The Power of Bad Ideas


Michael McCarthy review Fred Block and Margaret Somers's The Power of Market Fundamentalism: Karl Polanyi’s Critique by in Boston Review:

Karl Polanyi is far less well known than the big three of economics: Marx, Keynes, and Hayek. But Polanyi’s ideas are distinct. Like Marx, he viewed capitalist markets as harmful and a source of social catastrophe. But unlike Marx, he thought they were necessary. Like Keynes, he rejected a zero-sum approach to politics, arguing instead that working-class gains could be achieved alongside business gains. Unlike Keynes, he rejected technocratic politics in which well-trained bureaucrats manage an economy. Instead, Polanyi favored a politics of direct democracy that emphasizes the active political contention and mobilization of all the different segments of society. Finally, he stands in starkest contrast to Hayek. Polanyi challenges the choice between free markets and regulated markets as a false one. Not only are efforts to impose free markets destructive, the assumption that markets can, in principle, be free has never been true, nor could it be.

Yet the free market axiom is now widespread, notwithstanding glaring and recurrent market failures. Once the ideological stomping grounds of the Republican and Tory right, it now forms the rhetorical bedrock of policy paradigms across the Western world. And the neoliberal project to realize this political utopia seems to have advanced since the 2008 crash. In The Power of Market Fundamentalism (hereafter TPMF) Fred Block and Margaret Somers revive Polanyi to analyze the free market’s origins and staying power.

Polanyi’s key work, The Great Transformation(1944), demonstrates that markets and states are not separate entities, each with its unique and endogenous dynamics. Instead they are inescapably intertwined and mutually constitutive. Markets, in neoclassical economics, are theoretical abstractions that barely reflect reality. From a Polanyian view, what the price mechanism captures so elegantly is not how the market actually works, but rather the belief that markets can be autonomous and, if left alone, will obey natural laws of supply and demand that generate positive equilibria, a belief that Block and Somers call social naturalism. This approach to economic activity is not unlike the way the biological sciences explain how living organisms know when to heal a wound or the way the laws of physics account for orbiting planets.

Block and Somers’s unique contribution is to argue that these public narratives about the economy are key drivers of regulatory policy. Why, for instance, did free market ideals, revived under Reagan and Clinton, weather the storm of the Great Recession, while policies adopted after World War II—policies rooted in people’s connectedness and the public good—are long lost? Free market narratives have immense cultural power; the popular rhetoric about the economy plays into centuries-old ways of thinking about the economy and indeed into people’s very sense of identity. And this power explains why the free-market policy paradigm is so persistent.

More here.