After Polanyi

Karl Polanyi's The Great Transformation (1944) aimed to demonstrate that the institutional arrangements of market societies cause them to be inherently unstable. This is the famous 'satanic mill' argument. It derives in turn from the 'fictitious commodities' argument that labour, land, and money are commodities that differ from all others in that they do not come into being as commodities, that is, as the outcome of an acquisitive production process aimed at the sale of its results for profit. The market cannot create 'social order' because some of the key ingredients of social order cannot be the result of market interaction. The market, genetically and structurally, is the creation of non-market actors.

On the basis of the 'satanic mill' argument, we can draw the inverse conclusion. If a market economy actually develops into a sustainable social order, it must be due not - to use an important distinction introduced by Hayek - to its quality of 'cosmos' (spontaneous order due to the operation of the invisible hand), but of 'taxis' (consciously arranged, instituted, and controlled order) . The question then becomes: who creates and manages 'taxis'? How do the social institutions in which the market is embedded come into being?

Polanyi argued that it is the state which is the guardian of integration, coherence, and solidarity. How does the state come to perform that function? There is a strong functionalist argument in The Great Transformation : 'Objective reasons of a stringent nature forced the hands of the legislators.' But legislators as social actors must be conscious of these objective reasons, and they must also be able and willing to comply with what these reasons mandate. The necessary protective devices on which a market society depends for its integration and sustainability do not become operative automatically. Nor are they self-evident and determinate. No outside observer can tell what institutional measures must be adopted to make a market economy a viable social order. Any practical answer to this question must be willed and the ultimate source of this will is a theory of social justice that guides political action within society.

Polanyi showed, in his analysis of Speenhamland and its repeal in 1832-34, that market capitalism does not come into being by the force of evolutionary superiority alone. It originates, rather, in the conscious efforts of the holders of state power to create institutional and administrative arrangements that are best suited to it, and, most important, to the marketisation of labour. Capitalism, and the commodification of labour as its core prerequisite, is thus a political construction.

The protective regulatory framework that eventually emerged after Speenhamland was also a political construction, based on the experience that market society, if left wholly unregulated, does not result in a stable social order. If, as Polanyi insists time and again, 'the market has been the outcome of a conscious and often violent intervention on the part of government which imposed the market organisation on society for non-economic ends', then why should the same not be true for the reverse process in which markets are contained and regulated? There is an inconsistency here: while Polanyi is very specific as to the agents that brought about marketisation, he lapses into the anonymity of functionalist logic in explaining the reverse process. 'Ultimately what made things happen were the interests of society as a whole.' He maintains that it was not class interests that gave rise to protective regulation and self-preservation, but, rather, that 'such measures simply responded to the needs of industrial civilisation with which market methods were unable to cope.'

The great virtue and attraction of market forces and private property consist not in their being the medium of profit maximisation, but in their capacity for collective loss-minimisation. Markets eliminate in a smooth, continuous, and inconspicuous way all those factors of production that fail to perform according to current standards of efficiency. These failing factors are thus forced to adapt and to find alternative and more productive uses. The power that drives this continuous search is more potent than any political authority or planning agency, be it authoritarian or democratic. This is so because the market is an anonymous power that cannot be irritated by election results or by any other kind of 'voice'. The potency of market forces derives from their anonymity and non-intentionality: if factors of production fail in a particular allocation, nobody can be blamed for having caused that event. Hence, as 'no one else' can be blamed for the negative market outcomes, the market invites individuals to attribute failure to themselves.

The market invites victim-blaming. As we know, anonymous efficiency-enhancing pressure is just one side of the market. The other side is its tendency to spread to every aspect of social life; the market cannot easily be contained or kept in its 'proper place' while respecting the autonomy of the 'life world' of culture, socialisation, and the shape of human biographies.

Moreover, the market, far from being the favourite arrangement of producers, is, wherever possible undermined by cartels and monopolies, or distorted by clientelistic favours extracted from the holders of political power. Finally, and perhaps most importantly, what speaks against the market as a generator of social order is its blindness: it fails to register and to translate into price signals both present and future externalities, including those which result in the permanent exclusion of people and entire regions. It is these three classes of market deficiencies and market failures which must be addressed in any attempt to integrate market societies and impose upon them a viable social order.

This is an edited version of Claus Offe's contribution to The Changing Nature of Democracy, edited by Takashi Inoguchi, John Keane, and Edward Newman (1998).