Why we ignored inequality prior to the crisisPosted: July 4, 2012 | |
Issues related to domestic income inequality and its ties to real wage movements, while popular now , were largely relegated to the sidelines in public and academic circles prior to the onset of economic crisis in 2008/2009.
In this peer-reviewed paper just published in the International Journal of Social Economics, I seek to understand why this was the case, drawing on the work of the great Hungarian (though he lived in Pickering, ON) political economist Karl Polanyi. If you’ve never read Polanyi’s The Great Transformation, and you’re interested in the ties between markets and society, you must. It’s a foundational book that, building on Gramsci, highlights the embedded nature of markets in society and the relationship that ebbs and flows between both. Or just read this paper to get the Coles notes.
This paper wasn’t meant as a normative attack on the forces of capital (though some will certainly read it that way), but rather an exploration of how social change happens and is legitimized by the very people it may harm.
As the global economy lurches along the vagaries of concomitant economic crises in the USA and Europe, a backlash against Anglo-American capitalism has taken shape. Since the ﬁrst wave of this economic crisis hit in August 2009, the front pages of newspapers from around the world have hosted headlines decrying bankers for their greed and urging political leaders to reform a system of ﬁnancialization that has made many rich but has placed the global ﬁnancial system at risk.
One explicit symptom has been the development of the occupy movement and its rapid sweep from Wall Street to over 600 communities across the USA, and near a 100 cities beyond it. The subsequent (and ongoing) near-failure of economic union in Europe has only served to further the voices of this growing critique. The result is the development of a deep critique of an economic and ﬁnancial system that has helped create depression-era income inequality, stagnant wages for the vast majority of the working class population and increasingly long-term, structural unemployment. These issues, however, were not borne of the crisis. While the crisis may have accelerated their direction, it served primarily to bring them to the public’s attention. For each of the aforementioned trends have been growing steadily since the 1970s, yet gone largely unnoticed in public circles.
This paper asks why, and seeks to understand why little attention was paid to reversing the negative domestic externalities that have accompanied the post-1970s shift in economic ideology and policy. At the heart of this analysis is the work of Karl Polanyi. Polanyi argued that economic liberalism was bound to cause signiﬁcant social dislocations that only a countermovement could cure. Applying his thoughts to the post-1970 period of economic growth and upheaval in the USA, however, yields an interesting result. For despite the increasing social and economic dislocations that accompanied ﬁnancialization and the globalization of US production, a broad, populist countermovement against the worst effects of economic liberalization, as argued by Polanyi as the inevitable next stage, was absent. Was Polanyi’s belief in the natural cyclical forces of movement and countermovement in the market economy wrong? Or had the forces of post-1970 economic ideology successfully disabled its rival
This paper argues that Polanyi’s concept of a societal countermovement was absent from the post-1970 period of economic liberalism and globalization due to explicit strategies enacted by ﬁnancial elites to circumvent the mitigating role a double movement would play in lessening the harmful effects of American capitalism. In particular, the double movement that should have sought to lessen income inequality, unemployment and wage stagnation was instead replaced by access to cheap credit and the democratization of market investments that spurred consumer purchasing power and a false belief that was good for the markets was good for working class Americans.
These strictly material considerations, however, were pushed aside by the post-2007 global economic crisis and the maturation of a sustained demonstration effect related to growing domestic income inequality, declining real wages and increasingly long-term unemployment. The growing attention paid to these three issues, as evidenced by the Occupy Movement and the rise of the tea party, may ultimately provide the counterweight necessary towards the development of alternatives to orthodox economic thought. The implications for American economic policy, in particular approaches to international trade, are signiﬁcant. The development of such alternatives, however, necessitate an understanding of how such counterweights were previously constrained, which this paper ultimately seeks to do. The ﬁrst section of this paper will thus brieﬂy review the work of Karl Polanyi and the theoretical development of the double movement in both his original work as well as its contemporary application. The second and third sections will delve into the functioning of the double movement in the post-1970s American economy, with the latter focused on how an organic countermovement against the ills of capitalism was pushed aside by the combination of access to cheap credit andthe democratization of access to market investments. The fourth and ﬁnal section will highlight the green shoots of a new countermovement developing in the USA and its subsequent policy implications.
Gated version available here: http://www.emeraldinsight.com/journals.htm?articleid=17042014&show=abstract
Email me at dherman @ balsillieschool . ca for the PDF