POSO007S7

INTERNATIONAL POLITICAL ECONOMY

2021-2022

Dr Ali Burak Güven: a.guven@bbk.ac.uk

09 DECEMBER 2021

POLANYI: DOUBLE MOVEMENT &

THE RE-EMBEDDING OF MARKETS
 Thus far...
IPE and Realism
• Classical realism: key assumptions
• Neo-realism, state capabilities, regimes
• Mercantilism, neo-mercantilism, the “national interest”
Liberalism and International Trade
• Terminology (balance of payments, trade balance, current account etc.)
• Mercantilism; Slavery and the Atlantic Triangle
• Adam Smith and Classical Political Economy
• The theory of comparative advantage
• Neoclassical Theory: Hecksher-Ohlin & Stolper-Samuelson
Empire and 19th Century Globalisation
• The significance of the 19th century: Do we still live in a 19th century world?
• Crises of capitalism: 1870s/1930s/1970s/the current crisis (long cycles/waves?)
• Contrasting approaches to the “British Empire”: production/trade/finance?
• The triumph of monopoly capital & imperialism? The triumph of trade & finance?
Depression and War
• Fragile recovery of the 1920s; intense dilemmas in monetary/finance/trade
• The Great Depression: overproduction/underconsumption; collapse of int’l order
• Responses vary in each country, but on the whole a turn away from laissez faire and toward state
interventionism.
Keynes and the Post-1945 International Architecture
• British versus US hegemony; the “Golden Age of Capitalism”
• The Bretton Woods regime; myths vs. reality
• Bretton Woods Institutions: IMF & World Bank’ mandate, governance, operations
• Combination of “liberal” int’l economic order + domestic socio-political stability
Decolonisation and Dependency: Structuralist and Marxist Analyses
• Decolonisation; emergence of “Third World” & the question of “development”
• (Liberal) modernisation theory: domestic factors, holistic process
• Structuralism, dependency, world systems research
• The Non-Aligned Movement (NAM); G77 + UNCTAD; the New International Economic Order
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 LECTURE OUTLINE

1. Karl Polanyi and The Great Transformation

2. The Nature of the Economy: Embeddedness

3. How Society Protects Itself: Double Movement

4. Conclusion: The Revival of Polanyian Analysis

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Karl Polanyi (1886 1964)
 1. KARL POLANYI & THE GREAT TRANSFORMATION
• Hungarian economic historian & political economist; lived in Vienna, Budapest,
London, the US (Vermont; NYC) and finally Canada (around Toronto).
• The Great Transformation was written in the early 1940s, and was published in
1944 (N.B.: the same year as the Bretton Woods conference). It includes a stinging
intellectual and political history of “free market capitalism” of the 19th century and
its demise along with a fairly accurate assessment of the emergent trends.
• Long a cult classic among economic historians, TGT and Polanyian thinking became
immensely popular from the 1980s onwards among political economists, economic
anthropologists and IPE scholars as many saw the rise of “neoliberal globalisation”
as a new attempt at building an order based on laissez faire capitalism.
• Another reason for his appeal in the 1990s and 2000s: Provides a substantive
critique of capitalism /market-based economic systems without necessarily
resorting to Marxist concepts thought to be marginal and out of date.
• Polanyi: The key problem of the 19th century (and the interwar period, especially
the 1920s would also be included in this) was the belief in self-regulating, self-
adjusting market system. This proved socially and economically destructive.

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 Institutions upon which 19th
century civilisation rested
INTERNATIONAL NATIONAL

POLITICAL Balance of Power System Liberal State

ECONOMIC International Gold Standard Self-Regulating Market

“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.”

Implicit in this passage are two crucially important notions:

1. Embeddedness: The nature of economy-society relations and the
impossibility of self-regulating markets
2. Double Movement: Society will protect itself, via political action, from
attempts at ‘disembedding’ economic relations. 6
2. THE NATURE OF THE ECONOMY: EMBEDDEDNESS
• Are markets, defined by the “liberal creed” of the 19th century as self-regulating,
the natural organising principle/institution for economic activity? Is this how
things are supposed to be?
• No, not at all. “Free markets” were an invention. ( “Laissez faire was planned;
planning was not”!) The modern idea of “improvement”, of progress and
enrichment via industrial capitalism, did not reflect thousands of years of
economic history where economic activity was yet another dimension of man’s
“habitation”.
• Everywhere, economic relations were social ones, manifested in different,
sometimes overlapping, principles of behaviour such as (i) reciprocity, (ii)
redistribution, and (iii) householding (economising). These three logics
characterised economic systems around the world until the collapse of feudalism,
and in none of them was “personal gain” a dominant motive for economic
behaviour. Customs, law, religion, magic etc. were more prominent. The market
mechanism, as “truck and barter”, was just an accessory of economic life.
• Starting in the UK, things began to change significantly in the 17 th-18th centuries;
the development of a self-regulating market required “an institutional
separation of society into an economic and political sphere”, i.e. states and
markets.
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• However, the construction of markets could not take place automatically.
Markets and regulations went hand in hand.
• The idea of self-regulating market is also associated with “the extension of market
mechanisms” (of exchange) into “elements of industry” (things that are central to
production). Thus followed the extreme commodification of:
(a) Land
(b) Labour
(c) Money

In reality, these are fictitious commodities, because they were not produced for
sale and they cannot be exhausted/spent/destroyed during production. Special
markets are established for these new commodities through extensive
legislation/regulation: land markets (enclosures); labour markets (example of
Poor Laws, Speenhamland); capital markets (haute finance).

• Through these steps (evidence is provided mainly from British economic history),
crucial components of production/economic life were DISEMBEDDED from social
relations and were reconstructed as purely economic (now ‘market-based’)
phenomena.

• “Market fundamentalism” was born through much political action and legislation.

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 3. SOCIETY PROTECTS ITSELF: DOUBLE MOVEMENT
• Society has to protect itself from the deleterious effects of the market mechanism:
“[D]ouble movement as the action of two organizing principles in society... The
one was the principle of economic liberalism, aiming at the establishment of the
self-regulating market, relying on the support of the trading classes, and using
largely laissez faire and free trade as its methods; the other was the principle of
social protection aiming at the conservation of man and nature as well as
productive organization, relying on the varying support of those most
immediately affected by the deleterious action of the market --- primarily, but
not exclusively, the working and the landed classes --- and using protective
legislation, restrictive associations, and other instruments of intervention as
methods.”
• This could take various forms: In the 19th century, the key opponent/protective
force had been socialism and anarchism of various types. During the turmoil of
the 1920s and 1930s, fascism and totalitarian communism emerged as more
hardcore alternatives to “re-embed” (re-subjugate) market relations into social
ones: “The failure of the international system let loose the energies of history”.

• The key question was how the “democratic west” would go about “re-
embedding” markets: New Deal as an example.

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• As such, Polanyi provides a fairly accurate reading of the postwar alternatives: To
him, economic liberalism was no longer salvageable in its original form, and some
“great transformation” of re-embedding the market was bound to take place. The
reassertion of political/state intervention into the market towards redistributive
ends was unavoidable. Hence, Keynesian demand management was the
minimum that could have happened as Polanyi saw things in 1944.

• From this perspective, the welfare state would be seen as the outcome of a
‘double movement’ for society to protect itself from the excesses of free markets.

• TGT’s astute analysis of the significance of international institutions (e.g. balance

of power, gold standard) etc. in the historical attempts to perpetuate and
salvage the market system also suggests that the emergence of Bretton Woods
international institutions after the war is not surprising from a Polanyian
perspective.

• Still, Polanyi was essentially a ‘ revisionist’ (if not radical/revolutionary) socialist

and he would have aspired the gradual move towards a more formally socialist
system, at least a mixed economy of sorts, over time.

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 4. THE REVIVAL OF POLANYIAN THINKING
• Polanyi and TGT became immensely popular after the 1980s, principally because
this line of analysis offered original concepts to criticise the emerging “market
fundamentalism” at the global scale.
• Two examples of “embeddedness”:
1. John Ruggie / Embedded Liberalism (1982): Bretton Woods institutions
try to provide a relatively “liberal” international economic order, whereas
Keynesian policies oriented at social welfare, employment and redistribution
insure that this international liberalism is strictly “embedded” in (either
subjugated to or enmeshed within) policies/institutions designed to protect
society.

2. Peter Evans / Embedded Autonomy (1995): The “East Asian Miracle” is

not a victory of market-led economies but of developmental states characterised
by embedded autonomy = Autonomy embedded in a concrete set of social ties
which bind the state to society and provide institutionalized channels for the
continual negotiation and renegotiation of goals and policies.” Japan: Centrality of
informal networks. Organic ties between bureaucrats, but also between state
organizations and private powerholders. Korea: Less autonomous than Japan;
stronger interpenetration between the state and business. Taiwan: More
autonomous than Japan; weaker interpenetration between the state and
business.

• Alternative globalisation (“Battle of Seattle” etc) as leftwing countermovements?

• Trumpism, Brexit as rightwing countermovements?
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