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Political Power and Social TheoryEmerald Book Chapter: A Polanyian Analysis of Capitalism: A Commentary on Fred BlockNina Bandelj

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To cite this document: Nina Bandelj, (2012),"A Polanyian Analysis of Capitalism: A Commentary on Fred Block", Julian Go, in (ed.) Political Power and Social Theory (Political Power and Social Theory, Volume 23), Emerald Group Publishing Limited, pp. 293 - 302

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A POLANYIAN ANALYSIS OF

CAPITALISM: A COMMENTARY

ON FRED BLOCK

Nina Bandelj

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hiABSTRACT

This chapter responds to Fred Block’s article about the weaknesses ofthe concept of capitalism because of its close association with Marxism,and his proposal for a Polanyian analysis of political economy. In thischapter, I interrogate what may be the commonalities as opposed to div-ergences between Marx and Polanyi, and I question whether the conceptof capitalism is really so wedded to Marxism so as to loose its analyticvalue, and be better replaced by notions such as market society, or politicaleconomy, as used by Polanyi. I agree with Block that a Polanyian analysisimportantly widens our view beyond economic reductionism to an under-standing of economy and society as co-constitutive. However, I see utilityin adding the qualifier ‘‘capitalist’’ to ‘‘political economy’’ to differentiatebetween socialist and capitalist political economies, for instance, and toproperly characterize a system based on private property rights, guidedby pursuit of material gain, which advantages some strata in societymore than others, leading to endemic social inequality. I propose that aPolanyian focus on society and economy as co-constitutive is moreeffectively coupled with an analysis that considers capitalism not as a

Political Power and Social Theory, Volume 23, 293–302

Copyright r 2012 by Emerald Group Publishing Limited

All rights of reproduction in any form reserved

ISSN: 0198-8719/doi:10.1108/S0198-8719(2012)0000023014

293

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self-driven system of surplus extraction and accumulation, but as aninstitutional order dependent on political choices. Such a perspective wouldadvance a Polanyian analysis of capitalism.

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‘‘What is the analytic value of ‘capitalism’ as a concept?’’ asks Fred Block inhis thought-provoking essay. ‘‘Does it help illuminate key features ofexisting societies, or does it carry with it burdensome associations fromearlier historical periods?’’ By earlier historical periods, Block means thehistorical materialist analysis offered by Karl Marx of the ‘‘genetic theory ofcapitalism’’ that ‘‘retains an irreducible teleology about the directionof history.’’ Block first argues that the term capitalism is inextricablyintertwined with the Marxist conceptualization and, second, he points tothe weaknesses of the Marxist perspective. Mostly, according to Block,Marxist analysis has been undermined because of its inability to accountfor the expanding role of government in managing the tensions created bycapitalist accumulation. He also notes that efforts, like the Wallersteinianmove to take the analysis of capitalism to the world-system scale, haveits own problems. This leads Block to conclude that capitalism has lostits analytic value. Instead, he urges us to revive a critique of politicaleconomy and replace the concept of capitalism with the frameworkproposed by Karl Polanyi (1944) in his book The Great Transformation,which ‘‘generally substitute(s) the term ‘market society’ for capitalism,’’ andbrings to the forefront politics and political choices, rather than insists onthe primacy of the economic in a Marxist fashion.

I should disclose from the start that I am very sympathetic to the Polanyianperspective. My own work in economic sociology and about postsocialisttransformations finds inspiration in Polanyi’s ideas of the always-embeddedeconomy. For one, in my research on the social foundations of foreign directinvestment markets in Central and East European countries after 1989,I argue that one can draw parallels between the institutionalization of self-regulating markets in the 19th century England, that Polanyi discusses inThe Great Transformation, and postsocialist economic transformations after1989 where, contrary to the neoliberal emphasis on the importance of statewithdrawal from economy to free markets, postsocialist states were crucialin building market institutions and creating demand for foreign capital(Bandelj, 2008, 2009). Further, my short book on Economy and Statetheorizes the relationship between these two spheres as that of state-economyembeddedness, which is grounded in the Polanyi’s notion of fictitiouscommodities (Bandelj & Sowers, 2010). Recently, with two graduate student

A Polanyian Analysis of Capitalism: A Commentary on Fred Block 295

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collaborators, we reviewed the literature on the impact of neoliberalglobalization on work, and applied the Polanyian double movement dynamicat the global level to understand this relationship (Bandelj, Shorette, &Sowers, 2011). Finally, in an analytical piece debating the utility of theconcept of relational work (Zelizer, 2005, 2012) in economic sociology,I distinguish between the Polanyian notion of embeddedness from theone more widely adopted in contemporary economic sociology, namelythe Granovetterian embeddedness (Granovetter, 1985). Here I pinpoint thecrucial difference in how the relationship between the economic and thesocial is understood in these two traditions, as co-constitutive and analyti-cally separate, respectively, which has serious implications for the under-standing of relationality in economic processes and the theory of economicaction (Bandelj, 2012; see also Krippner & Alvarez, 2007).

This said, simply concluding that I agree with Fred Block’s key pointabout the utility of a Polanyian analysis would not provide for much of anintellectual exercise that I was asked to engage in by writing a response tohis essay. Therefore, I want to question Fred Block’s conclusion about theobsolescence of the concept of capitalism as much as I want to be criticalabout his (and my own) embrace of a Polanyian perspective. I do this byasking (a) what may be the commonalities as opposed to divergencesbetween Marx and Polanyi, and (b) whether the concept of capitalism isreally so wedded to Marxism so as to lose its analytic value, and be betterreplaced by market society or political economy.

My position is that a Polanyian analysis indeed importantly widens ourview beyond economic reductionism and teleological view of history towardthe analysis of economy and society that treats these two spheres asco-constitutive. However, embracing the term market over capitalism canalso dangerously reinforce the rightist views that markets are benevolent,and enable anyone who tries to get ahead. I also want to point to thevagueness hidden in the concept of political economy, proposed as analternative by Block, which does not distinguish between particular types ofsocial organization of the economy beyond broadly characterizing thatpolitical choices dictate economic arrangements. From this perspective,socialism and capitalism are both types of political economies, as they areboth sets of institutional arrangements about economic production, dis-tribution, consumption, and exchange that result from political choices onhow economy should be governed. But no one will argue that socialismand capitalism are not crucially distinct. We need to retain the qualifier‘‘capitalist’’ in the ‘‘capitalist political economy’’ to denote that the vastmajority of the contemporary economic systems are heavily privatized, and

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guided by pursuit of material gain, which advantages some strata in societymore than others, leading to endemic social inequality. In fact, one mightexpect that in advancing the Polanyian alternative, Block would discussPolanyi’s mosaic typology of the types of social organization of economy-market exchange, reciprocity, and redistribution. In my view, this typologyis very useful in describing how different forms of the social organizationof economy can coexist, but we need to be able to emphasize that thesystem where market-exchange strongly prevails over other forms is analyti-cally distinct from other possible combinations of these three economicarrangements. To capture the characteristics of such a system, in my view,the qualifier ‘‘capitalist’’ in front of political economy is necessary.

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hDIVERGENCES AND COMMONALITIES BETWEEN

MARX AND POLANYI

Block proposes that Polanyi’s notion of political economy as laid out inThe Great Transformation is a better starting point to analyze the contem-porary societies and the global economy than the (Marxist) concept ofcapitalism is. Polanyi, writes Block, was influenced by Marx in the 1930s,but in The Great Transformation, he ‘‘eschewed Marxist terminology andgenerally substituted the term ‘market society’ for capitalism.’’ Moreover,Polanyi diverged from Marxist historical materialism to emphasize ‘‘theprimacy of politics’’ over the primacy of the economy. Nevertheless, bothMarx and Polanyi were keenly interested in interpreting the transformationsin the economic systems brought about by industrial revolution. WhileMarx has a clear view of the direction of history through different stagesthat all have to deal with their inherent contradictions, Polanyi’s perspectivemore closely approximates a cyclical movement, with politics dictating thetype of economic system on the one hand, and the societal reactionpotentially changing the existent system on the other, as captured in thenotion of a ‘‘double movement.’’ Polanyi also puts more emphasis on thepower of the state as a change agent, rather than on class dynamicsthat stands as a central revolutionary force in the Marxist account. This isconsistent with Polanyi’s view that state can play a crucial role in protectingsociety from market forces, rather than, to use a famous quote from Marx,functions as ‘‘but a committee for managing the common affairs of thewhole bourgeoisie.’’ Block summarizes the key tenets of the Polanyianframework, including that ‘‘market economies are always and everywhere

A Polanyian Analysis of Capitalism: A Commentary on Fred Block 297

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embedded,’’ that ‘‘market society and the contemporary world economy areshaped by an ongoing double movement,’’ and that ‘‘political contestationat multiple levels – local, regional, national, and supranational – shapesthe economic paths that are available to societies at any given moment.’’All in all, the Marxist analysis retains economy as a sphere analyticallyseparate from society and state, while the Polanyian approach insists onco-constitution between economy and society.

Given Block’s rightful reputation as the authoritative interpreter ofPolanyi’s work, it comes as a surprise that in discussing these tenets Blockdoes not mention Polanyi’s central notion of fictitious commodities oflabor, land, and money. Polanyi argued that land, labor, and money are notcommodities in the same sense as these things are produced by firms to besold on the market. For one, it is a fiction that land, labor, and money areinherently produced with the intention to be supplied for sale on the market,thus state action is needed to constitute them as commodities, in the pushto create a market system. In another sense, it is also illusory that land,labor, and money can be easily multiplied should demand increases, as couldother ‘‘proper’’ commodities. In fact, state action is needed to constraintheir full-blown commodification and prevent the complete exhaustionand consequent destruction of these resources, and this represents the‘‘countermovement’’ in the Polanyian double movement logic.

Focusing on the commodification of labor, land, and money is not onlycentral for understanding the logic of the double movement, but alsoimportant for drawing comparisons between Marx and Polanyi. ForPolanyi, commodification of labor is central to his arguments about therise of market society. For Marx, the necessity of the proletariat to selltheir labor as a commodity is the crux of Marxist capitalism. While Marxistand Polanyian accounts may diverge on the ‘‘fictitiousness’’ of labor andthe role of the state in labor commodification and decommodification, thepressures to commodify labor are central to both of their analyses, as isthe concern with social inequality. Even in global financial capitalism, classdistinctions are not eradicated. On the contrary, one could say that they areresurfacing with potency in the times of crises, as we can see in the OccupyWall Street movement. Protesters may not use the word capitalism, but theircollective action is nevertheless propelled by the clash between the 1% andthe 99%, a clash resulting from patiently obvious social inequality. Blocksuggests that Polanyi envisions various actors as participants in a protec-tive countermovement but he, nevertheless, singles out trade unionists asthose ‘‘who provide the backbone of the protectionist countermovement.’’Labor remains an integral, if not the only, actor. In this sense, the Polanyian

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and Marxist analyses share some common concerns, even if they diverge onidentifying the source of these concerns. This is important for the discussionof the relevance of the concept of capitalism. As much as the Marxistversion of capitalism is defined by its historical materialist teleology, it isalso characterized by the focus on the need to sell labor on the market andconsequent social inequality. One could argue that the use of the termmarket society instead of capitalism masks this inherent inequality betweenmarket participants, albeit inequality that transcends just class lines.

A case in point is the much more frequent use of the word ‘‘market’’rather than ‘‘capitalism’’ to characterize the transformation of the economicsystems after the fall of communist regimes in Central and Eastern Europe.1

Block’s point on how the word capitalism fell out of favor in the UnitedStates because it was too closely associated with the communist left istelling. One wonders whether in describing the transformations after the fallof communist regimes in Central and Eastern Europe, the word capitalismwas eschewed because it smacked too much of the opposite of socialism.‘‘Market transition’’ and ‘‘democratic transition’’ were more palatabledescriptions of the systemic transformations than ‘‘transition to capital-ism.’’ But the systems put in place in Central and Eastern Europe afterdismantling command economy are nothing but capitalist if capitalismdenotes an economic system based on private property rights in whicheconomic activity, including the production, distribution, consumption, andexchange, is basically determined through market operation where privateactors can exchange their property rights with other private actors formaterial gain. Differences between owners and non-owners are endemic tothe capitalist system, and they bring with them significant inequalities.While it is true that the classifications of owners and non-owners are moreblurred in contemporary times of shareholder capitalism and certainly notconfined to production given the rise of financialization, in practice thesystem retains clear divisions between ‘‘haves’’ and ‘‘have-nots.’’ This is incontrast with the expectations associated with the notion of ‘‘a market,’’‘‘free-market,’’ or ‘‘emerging-market,’’ which in their neoliberal interpreta-tion by-and-large describe a form of individual choice and freedom thateveryone has in succeeding economically only if they try. This kind ofunderstanding of markets was very appealing in promoting market reformsin the postcommunist context, while the ‘‘downsides of markets’’ havebeen largely underplayed in political discourse, even if they represent anintegral part of the postsocialist experience, as also evidenced in analyses ofrising inequality in Central and Eastern Europe after 1989 (Bandelj &Mahutga, 2010).

A Polanyian Analysis of Capitalism: A Commentary on Fred Block 299

CAPITALISM AS INSTITUTIONAL ORDER BASED

ON PRIVATE PROPERTY RIGHTS AND MARKET

COMPETITION

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After interrogating whether Marx and Polanyi provide divergent frame-works, as intimated by Block,2 I want to also question Block’s conclusionthat the analysis of capitalism is so wedded to the Marxist framework thatit has lost its value. While I am sympathetic to Block’s critiques of ‘‘thegenetic theory of capitalism,’’ I am not so ready to dismiss the notion ofcapitalism altogether. First, what to make of the fact that over the pastcouple of decades it was the literature with the word capitalism in its namethat gained quite some traction, namely the ‘‘varieties of capitalism’’perspective. As Block himself notes, this literature largely moved away fromthe Marxist analysis to emphasize that there is no one single (or right) wayof organizing the capitalist economy. Block acknowledges the value inmaking this point against ‘‘the Right’s embrace of the concept of capitalismand its insistence that there was one single model of how to organize anefficient and effective society.’’

I agree with this conclusion as I also agree with the point that the analysisof the ‘‘varieties’’ detracted from the analysis of ‘‘capitalism.’’ Indeed,the main distinction delivered in the varieties of capitalism literature wasthat between the liberal market economies (LME) and coordinated marketeconomies (CME) (Hall & Soskice, 2001), to differentiate between econo-mies where markets and competition are the primary way of coordinatingeconomic action from those where firms depend more on non-marketmodes of coordination, relational contracting, network monitoring, anda greater reliance on collaboration than on competition. Although theLME vs. CME distinction refers to the macro-organization of the economy,it was derived from the analysis that takes firms as central actors andquestions what firms need to do in different systems to exploit their corecompetencies in the areas of industrial relations, vocational training andeducation, corporate governance, relations with employees, and interfirmrelations. With firms as the focal units of analysis, it is not surprising thatthe literature lost sight of the macro-systemic properties of capitalism,and that, indeed, by using the LME and CME designations, the varieties ofcapitalism perspective practically replaced the word ‘‘capitalism’’ with‘‘market economy.’’

This move is not unlike the one that Block suggests was done by Polanyiin substituting the term capitalism with market society in The Great

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Transformation. However, it is precisely the loss of historical specificity inthe analysis of the varieties of market/political economy, generally, thathas been a point of critique of the varieties of capitalism perspective,recently launched by Wolfgang Streeck, and Dorothee Bohle and BelaGreskovits. These scholars have argued for ‘‘bringing capitalism back in’’(Streeck, 2010a), understanding ‘‘capitalism tout court’’ not only its varieties(Bohle & Greskovits, 2009) and for ‘‘taking capitalism seriously’’ (Streeck,2010b). Interestingly, their analyses have found inspiration in Polanyi,just as Block’s has. Still, these scholars have reached the opposite conclusionfrom Block, in that they not only retained but even emphasized the valueof calling the object of their analysis capitalism, and not just politicaleconomy, or market society. This is because they approached capitalism‘‘not as a self-driven mechanism of surplus extraction and accumulationgoverned by objective laws, but as a set of interrelated social institutions,and as a historically specific system of structured as well as structuringsocial interaction within and in relation to an institutionalized socialorder’’ (Streeck, 2010b, p. 1). Moreover, among key defining feature of thecapitalist social order are ‘‘legitimate greed’’ and ‘‘differential endowmentof social classes with agentic capacities’’ (Streeck, 2010b, pp. 7, 11). Evenmore basically, for Bohle and Greskovits (2009) at the core of theunderstanding of capitalism lie two fundamental motives of action, fearand greed, and their dynamic interplay. Interestingly, referencing Polanyi’suse of the notion of ‘‘satanic mill,’’ the title of section one of part two inThe Great Transformation, Bohle and Greskovits (2009, p. 374) note that inany variety of a capitalist system ‘‘workers are anxious about the ‘satanicmill’ (Polanyi, 1944) that undermines the stability of their existence byabruptly and permanently changing their professional and social status andidentity.’’

This brings us back to the commonalities between Polanyi and Marx thatI discussed earlier. The countervailing forces of workers’ fear and capitalists’greed can be well imagined in a Polanyian analysis, even if class conflict isnot at the crux of a Polanyian political economy. Nevertheless, attention toclass inequality is not completely foreign to a Polanyian perspective, giventhat labor is one central fictitious commodity. In fact, to understand thecountermovement better, one may need to theorize the political action thathappens outside of the state purview more forcefully than Polanyi does. Inmy reading of Polanyi, the emergence of the countermovement is ratherunder-theorized; it seems to appear quite spontaneously and it is confined tostate institutions. A Marxist analysis gives us potential insights into howlabor becomes a political actor, even if the result is not a proletarian

A Polanyian Analysis of Capitalism: A Commentary on Fred Block 301

revolution, nor is labor the only civil society actor that participates in thecountermovement dynamic.

In sum, Block makes a persuasive and important argument for an analysisof political economy that considers society and economy as densely inter-twined and not as separate spheres, and I am fully on board with this. Still,I think that such an analysis should call historically particular kinds ofpolitical economy by their rightful name. That name is capitalism if thesystem is based on private property rights and market competition formaterial gain. In my reading, a Polanyian analysis, which treats capitalismas an institutional order, has great promise. It would be worthwhile toadvance a Polanyian theory of capitalism along these lines.

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1. Doing a simple search in Sociological Abstracts with the words ‘‘capitalism’’ or‘‘market’’ or ‘‘democracy’’ in the title, and ‘‘Central and Eastern Europe’’ inkeywords, yields nearly twice as many articles with the word market and 60% morearticles with the word democracy than those with the word capitalism in the title.2. It should be noted that in his other work Block (2003) does discuss the Marxist

influences on Polanyi more explicitly.

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