18 September 2008

Fear, hope, and great transformations

By LaDawn Haglund Look just about anywhere in the U.S. economy today, and you will find bad news. Emergency after emergency strikes the financial system, resulting in multi-billion dollar taxpayer bailouts of Bear Stearns, Freddie Mac, and Fannie Mae, and now the collapse of Lehman Brothers. The housing market is in free-fall, with foreclosures at record highs. Unemployment is at its highest level since 2003, while underemployment continues to plague the working poor. The “misery index”, that is, the sum of the unemployment rate and the inflation rate, is rising faster than it has in nearly 30 years. Meanwhile, increasingly intense hurricanes fueled by global warming wreck costal cities as we fumble around, hopelessly inadequate to the task of reducing our dependence on fossil fuels, the main culprit behind the acceleration of greenhouse gases. It is at moments like these that I can’t help but remember Karl Polanyi. In his 1944 book, The Great Transformation, Polanyi referred to land, labor, and money as “fictitious commodities.” Applying excessive market rationality to these realms, he argued, distorts the substantive relationship between the economy and society in ways that create insecurity and threaten the social fabric. What we are experiencing is the predictable result of a societal restructuring that made market exchange the key organizing principle in places it doesn’t belong. Eventually something has got to give: business-as-usual is likely to lead to a breakdown in our financial, ecological, and/or human systems. Back here in Arizona, I am living a mild version of this narrative. A steadily increasing cost of living and a stubbornly fixed salary (due to spending cutbacks in education) has made it difficult for me to make my mortgage payments. Expensive gasoline adds to the woes, and not even my Prius can save me (though I am grateful to the Japanese for developing such a nice hybrid vehicle). Recently, when I was really feeling a pinch, I tried to refinance my house. But alas, in this economy—with a burst housing bubble, imploding mortgages, and foreclosures aplenty—my sorry case was met with a kindly “thanks, but no thanks.” So I find myself struggling to make ends meet like millions of other Americans. But what does this admittedly sad but ultimately manageable problem have to do with development economics? After all, at least I have a job, a car, and a house. I am certainly not poor. I have access to credit. And if worse came to worst, I would have numerous options: Look for a better job. Sell the house. Take the bus. These basic possibilities are not available to millions of the world’s poor. But bear with me, dear reader. I will explain. You see, over the last several decades, the United States has been experiencing a rich-country version of the market fundamentalism that was thrust upon the developing world by Washington in the 1980s and 1990s. This fundamentalism led to deregulation of the financial system, the removal of safeguards against speculation and greed, the dismantling of social safety nets, the easing of environmental regulations, and increasingly, the privatization of risk . The exception, of course, is the fiscal austerity policies that forced developing countries to limit deficit spending—the Bush Administration has not held itself to those same pesky standards, especially when it comes to spending on warfare. Given the terrible consequences for humans and the earth, it is particularly perplexing that market fundamentalism has gone so far for so long. As I argue in my manuscript, Limiting Resources: Market-Led Development and the Transformation of Public Goods, it is not just an ideological project spearheaded by political elites. It is at the core of economic thinking. In contrast to popular understandings of “public goods”—where education, health care, water, and infrastructure are ensured by government, with an implicit social agreement to promote well-being and justice for the people—economists are trained to evaluate public goods devoid of social content. “The public” (you and I) is reduced to prisoners’ dilemmas and collective action problems, while state intervention is incorporated mainly as a last resort to remedy market “failure.” One result of this thin understanding of the full social significance of public goods has been a turn to markets wherever possible, via unbundling, contracting, granting concessions, and privatization. At the same time, taxes have been reduced to levels that cannot sustain robust social programs. The resulting excessive reliance on markets has virtually depleted the pool of resources considered “public” and precluded important non-market alternatives, in developed and developing countries alike. The effects of “free” markets in money, land, and human beings (Polanyi’s “fictitious commodities”) in the United States illustrate the danger: Money. The abstraction “money” has only a tenuous connection with the real economy, as any trader will tell you. Regulation is imperative for checking usury and speculative finance, i.e., not allowing money to be just another commodity. The Asian and subsequent financial crises are a stinging reminder that money cannot fill an empty stomach. The current meltdown on Wall Street was preceded by decades of deregulation and the growth of a “shadow banking system” that now reaches far beyond our fair shores. The looming crisis is likely to be equally far-reaching. At this late stage, we can only hope that the severe dislocations resulting from efforts to institute a “self-regulating market system” in the 19th century—World Wars and a Great Depression—do not make a return in the 21st. Land. Despite unequivocal evidence that human-induced global warming is threatening not only stronger storms but also “heat waves, new wind patterns, worsening drought in some regions, heavier precipitation in others, melting glaciers and Arctic ice, and rising global average sea levels,” the Bush Administration has been unwilling to intervene in order to reduce emissions of greenhouse gases, cooperate with other countries on climate change, or invest adequately in alternatives. Though there were some meager incentive programs, these were all designed to not “rock the boat” of traditional market activity and adhered to the twisted logic that growth would ultimately protect the earth and lead to sustainability. Unfortunately, the magnitude of the climate crisis calls for visionary leadership at the highest levels—something that is clearly not going to come from this administration. Human life. Our abysmal, market-based health care system in the United State speaks volumes regarding how well markets protect human life. The United States ranks lower than every OECD country in infant mortality except Turkey and Mexico, and lower in life expectancy than all except Eastern Europe and Mexico. Even countries with much more modest resources, like Cuba and Costa Rica, do better because of public investment, according to a recent World Health Organization report. A litany of horror stories supports the conclusion that a for-profit medical system is inhumane and relatively ineffective in delivering “goods” essential to human life. In terms of labor, we see rising productivity levels being matched with stagnating wages, making it harder and harder for working people to make ends meet. According to Polanyi, society survives the disruption caused by attempts to institute a self-regulating market system through intervention and re-introducing non-economic norms and values to economic activity. This process often entails harnessing the state to ameliorate negative externalities and achieve positive ones. For example, regulation can limit the pursuit of money for money’s sake, as speculators look to “flip that house” (and reap huge profits) or Wall Street brokers demand greater and greater returns. Meanwhile, state-led development and investment in alternative technologies are going to be essential for finding ways to stop abusing the earth—sucking oil from its bowels through a pipeline while suffocating it with stinging pollutants through a tailpipe. Alternative energy is the future, and we need state action to get us there. Finally, state investment in strong social safety nets can help us care for one another where markets do not, and cannot. Rather than leaving us to fend for ourselves in some warped Social Darwinist experiment, we can create institutionalized safeguards to protect our frail bodies and fragile lives from the worst suffering and threats to our well-being. With a U.S. presidential election less than two months away, it is becoming increasingly clear what is at stake. “More of the same” market fundamentalism of John McCain’s party could be very bad for the sound and just management of money, land, and labor. But are Americans ready for the real changes needed to turn this ship around? After all, we are the poster children of over-consumption, and we tend to vote for political leaders with a willful disregard of the catastrophic consequences of our addictions: cheap oil, cheap food, and cheap goods. Let’s hope that the magnitude of the current crisis will awaken us to the issues that really matter. LaDawn Haglund received her Ph.D. in Sociology from New York University in 2005. She is Assistant Professor in the School for Justice and Social Inquiry in the Arizona State University, USA.


  1. One of the interesting "passive" effects of the current financial crisis, seems to be the way many people have seen the idea of "the market", figured into discourses where its presence might seem outright bizarre if not for the commonplace feel of the language. "Risk Society" by Ulrich Beck, which applies market terminology to environmental questions comes to mind, but some even stranger arguments have liked "market of ideas" to everything from the advancement of morality claims, to the history of the publication of works of fiction, to the physical characteristics of atomic particles. The "market" has become such a fixture of American thought and discourse that adjustments from one style of market self-regulation to the next, cannot possibly hope to achieve anything more then a re-statement of the failures of unregulated markets. A reexamination of the market as the centerpiece of American society is in order, and a Presidential election of this magnitude seems the perfect place for such a change to begin.

  2. Very nice article LaDawn, I enjoyed it a lot! As a side note - there is a long tradition in political economy (dating back to the classical writers and Marx in particular) that emphasises the contradictions of capitalist development. Are these contradictions core to capitalist dynamism or merely the expression of an imbalance that can be corrected on a sustained basis by social-democratic policies - here is a debate for our next encounter.

  3. Thanks for your comments, Nicolas. Nice to hear from you!

    I don't think Polanyi was saying that "merely" putting into place social democratic policies would solve contradictions in capitalism - in fact such interventions can be destabilizing as well! ("Merely" is a strange word, considering how it is nearly impossible, politically, to get such provisions into place. This is especially true in the US - unless of course you're talking about a multi-billion dollar bailout of the rich.)

    The point is that NOT doing anything (leaving the market system to play out its contradictions to their logical, and presumably catostrophic, end) can have far worse real-world consequences, even if some utopian after-life exists. Personally, I'd like to see the emergence of a more just and less wasteful system than capitalism, but I would not like to see it imposed at the tip of a rifle (or whatever truly frightening weapon is the favorite these days).

    Any ideas?

  4. "Merely" was indeed an ill-chosen word given how these kinds of regulation seem to belong to the (recent) past. The current crisis may however open a favourable window of opportunity to push for more regulation.

    I agree that conceiving of alternatives to capitalism, for generations like ours who have experienced the fall of the wall and are painfully aware of the totalitarian aspects of many communist regimes, is difficult. I actually watched Das Leben der Anderen (Life of others - great German film on the Stasi) yesterday, which is a case in point.

    But my point was more a way of saying that there is something inherently idealistic in believing that capitalism can be tamed or given a "human face". May I suggest a reading? Lenin's "Characterisation of Economic Romanticism" - which I find to be a very powerful reflection on this issue. It can be found here

    cheers LaDawn

  5. The essay is great.

    I would say that it is "germinal", in the sense that it may be a precursor to a more human Economics.

    The quest for an economics that need not dirty itself with a time consuming committment to real human society is an aberrant creation, brought on by the original sin of an ideology that found "God" within Adam Smith's "invisible hand" of markets.

    The invisible hand turned out to be chaotic systems, and it is clear that markets are extremely intelligent idiots of very limited application.

  6. Hey LaDawn, great piece. Sorry it's taken me so long to respond. Actually, a lot has happened since you posted it. We have a new president on the horizon, but not necessarily the change that we were looking for in the economic sphere (Larry Summers doesn't represent any kind of change). On the up side, we have a factory take-over in Chicago and the politicians falling all over themselves trying to appear in solidarity with the workers there. I've seen some good stuff by Richard Wolff of UMass (see http://bringtheruckus.org/?q=node/68 ) and the latest issue of Monthly Review has a good piece on the crisis ( see http://monthlyreview.org/081201foster-magdoff.php ). A lot of it is a reprise of past articles, but it points to the systemic nature of the crisis and the need to entirely restructure the economy. This is both a challenge and an opportunity, so let's get cracking.