The Third Transformation

The politics of austerity are back. So is the resistance.

In the early 2000s, Karl Polanyi’s book The Great Transformation was briefly re-discovered by left-wing intellectuals. No less than Joseph Stiglitz, the Nobel Prize-winning Keynesian economist, wrote the foreword to the 2001 edition. The book was first published in 1944, after the first period of global laissez-faire capitalism had collapsed into the Great Depression and then exploded into European fascism and the Second World War. Polanyi’s analysis amounted to a complete intellectual takedown of the very concept of the self-regulating free market system, which was both the premise and the end goal of classical economics. His argument, so timely in the era of the Second World War, became urgent once again five-and-a-half decades later, as the world was being reshaped by the second coming of classical economics, neoliberalism. Hence the renewed attention to his book.

The neoliberals, like the classical economists before them, were convinced that the market was the natural state of human social existence. Men, as John Locke had once argued, were inherently inclined to trade. The marketplace emerged from this primordial practice, and thus represented some kind of organic human institution. The state, on the other hand, was an invention of civilization. To the extent that governments interfered with the free practice of commercial exchange — whether through regulations or subsidies or economic protectionism — they represented an artificial imposition on how humans were naturally disposed to behave. They thus inevitably obstructed what was presumed to be the market’s innate ability to find equilibrium. Remove that obstruction from the equation, the neoliberals believed, and the market would regulate itself, to the benefit of all.

The classical economists had arrived at this theory through what amounted to a philosophical thought experiment. They imagined man in a “state of nature,” speculated as to how he would likely behave in that condition, and then disparaged anything that impeded that behavior as gratuitous and counterproductive. Polanyi, instead, looked at history. He observed that, far from being a “natural” state of affairs, what we know as the free market was in fact an explicit creation of the state. Not only that, but, far from being “natural,” it was such a radical rupture from the way people in early modern Europe had traditionally led their lives that it required a significant infusion of violence and coercion to achieve.

The commodification of manufactured goods and foodstuffs could be effectuated without much resistance. But the commodification of land, labor and money required the obliteration of age-old modes of living, and the customs, traditions, folkways and social structures that supported them. To commodify labor, the English government (which was the first to do it) had to dismantle the feudal welfare state to make starvation the consequence for those who refused to work for wages — an act of practically unthinkable evil according to the traditional, paternalistic folk values of pre-capitalist England. The commodification of land throughout Europe was achieved through violent dislocations of the peasantry through enclosure laws, evictions, wars and revolutions. The commodification of money, which required the gold standard, was so socially destabilizing that it ultimately failed, and spectacularly so. In its place emerged our current system of domestic currencies stabilized by central banks — in other words, a system of political and technocratic intrusion into the self-regulating market — but not before it contributed to the rise of fascism in Europe and the Second World War.

What the neoliberals and the classical economists before them regarded as artificial impediments to the natural functioning of the market, on the other hand, Polanyi recognized as the organic reactions of human communities to the threat of a vast, disruptive social engineering project. The classical economists had “discovered” the laws of human behavior, which were, as it turned out, nothing more nor less than the “laws” of human economic behavior, now segregated, as if on a petri dish, from every other social activity that constitutes human life. Beneath these “laws,” however, existed actual human communities that writhed and contorted under the new strictures of the so-called free market. Protective tariffs, industrial subsidies, environmental protections, child labor laws, labor organizing, wage floors, price controls and currency manipulations all emerged as more or less spontaneous measures of self-preservation by human societies being strangled to death by the classical economists and their acolytes in government and industry.

Polanyi turned the self-regulating free market on its head. Far from a system immanent since the dawn of man in the natural and voluntary activity of humans, revealed to the world by Smith and Ricardo like Newton had discovered the laws of physics, it was a political project, imposed by force, at the cost of the annihilation of traditional society. Wherever society pushed back against that force were to be found the “distortions” of the “free market”; it was in the distortions, not in the market, that the natural form of society could be discerned.

After the fall of the Soviet Union, the neoliberal heirs of the classical economists wasted no time resurrecting their progenitors’ dogma for a new age. Led by Harvard wunderkind Jeffrey Sachs, they embarked on a missionary crusade to force their economic religion on the populations of Russia, Poland and Bolivia, to disastrous effect. The “shock therapy” practice of sudden, forced trade liberalization was then institutionalized and spread to every corner of the world by the International Monetary Fund through its Structural Adjustment Programs. The results were as radical as they were messy: global development was supercharged, bringing rural populations more rapidly out of poverty, but also shredding social safety nets, destroying local customs, hamstringing nations in debt, accelerating inequality and exacerbating economic disasters like the 1997 Asian Financial Crisis and social catastrophes like the rise of Russia’s gangster oligarchy.

Today, neoliberalism has lost its nineties luster. Since the 2008 global financial collapse, the idea of an army of rapacious capitalists and their pencil-necked economists rescuing the world’s poor through their enlightened self-interest doesn’t inspire the confidence it once did. So the Davos poobahs who once worshipped at the altar of the global free market have undergone a makeover. They wear kinder faces now, furrowing their brows and frowning gravely at slide decks on global warming and the rise of right-wing populism in Europe. They speak of racial equity and effective altruism as they contemplate a simpler, greener world for the rest of us, to save our children from the hellfires of climate apocalypse.

But while the pretext is different, the mechanism is the same: imposed austerity. Just as the IMF once dictated that impoverished nations raise taxes, cut social spending, eliminate subsidies, slash wages and impose fees for public services as a condition for the massive debts they were forced to take on, governments of both rich and poor nations alike are testing how much of a burden they can force onto their working classes to restrict their national carbon outputs. And just as so many of the populations made destitute by the IMF, the World Bank and, later, the EU exploded into riots in countries all over the world, from Argentina to Indonesia to Egypt to Greece, as actual human societies rebelled against the “laws” of the market, we have begun to see the same responses to austerity measures imposed in the name of climate emergency. We saw it first four years ago in France, as the revolt of the Yellow Vests over a gas tax hike paralyzed the government of Emmanuel Macron. Last week we saw it in Sri Lanka, whose government has collapsed in the face of riots sparked in large measure by a ban on chemical fertilizers promoted by Western transnational organizations like the World Bank and Western elite thought leaders like Michael Pollan. And now we’re seeing it in the Netherlands, where livestock farmers are rebelling against their government’s imposition of draconian restrictions on their industry’s nitrogen and ammonium emissions.

If the wave of global protests against forced austerity regimes at the end of the last century was a revolt against the elite’s fantasy of the self-regulating free market, today it’s manifesting itself as a revolt against the elite’s callous and authoritarian responses to the reality of climate change. Just as with the commodification of land, labor and money, these adaptations entail radical and potentially ruinous disruptions of entrenched ways of living and working, imposed on those whose lives are already precarious. And once again, the people who are dictating the terms are the ones who will suffer least from them. This is the new face of global capitalism in an age of ecological peril. It’s the same as the old face, with some cosmetic enhancements. We know from history what we can expect it to demand from us, and we know what it should expect in return.