A rchive Date
[ 06-04-2004 ]
Category
[ International Relations ]
sub-Categoy
[ Regionalism ]

Politics of The Global Economy

State Institutions Influence On Regional Politics

Binding The Individual To The State - of Obligations

Simon Magus

Joseph E. Stigilz, in his analysis of Polanyi’s works points out that ‘

the great transformation of European civilization from a pre-industrial to an era of industrialisation was accompanied by a shift in ideas, ideologies and social and economic policies

’. It was a transformation analogous to that which is transforming and confronting developing countries of the 21st century. He also points out that Polanyi’s arguments and concerns are as valid today as they were when first presented. As evidence of this, we have to only look at the issues that were raised by the rioters and marchers who demonstrated in the streets of Seattle and Prague in 1999 and 2000

⁽¹⁾

It would seem that, central themes to Polanyi’s position were that self-regulating markets never worked, its deficiencies was a result of conceptual or structural weaknesses and assumptions about the workings of the marketplace; and that their consequences were so great that governments at point has no choice but to intervene since the pace of change that the markets brought about within society often had significant social consequences that were never always positive. Polanyi also thought that the popular doctrine of ‘

trickle-down’ economics – that all, including the poor, benefit from growth’

- was advocated or adhered to with little or no historical support.

⁽

²⁾

What Polanyi apparent sought to do was to clarify the interplay between ideologies and particular interests within and of society; and how the functioning of the free market was determined or directed by new industrialists who selectively used those ideologies to further their own vested interests. For example, they called upon the government of the day to intervene in the marketplace only when it was in pursuit of their own self-interests. Polanyi also sought to highlight that there was no respectable support for the notion ‘

that markets by themselves led to efficient, let alone equitable outcomes’. His argument being that ‘when information is imperfect or markets are incomplete – interventions exist that in principle could improve the efficiency of resource allocation

’ . Instead, he argued, ‘

we have moved, by and large, to a more balanced position, one that recognizes both the power and limitations of the markets; and the necessity that governments play a role in the economy, though the bounds of that role remain in dispute

.’

⁽

⁾

And while there is general concensus about the importance of the role that government should play in regulating the financial markets, there is none about how or the best way it should be done. As a result, instead of the elimination of poverty historical evidence shows that industrialisation or social developments have quite often led to an increase of poverty. In spite of the fact that that same evidence also shows that growth has also benefited a significantly large segment of enlightened industrialized societies.

Polanyi also stresses the inter-relatedness of the doctrines of free labour markets, free trade and the self-regulating monetary mechanism of the gold system. Preceded by the work of general equilibrium economic theorists, very few economists adhere to gold standard doctrines. Instead, they favour the current systematic approach to economic theories. Polayni probably would have argued that the problems with the current systems started when states went away from the gold standard; and it is for this reason that a self regulating market mechanism is so challenging to economists of all political stripes.

~~(4)~~

Flexible exchange rates, as the order of the day, ought to strengthen the position of those who believe in a self-regulating marketplace. Yet those same advocates would call for governments to intervene on their behalf, which often reveal some of the weaknesses in the doctrines of a self-regulating market system that seeks government protection from (foreign) competition; and the social consequences that can occur, as a result of such interventions:

Excessive volatility in the marketplace that can only be explained by changes to underlying fundamentals.
Excessive changes in prices alters investors expectations which can wreck havoc on economies.
Global financial crises such as the Great Depression reveal that a self-regulating economy does not always work like its advocates would have you believe.
Neither the U.S treasury or the IMF promotes or believe that government should not intervene in exchange rates
The IMF, a public institution, regularly intervenes in exchange rates by providing funds to bail out bankrupt firms
A free market for labour, goods or services has never existed in developed nations; yet advocates there lecture developing countries on protectionism and government subsidies while refusing to open up their economies to foreign labour, goods and services that represent developing nation’s comparative advantages
The push for liberalisation of financial markets by the U.S treasury and IMF by insisting on the imposition regulations have has disastrous consequences that followed their advice
Recent global financial crises serve as evidence that liberalism imposes risks on countries that’s borne, disproportionately, by the poor of those nations ⁽⁵⁾

Liberalised international trade allows a country to take advantage of its comparative advantage and increase incomes on average. But this often comes at the cost of lost jobs, high unemployment and job destruction in developing nations where IMF reform packages combine trade liberalisation and high interest rates thwart local attempts to develop enterprise class businesses. At no point can it be unequivocally argued that moving workers from low productivity jobs to unemployment reduces poverty or increases national incomes – on the basis that the supply of labour would create its own demand. For capitalists, high unemployment places downward pressure on workers wage demands. For economists, unemployed workers demonstrate a malfunctioning economy, as evidence show in every country. As a result, advocates of a self-regulating marketplace places blame for such malfunctions on governments; which shatters the lie that the marketplace is self-regulating.

⁽⁶⁾

Polanyi also stressed that there are deficiencies in the concept of self-regulating economies that have fundamental affects on the lives of individuals because of a co-relationship to one another:

For example, there is now a growing recognition around the issue of social capital that shows a co-relationship between extended periods of unemployment, persistent high levels of inequality and pervasive poverty and squalor. This is a relationship that has had disastrous effects of social cohesion and contributed to high or increasing instances of local violence (in Latin America, for instance).

⁽⁷⁾

There is also growing recognition that the manner and speed of reforms erode social relations, destroy social capital and lead to creation and/or dominance of criminal elements (such as the Russia Mafia). In addition, the IMF’s elimination of food subsidies (in some instances) as wages plummet and unemployment rises lead to political and social turmoil (as in Indonesia). So overall, it’s clear that economic policies contribute to a breakdown of established social relationships that adversely affects national economies as investors become wary about risking their monies in regions that are beset by high social and political tensions. All of which create a negative set of dynamics in affected regions.

⁽⁸⁾

Various societies (developed and developing) have over time put into place social mechanisms for caring for their poor and disadvantaged. The age of rapid industrialization has made it increasing difficult for such individuals to take complete responsibility for their positions within the social structure as they are buffeted by forces that’s generally beyond their control. There is little that they can do to promote reforms to economic of political systems, even if they desired the promise of full employment and substantial wealth and prosperity. Even if the unemployed offered to work for lower wages there are no guarantees that he or she will obtain employment, especially during periods of unstable economic or political conditions.

⁽¹⁰⁾

Rapid economic social or political transformations destroy old societal coping mechanism and safety nets, even as it creates new sets of demands – before new mechanisms are developed or implemented. Thus, Polanyi sees the failure of such coping mechanisms as further evidence of the erosion of social capital; For example, during recent global financial crises the IMF, U.S treasury and advocates of neo-liberal doctrines appeared to have resisted implementing measures that would have been part of the solution. That is, since the loans were mostly from the private sector to private borrowers, the standard manner of debtors who defaulted would be to force them to declare bankruptcy. This is a central part of capitalism. So, by offering bailouts for countries that were in default the IMF and other lenders contributed to the extent and consequences of the crisis which resulted in the IMF forcing the implementation of fiscal and monetary policies that had significant and negative impacts on workers and small businesses; That is, those who had, at best, minimal roles in the development or extent of national or global crises.

⁽¹¹⁾

This pattern of governmental or IO interventions has also played itself out in Russia where the experiment with communism was replaced by one that promoted a self-regulating market economy before the country or state government had the chance to put into place necessary and legal institutional infrastructures. The result was that the inefficient system of central/state planning that distorted resource allocation - through the absence of incentive for social ownership, was replaced by inefficient decentralisation and privatisation. ‘

There was no boom, the economy shrank by half. Those in poverty from from 2% to more than 50%. Privatisation led to the emergence of oligarchs who become billionaires

”

⁽¹²⁾

. It should also be noted that capital market liberalisation was supposed to signal the strength of the Japanese market for investors – before the onset of the Asian financial crisis.

Advocates of neo-liberalism stress that it’s government interventions that’s to blame for the problems that financial markets encounter; and, consequently, getting government out of the economy through privitisation and liberalism is a desirable development objective. However, from this perspective economic effiency is viewed, perhaps, as merely the accumulation and allocation of national resources in an efficient manner. For Polanyi, this perspective misreads or ignores the transformative role and aspects of economies (that is, the social) and the central role that governments invariably play in preserving social cohesion through the protection of national social and human capital.

⁽¹³⁾

So, overall, we see that Polanyi’s central themes are:

The complex inter-twining of politics and economics
That Fascism and communism were not only alternative economic system but, like socialism, were based on market societies that failed to function in an efficient manner
The heyday of neo-liberal doctrines have been the period between 1990 – 1997 - following the fall of the Berlin Wall (where the demise of communism was then seen as vindication of belief in a self-regulating marketplace
And that the origins of global financial crisis can be traced back to the advent of increasingly global deregulation or liberalising of the marketplace since after WWII⁽¹⁴⁾

Finally, Polanyi saw the marketplace as part of the broader fundamentals of economics: that the broader limits of economy and the marketplace are parts of a yet broader issue that must address the underlying aspects of society in general. He perceived market economies, not as ends in themselves, as means to more fundamental societal ends. That is, the ties that bind individuals to the state or political regions.

Joseph E. Stigilz, The Great Transformation: The Political and Economic Origins of Our Time(Karl Polanyi) – Second
Beacon Paperback Edition, 2001, Beacon Press, pg vii
Ibid pg vii
Ibid pg viii
Ibid pg viii
Ibid pg viii
Ibid pg viii -ix
Ibid pg x
Ibid pg x - xi
Ibid pg xi
Ibid pg xi
Ibid pg xiv
Ibid pg xiv
Ibid pg xvi]

Cross-Indexed:

The Iron Law Of Oligarchy, Revisited

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