I just finished reading Karl Polanyi’s The Great Transformation, a dark meditation on free markets and industrial society. The theme of the book is that nineteenth century liberalism’s mindless worship of the “self-regulating market” nearly destroyed social life, and made the backlash of fascism and socialism in the 1920’s and 1930’s inevitable.
Polanyi is a preacher of repentance. He doesn’t deign to shades of gray. The object of his criticism is the modern world, which at the time the book was published, in 1944, appeared pulverized between right and left collectivist ideals. The foundations of this world in industry and the free exchange of goods Polanyi found self-destructive but also morally monstrous.
His thesis rests on a series of assumptions. Pre-industrial society, Polanyi believed, was organic, in the sense that its necessary elements – social, religious, artistic, political, economic – stood in a balanced relation to one another. Against this old regime based on human needs, liberalism unleashed the profit motive in the unregulated marketplace. The consequences were dire:
. . . the exploitation of the physical strength of the worker, the destruction of family life, the devastation of neighborhoods, the denudation of forests, the pollution of rivers, the deterioration of craft standards, the disruption of folkways, and the general degradation of existence including housing and arts. . .
Polanyi predicted the victory of socialism or fascism, because both stood for society against mere profit. With the benefit of hindsight, we can say he was wrong. Fascism died under the rubble of World War II, while socialism didn’t survive the implosion of the Soviet Union in 1991.
Of course, there’s no trace left of the “self-regulating market” either – but I’m not sure such a thing ever existed. Today, free market capitalism, with various levels of regulation and intervention, is the only game in town.
Polanyi’s failure as a prophet refutes the lesser of his charges against the markets – that they are impracticable – but not necessarily the greater: that they are morally abominable. A question with vast implications remains.
Are the material benefits of industrial society worth the moral costs?
A lot hinges on how we understand the social arrangements of pre-industrial life. These in fact rested on privileges acquired by favored groups and sanctioned by custom: crown patents, guild monopolies, price controls, captive markets, restrictions on free movement, and in places like Russia, the binding of serfs to the land. Such practices were traditional, and in this sense organic, but they profited the few against the many.
Polanyi argues that the destruction of this carefully balanced system must be blamed on an unbalanced liberal obsession with economics. But another explanation is possible.
It would be nonsensical to ascribe economic motives to the liberation of the serfs. The same applies to the Civil War which freed America’s slaves. Both undertakings were costly to the state, ruinous to important economic classes, and benefited people at the bottom of the economic ladder.
Involuntary servitude was abolished because it offended a humane Enlightenment ideal: that the individual is a moral and political adult, and must be allowed to pursue happiness after his own lights.
Another Enlightenment ideal was equality, and it tore at the web of privileges holding together the old regime. These privileges weren’t sustained by some mystical organic force, but by state power; and the political decline of favored groups led quite naturally to the loss of their economic privileges.
By the end of the eighteenth century, a few perceptive thinkers had discerned a link between freedom and prosperity. Whether, as Polanyi claims, this discovery unhinged classical economists like Ricardo, converting them into ideological zealots, is something I’m not qualified to judge. But the fact of the matter is that, even in Britain, the liberalization of the market was a patchwork affair, conducted by trial and error, with as many retreats as advances.
The great transformation wasn’t a rationalist experiment but a historical process, no less organic, in that sense, than the preceding age.
Yet the liberalized markets were an engine of change. That was different. Old customs and folkways did indeed collapse under the pressure of market-driven alternatives. Creative destruction was sometimes experienced as mere destructiveness.
The factory system altered forever the conditions of labor. Along with new capabilities, new hazards and abuses became possible. The exploitation of women and children is notorious.
Yet these abuses outraged public opinion precisely because they contradicted the Enlightenment ideal of human freedom and dignity. The same moral force which engendered the factory system corrected its most egregious features. The liberal order was and remains a reforming movement. It lacks the fatalism of the organic regime, which shrugged at famine, pauperism, epidemics, mass illiteracy, and enclosures, but imposed ferocious punishments on crimes against property.
The answer to our question comes into focus when we realize what Polanyi usually means by “society.” He means the government. He expects state power, acting on behalf of all social classes, to regulate the marketplace and rationalize production. This is consistent with his prophecy regarding the triumph of fascism and socialism.
Polanyi passionately, if unsurprisingly, advocates socialism, which he identifies with the Christian spirit and thus with the most generous impulses of the old organic culture.
Socialism is, essentially, the tendency inherent in an industrial civilization to transcend the self-regulating market by consciously subordinating it to a democratic society. It is the solution natural to industrial workers who see no reason why production should not be regulated directly and why markets should be more than a useful but subordinate trait in a free society.
I find Polanyi’s formulas problematic. To begin with, society and government are far from identical. Even under the most democratic dispensation, those in government can represent only a fraction of a community’s store of opinions and beliefs. For this reason, liberal democracy aims to keep government out of people’s hair to an extent consistent with shared moral ideals and social peace.
Socialism aims to regulate behavior. But to what end? The goals of socialism are enshrined in vague words and phrases: equality, for example. The term, under liberal democracy, means the elimination of privilege. To a socialist, equality means something far more active: the imposition of new “rights,” like the right to work and to health care.
Since these rights must favor some groups at the expense of others, they are, in practice, a restoration of government-created privileges. The strategic question then becomes which new rights are considered necessary, and who makes the call. Assuming a government of incorruptible persons, the decision will still be bound by the values and experiences of those exemplary beings.
The government will favor those groups which please the people in government – any benefit to society will be incidental to this principle.
Alas, most earthly governments are not incorruptible. They will tend to barter privileges for support. This was the case with Britain’s Labor governments before Thatcher, which heaped favors on the trade unions, and of the French and Greek governments today, which keep raising the salaries and benefits of their vast idle bureaucracies. Examples of socialist feather-bedding abound.
What, then, is our answer? The industrial revolution ranks among the handful of events which have transformed human life. It was unforeseen and unplanned, and wrenching to those who first experienced it. Much of value was lost.
But the world shattered by industrial life wasn’t a harmonious minuet danced by disparate social groups. It was a place of privilege and power, Hobbesean in its disregard for life and liberty, indifferent to the happiness of the majority, unwilling to grant moral adulthood to any but a favored few.
The liberal democratic order which replaced the old regime is less stately, but it is open to a far greater variety of legitimate choices and experiences. In the economic sphere, this explosion of choices has raised up billions from millennial poverty – a very real form of liberation.
With more legitimate choices come more legitimate conflicts – and it is this constant struggle over the boundaries of right and wrong which, I suspect, make some people uncomfortable and nostalgic for the old ways. Like Polanyi, they turn to a paternal state to still the babble of voices and compel life into a communal whole.
In the end, any assessment of the industrial revolution won’t be about the cost of industry but about the value of freedom. Given a choice, many people will behave differently from the way Polanyi and other deep thinkers would wish. Nostalgia for a simpler past – which typifies today’s extreme greens and global warmists as well as Islamists like Osama bin Laden – grows out of a loathing and intolerance of one’s nonconforming neighbors.
Socialism, once a visionary movement, has declined into political Luddism. It is always easier to wreck than to build. The problem with those who would follow Polanyi isn’t so much that they would destroy the sources of our wealth – it’s that, to get there, they must first trample on the principles which sustain our freedoms.