” advocates, Greider wrote these words:
The utopian vision of the marketplace offers, after all, an enthralling religion, a self-satisfied belief system that attracts fervent and influential adherents. The wondrous machine of free-running enterprise has fantastic capabilities and people defer to its powers, persuaded it will carry them forward to millennial outcomes. Abstracted from human reality, the market’s intricate mechanisms convey an entrancing sense of perfection, logical and self-correcting. Many intelligent people have come to worship these market principles, like a spiritual code that will resolve all the larger questions for us, social and moral and otherwise, so long as no one interferes with its authority. In this modern secular age, many who think of themselves as rational and urbane have put their faith in this idea of the self-regulating market as piously as others put their trust in God. When this god fails, as I think it must, people around the world may at last be free to see things more clearly again ,and to reclaim responsibility for their own lives and begin organizing the future in its more promising terms. (Page 473.)
Brave words indeed, to have written in that “exuberant” decade of the 1990’s, before the crashes started rolling in. But Greider was reading Polanyi, among many other sources, and quotes from him at a number of places in the book; it wasn’t enough to save him, however, from the wrath of those invested, at the time, heavily in market-based models and theories, especially ones that said that all those imbalances in trade and manufacturing and blue-collar incomes would work out.
Krugman vs. Greider: 1997
Reading Paul Krugman’s scathing reviews of it today makes Krugman look bad, ironically since he’s now incredulous that policy makers cannot see the lack of demand as one of the chief causes of our current troubles and our learned helplessness; here’s one from Slate at http://www.slate.com/id/1916/Â Â  and a different one that appeared in the Washington Post, http://web.mit.edu/krugman/www/greider.html  where Krugman closes by writing that “…as a theorist Greider is not only reckless but simplistic and remarkably ill-informed.”
Now it just so happens that we were thinking of calling our essay “The Education of Paul Krugman,” even before we went to refresh our memories by revisiting Greider’s One World, which we first read in the late 1990’s. Doubtless Krugman wouldn’t retract everything he wrote in those reviews, although his trade theories, which led to him winning the Nobel Prize in 2008, ought to have led to worries over the rise of China even earlier, and doubtless he would argue it is the debt burdens resulting from the financial crisis and maldistribution of income in the U.S. that is the cause of demand diminishment, not the wage differentials between the trading poles of the global “order.” But whatever the burdens between Greider and Krugman, carried by each other’s conflicting economic theories, it is clearly Bill Greider who came closer to “calling” the actual events which have unfolded since 1997, and in our opinion, which have come closer to describing the sometimes wild gyrations in capitalism’s internal “compass,” which can send it crashing into the needs of the broader society. And that’s why One World, Ready Or Not: The Manic Logic of Global Capitalism is one of our recommended progressive “texts,” and we think that “history,” will, in the long run, give it a proper place on the shelf alongside the other political economy’s “classics.”
The Best “Field Guide to American Politics…
Although Greider did not mention Polanyi’s The Great Transformation in his other “classic,” Who Will Tell the People: The Betrayal of American Democracy (1992), we’re going to use Polanyi’s concepts of “embeddedness and double-movement” to take a fresh look at what he was up to, and why we still seem to be waiting for “the change.” Before we do that though, we want to state that there still isn’t a better “field guide” to how national and state politics works, down in the trenches of legislative activity and the policy shaping that precedes it, than this book. Right now, Van Jones is out on the “stump” talking about how to reclaim the American Dream for progressives, and proclaiming that the Obama administration lost the narrative with the public amidst all the policy details over the past two years: he forgot how to speak American to the American people, is his way of saying it. Well, no one has done a better job in writing about the betrayal of our democracy than Bill Greider did in this book, and it’s fully in the American vernacular.
“These Warped Power Relationships”
In his wonderfully entitled Introduction, “Mutual Contempt” (between elected officials and the citizens, that is), Greider sketches the basic outlines of the American “civic faith,” and we think that they can serve quite well as the stand-ins for those broader societal values which are supposed to govern economic activities as well as civic activities; in Polanyi’s terms, the values in which economic activity is “embedded”: “Accountability of the governors to the governed. Equal protection of the law… a presumption of political equality among all citizens…the guarantee of timely access to the public debate. A rough sense of honesty in the communication between the government and the people…” In terms that strongly echo Kevin Phillip’s book which followed just two years later (Arrogant Capital: Washington, Wall Street and the Frustration of American Politics), Greider asserts that “the most troubling proposition in this book is that the self-correcting mechanisms of politics are no long working.” That’s because of “the deformed power relationships that explain why this democracy regularly disappoints its citizens.” More specifically, “it is these warped power relationships between people and monied interests and government that tangibly define the democratic problem.” (Our emphasis.)
Greider wrote that he wanted to avoid “simple moralisms” in explaining how these power relationships became “warped,” and if we keep in mind that he is really explaining how the best of the New Deal’s reforms decayed into what he terms “The Grand Bazaar” of Inside the Beltway politics, then we can better understand his summary in the Introduction:
On one level, powerful economic interests – corporations and private wealth – actively set out to seize the high ground of politics by deploying their superior resources and they largely succeeded. In another dimension, however, these powerful interests were merely reacting to the same destabilizing political changes that confronted everyone else. Out of practical necessity, defending their own well-being, they adapted better than others. ‘Organized money’ is ascendant and ‘organized people’ are inert because money has learned how to do modern politics more effectively than anyone else. (Page 29.)
Fair enough, but did this formulation go too far in stressing the “practical necessities” of stepping into the vacuum created by the decay of the mediating mechanisms of the New Deal, and the Democratic Party, so visible to everyone by that awful, and awfully important decade of the 1970’s? Did the book, unlike One World, Ready Or Not, give too little weight to the Right’s grand ideological project, which admittedly had been blurred by the more muted (or was it confused?) presidential term of George Bush I, from 1988-1992?
Readers may recall from some of our recent postings that it was the New York Times’ March 25th, 2011 article proclaiming, on the front page, that General Electric had paid no taxes in 2010, that sent us scrambling back to Who Will Tell the People, searching for that famous chapter ironically entitled “Citizen GE.” The tax revelation was something that was very hard to swallow coming as it did in the full tide of austerity politics then (and still) sweeping over the nation, and President Obama’s earlier elevation of GE Chairman Jeffrey Immelt to head his Council on Jobs and Competitiveness only made the context worse. So we did some digging, and what we found out was that GE had an even harder ideological edge, one that Greider left out of his otherwise wonderfully deft portrait. That portrait was unsparing on the special treatment corporations were already receiving for criminal violations of the law, including environmental ones, yet acknowledged the seemingly contradictory moderate to progressive positions the company took on other social and economic issues.
GE: Bringing Interesting Things to Light
So here are some additional things which you should know about GE. First, there was Haynes Johnson’s note on the education of the world’s most amiable ideologue, Ronald Reagan, which began when he first went to work for GE in 1954. Reagan was “tutored” by GE’s public relation’s man Earl B. Dunckel (“Dunk”), whose company and self-description read that “GE was then ‘ultraconservative,’” and he “‘was, am, and always will be an arch conservative.’” (Sleepwalking Through History: America in the Reagan Years, 1991, Pages 56-57.)
Then, with Kim Phillips-Fein’s Invisible Hands (2009), we learned that the great wave of 1946 strikes left a lasting impression on the business culture of GE, taking it much further to the right than the general public’s perception of the company. Under the guidance of GE’s labor relations and community affairs director Lemuel Ricketts Boulware (we had never heard that name before reading this book) “GE became known throughout the business world for its staunch resistance to union power, and, on a deeper level, to the entire liberal political economy of the New Deal. As the company publicist Edward Langley put it, GE was ‘so obsessed with conservatism that it was not unlike the John Birch Society.’” (Page 90.) “Boulwarism” became not a slogan, but an ideological program, “a ceaseless education campaign in the ideology of the free market…For GE to win good contracts, supervisors, managers, and executives needed to hold intellectual sway over their employees, which they could achieve only by becoming ‘thought-leaders’ themselves. To this end Boulware distributed reading lists to GE managers and supervisors, including works by economic thinkers associated with the Mont Pelerin Society…” (Pages 100-101.) The Mont Pelerin Society? Never heard of it you say? Well, one of the driving forces behind its founding on April 1, 1947 “at a small chateau atop Mont Pelerin, near Vevey, Switzerland” was none other than the author of The Road to Serfdom, Friedrich von Hayek. And just to help make the religious-like zeal connection that Polanyi called our attention to with those “classical economists” and their Utopian market project, Phillips-Fein notes that Boulware “ended his speeches with an exhortation for ‘inner regeneration,’ reminding businessmen that they must ‘literally be born again’ in the fight for the free market.” (Page 102.) You could almost say it’s hard to “Imagine that.”
The 1971 Powell Memo: Business on the Warpath
And then, on the very same point, market ideology versus business pragmatism, Phillips-Fein adds additional perspective by calling our attention to attorney Lewis Powell’s August, 1971, now famous memo to the U.S. Chamber of Commerce, entitled “The Attack on the Free Enterprise System.” (Yes, this was the same Powell who was nominated to the Supreme Court by President Richard Nixon two months later, and whose memo was brought to the public’s attention by Jack Anderson in September of 1972, too late to have an impact on the nomination.) While one can argue that the memo had its practical side in terms of the defense of business “self-interest,” it is the ideological determination that strikes the reader of Phillips-Fein’s account, and she does not hesitate to characterize Powell as “the seething counterrevolutionary of the memorandum”:
…the ultimate issue may be survival – survival of what we call the free enterprise system, and all that this means for the strength and prosperity of America and the freedom of our people.’ They then should marshal their power to influence the universities, the media, and the courts. They had to strive consciously to shape the political debate on college campuses by organizing speakers’ bureaus, evaluating textbooks, and ensuring ‘balance’ in faculty hiring through their roles as donors and trustees. They should keep television programs under ‘constant surveillance’ for excessive criticism of the profit system, while seeking to fund special programs espousing views in favor of the free market. Finally, they needed to follow the example of the civil rights movement and try to use the courts and the judicial system to win rights for business and to protect the marketplace. ‘The judiciary may be the most important instrument for social, economic and political change.’ (Pages 158-160.)
One thing we’ve noticed about Bill Greider’s writings over the past several years, including in his last two books, The Soul of Capitalism, and Come Home America, was that he tended to play down the power of the ideological force of the Republican Right, and, when it arrived on the scene, the nature of the ideology of the Tea Party and its relationship to the party’s existing right wing. This is not, upon some reflection on our part, because of ideological naiveté, but rather, we suspect, because of Bill’s innate optimism and populism: he wants to hold open the door of possibility that the anti-elitism he sees in the Tea Party, as expressed in their hostility to the bailout of the banks, for just one example, could lead eventually to some type of left-right dynamic that might break up the duopoly of the existing parties. It was with these thoughts in mind that our attention was drawn to his fascinating presentation of conservative activist Paul Weyrich’s shared plane ride with none-other-than Ralph Nader (sometime in the early 1990’s, by inference). In the section immediately prior to this populist exchange, Greider had been stressing how good the Republican Party is at stirring up voter anger and passion, but then how it “walks away from the anger and proceeds to govern on its real agenda, defending the upper-class interests of wealth and corporate power,” and we must note that these topics are being handled in a chapter entitled “Rancid Populism,” to be fair to Greider. So here is his offering of Weyrich’s account of this very, very interesting plane ride, high in the sky where the ideological spectrum must, we infer, be subject to Bermuda Triangle like bendings:
‘Ralph Nader and I rode on the same airplane recently and we talked at length and we agree about everything,’ said Paul Weyrich… ‘Nader and I have the same contempt for office holders and the process by which both parties get together and screw the public. Unlike most Washington-based people, we are in constant touch with the grassroots. Nader and I spend about half of our time on the road and, as a result, we know what the little guys are thinking. ‘Both Nader’s base of support and mine, though ideologically different, are the lower middle class. The difference is their perception of who’s responsible for the mess. Nader’s people would tend to blame big business and corporations. My people would tend to blame government and maybe labor unions. My view is they’re all to blame.’ (Page 278.)
Well, as tantalizing as this is might be, the difference in assessing “who’s responsible for the mess” is an enormous one, and the Right’s continued successful demonization of government, if anything, purified and intensified by the Tea Party, and the Republican Right’s attack on labor at the state government level, would seem to put these glimmers of hopeful populism to rest. After all, neither Weyrich in 1992 nor the Tea Party twenty years later is making a crucial distinction: between the devil “government” in the abstract, and the ideologically captured mechanism which believes that it is the incompetent stable boy to the thoroughbred free-market, as shown by the performance of the financial regulators during the run-up to the 2007-2009 crisis. And this leaves aside other critics on the left whose views of a far more cynical governmental role under the sway of the Right, such as Thomas Frank’s Wrecking Crew and James Galbraith’s Predator State. Don’t be surprised, if the Right recaptures the White House, if we see a new Bureau of Privatization emerge, although more likely, this conservative type of Tammany Hall spoils contracting will be carried out from the executive branch. Or perhaps the Tea Party could manage the Bureau on an entirely “volunteer” basis; or entirely contract it out to the private sector.
Weyrich’s Advice to Democrats
Before we leave our recommendations of Bill Greider’s two books for your summer reading, we do want to do two things, however; one of which is to share some advice that Weyrich gave to Democrats, in the spirit of “if you really want to go after the Republican’s ideological Achilles heel, here’s the way,” something we think still has meaning for 2011, especially in light of the little essay Bill Greider wrote – almost totally ignored because of its timing - just two days after the disastrous November, 2010 election, “The End of Free-Trade Globalization,” here at http://www.thenation.com/article/155848/end-free-trade-globalization  . Weyrich’s advice back in 1992, doubly ironic based on what was to follow with Bill Clinton’s NAFTA pushing and “best-man” ushering of China into the WTO, was as follows:
Democrats, if they had the will, could still breakup the Republican coalition, Weyrich believes, by defining a stark opposition to Republican economics – in particular, on the trade issue and foreign competition, the continuing loss of American jobs… ‘Democrats can sound macho if they attack on that issue because it makes them sound like nationalists, but they don’t seem to have it in them,’ Weyrich said. (Page 280.)
The other thing is to note that when Bill Greider draws a particularly bleak picture of the ability of citizens to “break into” the Center-Right dynamics of the two parties to try to enact a more progressive set of policies – what we call “the poll after poll shows… syndrome”, he tends go back to what he finds stirring “out there” in “the grass roots,” ideas that won’t emerge in Washington today, but are a sign of hope and vitality for the future. That was very much the tone of his 2003 book The Soul of Capitalism, and also the tone of the Introduction to the “Reimagining Capitalism” issue of The Nation (in print, June 27, 2011), where he wrote that the 13 little essays of recommendations “should stimulate imaginations and maybe start some healthy arguments. At the very least they demonstrate that the nation is alive with fresh thinking and bold outlines for big change. The problem, of course, is that none of these ideas have any traction in regular politics…In other words, the new politics does not start in Washington. Trying to persuade policy elites and incumbent politicians to take these ideas seriously is a waste of time. Reform politics has to start on the other end, with the experiments and experiences of ordinary people.” That’s classic Bill Greider, and we think it has captured a good part of the truth of the reality of our current situation.
Yet not all of that reality, as we have tried to show in this essay. We think, harkening back to the letter and spirit of that last page of One World, Ready or Not – Greider in prophetic mode, - that the situation in the nation today is far more dire, on the ground economically, and, “in the air” ideologically, than the “Reimagining Capitalism” tone suggests (of course the alternative thinking must go on, and we support it). Just as Greider noted the many deformations which the constant pressures of private economic power have wrought upon American democracy, we wonder whether the ideological intensity of The Right, (and we think Greider underestimates it) especially since the financial crisis, has also derailed and deformed the very possibility of the counter-movements that Polanyi has observed the Right’s Utopian projects have set-off in the past?