I was recently asked to write a foreword to the Mexican edition of Kari Polanyi Levitt’s From the Great Transformation to the Great Financialization. Kari is Karl Polanyi's daughter, and the essays in her book -- part memoir, part intellectual history, part analysis of the global economy -- provide a wonderful Polanyi-esque perspective on our day. I happily accepted, and my Foreword is below.
I first encountered Karl Polanyi as an undergraduate, in a course on comparative politics. “The Great Transformation” was on the course syllabus, sitting somewhat awkwardly amidst more standard political science fare. The assigned reading, on the Speenhamland system and the reform of the Poor Laws in Britain made little impression on me at first. But over the years, I found myself coming back to the central arguments of the book: the embeddedness of a market economy in a broader set of social arrangements, the rejection of an autonomous economic sphere, the folly of treating markets as self-stabilizing.
I am lucky that I had been exposed to Polanyi before I became a full-fledged economist. Looking at standard neoclassical fare from the perspective of the Great Transformation kept me alert to the hidden assumptions of economic theory. Behind those market transactions, expressed with mathematical formalism and in Greek letters, was a host of social, political, legal institutions that enabled those transactions. And these institutions were not unique: they had taken diverse form in different societies and historical periods.
Curiously, the more I became an economist, the more Polanyi’s insights resonated. In my own writings on economic development and globalization, I felt often that I was simply restating the main themes of the Great Transformation for our current era.
I still have on my bookshelf the heavily annotated copy of The Great Transformation from my undergraduate days – along with a newer edition with a foreword from Joe Stiglitz. The old copy has since been enriched by a nice note and signature from Kari Polanyi Levitt which I managed to obtain during a visit to McGill University in February 2001. So it gives me great pleasure to return the favor by writing a few words about Kari Polanyi Levitt’s impressive book, From the Great Transformation to the Great Financialization.
Perhaps no-one has greater claim to the mantle of keeping Karl Polanyi’s thought vibrant and relevant to our current problems than Kari Polanyi Levitt herself. In this beautifully written collection of essays, she not only draws a vivid portrait of her father as a man, a scholar, and an activist, but also provides some extraordinarily prescient analysis of how the world economy got to where it is today. Levitt’s memories of her father are particularly touching. In addition, the essays range widely over economic history, the history of economic thought, the international economic system, and economic development. They are all informed by the same combination of sharp insight and social conscience that made Karl Polanyi’s work stand out. Levitt brings a rich historical texture to the analysis of contemporary problems of the global economy and the challenges of economic development. The spirit of Polanyi lurks always, not too far from the surface.
Levitt aptly uses the term “The Great Financialization” to describe the regime that took over after the Keynesian order inscribed in the Bretton Woods arrangements collapsed. I do not know if Keynes ever read The Great Transformation or was familiar with Karl Polanyi’s thought. But the Bretton Woods arrangements were very much Polanyian in spirit. As Levitt underscores in chap 5, Polanyi was like Keynes in many respects, but unlike Keynes, he questioned the role of economic motives in driving human behavior, which he thought was unique to industrial capitalism.
Keynes sought an international regime that would be hospitable to international trade among nations, but not so intrusive that it would undercut economic management domestically. One key requirement of such a regime was that international finance would be kept in check. Keynes made clear that controls on international capital flows were not meant to be simply a temporary expedient, to be removed once global financial stability was achieved. They were a permanent feature of the system – essential to macroeconomic management at home, and eventually, to the building of mixed economies with adequate social protection.
As Levitt nicely explains, after the 1980s this understanding was superseded by a new one that once again raised the market – and financial markets in particular – above the needs of society. Europe, America, and eventually most middle-income developing nations embraced financial globalization. Free flows of finance across borders, they were led to believe, would allocate savings and investment where they could be used most profitably. Domestic economic management became hostage to the whims of financial markets. Globalization became an end rather than a means.
This wasn’t quite the Gold Standard that Karl Polanyi had held responsible for the political upheavals of the early part of the 20th century. Polanyi thought that the attempt to reimpose the 19th century liberal economic order after World War I produced the world economic crisis and had led to the demise of democracy in Europe. Currencies were now flexible, except for the European nations that would eventually adopt a single currency. Nevertheless, financial globalization entailed donning the Golden Straitjacket, in Thomas Friedman’s evocative phrase.
Many of these essays were written years ago, yet Levitt is prophetic in portraying the hubris and triumphalism of neoliberalism’s advocates and the risks that their experiments took. As she writes, “the attempt to impose on the rest of the world a radical Anglo-American vision of the autonomy of market forces, backed by sanctions to subordinate nations, peoples and communities to the rights of property, is a Utopian project which threatens to unleash uncontrollable reactionary political forces” (p. 52). It is “incompatible with democratic governance, cultural diversity and pluralism” (52).
As I write these words, Donald J. Trump is one month into his presidency. The reactionary backlash that Levitt foresaw, the second part of Polanyi’s double movement, is in full force not only in the United States but in a large number of European nations as well. In Levitt’s words, “market forces of polarization will disembed the economy from traditional social relations and people will seek solidarities of community, ethnicity, religious belief or other solidarities of the excluded” (p. 105). Or as she puts it elsewhere: “democracy is striking back at economics” (p. 60).
We ignore Karl Polanyi at our own peril. And there is no better, richer account of why and how than this wonderful collection of essays.