Beyond the Self-Regulating Market in Market Society: A Critique of Polanyi's Theory of the State

Abstract

Introduction One of more profound distinctions separating orthodox from radical approaches to politics can be found in their theoretical conception of state as public regulator of private conflict. A full-fledged theory of state has been slow to emerge from mainstream paradigm precisely because, in liberal tradition, state has been perceived as a relatively minor actor regulating conflict through enforcement of socially sanctioned rules of law. Yet, rapid growth of government bureaucracy and intervention in private realm, particularly since 1940s, has challenged many of our traditional notions about nature of capitalist society. The state has been shown to have played a major role both in establishing and in regulating private market economy. Karl Polanyi in particular paved way for macro analysts such as Lindblom and Galbraith by showing that role of state in promoting a market economy while simultaneously serving as a conduit to regulate it -- so-called double movement thesis -- characterized state activity in liberal society from beginning. In addition, resulting structural separation of society into economic and political spheres would later condition particular policy responses required as market system unfolded. Perhaps more importantly, however, Polanyi's work may have unwittingly paved way towards a reformulation of a Marxist theory of state by linking development of positive or regulatory state to efforts to create and maintain a market on international level. Unlike Marx, who is often criticized for seeing market as operating above politics (see for example, Arrighi, 1990, p. 64), Polanyi exposed political origins of market's creation as a crucial step in development of industrial capitalism. Even during height of laissez-faire under Pax Britannia, politics dominated an international system based on fixed exchange rates, or gold standard. As market faltered, the interstate power struggle seriously hampered U.S. direct investment in Europe and its colonies (Arrighi, 1990, p. 76), eventually leading all capitalist states to adopt increasingly nationalistic and systemically destructive policy responses prior to World War II. This theme of state's having been deeply involved in historical development of self-regulating market economy guided Polanyi's institutionalist view of state. The nineteenth century utopian attempt to establish a self-regulating market based on commodification of land, labor, and money was largely a product of classical liberal ideology translated into economic policy. But this idealistic policy, demise of which marked end of British order, also produced a spontaneous countermovement on part of society to protect itself from socially invidious effects of such policy. In fact, Polanyi's most provocative thesis may be his claim that resulting countermoves carried out through state spanned class lines, creating coalition-type patterns of institutional development (1957/1944, p. 76). Regulation never arose on basis of opposing class interests or economic class division. Instead, political protection was immediate, spontaneous, and broad-based, a fact which lends theoretical meaning to Polanyi's thesis, that class division/conflict need not be decisive factor shaping policy alternatives in modern state. For Polanyi, social response against commodity myth, carried out at that time mainly through democratic state, implied not only end of self-regulating market, but coming end of market society as well. In terms of state's dual role, then, he believed protective function would become increasingly important as capitalist society moved beyond its dependence on a self-regulating market economy to embrace social democracy. …