Karl Polanyi and twenty-first century socialism

Polanyi’s views were the exact opposite of his contemporary, Joseph Schumpeter, who famously defined democracy as giving people a choice over which elite group would rule over them.

Fred Block
22 May 2016
open Movements

The openMovements series invites leading social scientists to share their research results and perspectives on contemporary social struggles.

We are at the end of a cycle that started in the second XIXth century. During this cycle, including in the XXth century, the left was governed by the ideology of progress and economic determinism. After the collapse of the so-called ‘communist’ countries, the question of the relevance of a new left for the XXIst century was raised. Different elements are necessary to answer it, the growing number of citizen initiatives all over the world (that is the subject of the launch text by Laville), the ambivalent experiences of left governments in South America (second subject raised by Coraggio). The analysis of these complex background issues opens up new perspectives for collective action and emancipation (to follow, third and fourth texts by Wainwright and Hart) and the structural crisis of European social democracy (fifth, sixth, and seventh closing texts by Hulgard, Block and Lévesque). Very different from those of the traditional left; this week’s opinions and debates are also to be found in detail in Spanish (Reinventar la izquierda en el siglo XXI – Hasta un dialogo Norte-Sur) and French (Les gauches du XXIe siècle – Un dialogue Nord-Sud ). Jean-Louis Laville, economist and sociologist, supervised 'Les gauches du XXIe siècle – Un dialogue Nord-Sud' (Bord de l’eau, 2016).


New Harmony as imagined by Robert Owen and drawn by an English architect. Gabled houses and futuristic buildings were to be on a square enclosing botanical gardens. Wikicommons. Public domain.

In recent decades, grassroots movements around the world have mobilized millions of people against the commodification of land, labor, and money that has been central to the project of “free market” globalization. People with greater democratic rights at the workplace and in local communities could transform parliamentary democracies into institutions in which elected representatives really did what voters wanted them to do.  

Efforts to build the solidarity and social economy, to expand and defend the commons, to implement a Basic Income for all citizens, and to resist land grabs by speculators and giant corporations  all rest on the recognition that it is inhuman to leave people and their natural surroundings vulnerable to the dictates of impersonal markets. These initiatives have sometimes been inspired by the powerful argument that Karl Polanyi developed in The Great Transformation, where he explained the disastrous consequences of imagining that land, labor and money could and should be treated like any other good or service, to be sold on the market.

Today, these movements face a new challenge – moving from resistance to building a real alternative to free market fundamentalism. The Global Financial Crisis of 2008 and the years of austerity and pain since then have made it glaringly obvious that the existing global system has failed, and that we need something radically different if we are to survive the challenge of accelerating climate change, widespread economic dislocation, and intensifying geopolitical conflicts.

But part of the problem is that most of the visions of socialism elaborated in the twentieth century – both in theory and in practice – fail to connect with the aspirations of grassroots activists to gain greater control over the conditions of their everyday lives.  The need is urgent for a model of socialism that would resonate with the initiatives of activists to build a different kind of economy from the bottom up.  Surprisingly, Karl Polanyi did not just offer a powerful critique of fictitious commodities; in the middle of the twentieth century, he also articulated ideas about socialism that could be extremely helpful in constructing a model of twenty-first century socialism. From his journalistic outpost in Vienna, Polanyi had been an eyewitness to the internecine conflicts between Communists and Socialists in Germany that prevented a united front to stop the triumph of Nazism.

In contrast to the Marxist tradition, Polanyi defined socialism in terms of the extension of democracy into the economic realm.  He wrote:  “Socialism is, essentially the tendency inherent in an industrial civilization to transcend the self-regulating market by consciously subordinating it to a democratic society.” Buried in this brief definition are a series of ideas that could be useful for building an alternative to the current dysfunctional global economy.

First, Polanyi is deliberately challenging the emphasis on property relations that has been central to the Marxist tradition. For Marx and Engels, socialism requires the end of private ownership of the means of production. But as we learned from the experience of both Soviet and Chinese socialism, eliminating private property does not eliminate the divide between those with more power and those with less power. In place of the old bourgeoisie, a “new class” organized around party elites exercised power and enjoyed higher incomes and other privileges.

Polanyi’s contrasting view is that the only way to narrow the gap between rulers and ruled is by deepening and extending political democracy. Polanyi’s views were the exact opposite of his contemporary, Joseph Schumpeter, who famously defined democracy as giving people a choice over which elite group would rule over them. While Polanyi recognized the accuracy of Schumpeter’s description of typical parliamentary democracies, his view was that democracy can be deepened by giving people greater democratic rights at the workplace and in local communities, and they could then transform parliamentary democracies into institutions in which the elected representatives really did what the voters wanted them to do.  

And that extension also means abandoning the free market idea that the workings of the economy should be off-limits to democratic decision making. Polanyi’s argument was that free market advocates were always disingenuous in their arguments in favor of laissez-faire. His view was that imposing free markets on society always required extensive state coercion. That was what he was getting at with the fictitious commodities; they do not just emerge naturally; they have to be created every day through the exercise of governmental powers. Under laissez-faire, these government powers are used to enhance the power and wealth of the ownership class.

By extending democracy over the economy, Polanyi believed those same government powers could be used on behalf of working people and the poor. By extending democracy over the economy, Polanyi believed those same government powers could be used on behalf of working people and the poor.  This meant social policies that provided people with access to education, to health care, to old age pensions, and unemployment insurance. It also meant reforms of labor law that weakened the property rights of employers. But Polanyi also envisioned citizens having a voice in the key decisions about what kinds of investments should be made and what the economy should produce.

Polanyi was hardly naïve. He recognized that those with wealth would resist this deepening and extension of democracy just as propertied elites had often resisted the expansion of suffrage and other democratic rights.  Moreover, he was contemptuous of those who imagined that the coming of socialism was somehow preordained or inevitable. He believed that building socialism required an organized socialist movement that was able to create institutions of popular democracy through which people could learn how society works and become empowered citizens.

His approach to socialism involved a unique combination of incrementalism and radicalism. Polanyi’s thinking was very much shaped by the disastrous experience of World War I in Central Europe. That war divided the international socialist movement between reformist socialists and revolutionary socialists. The former embraced a gradualist vision of socialism that made its peace with many of the arrangements of existing parliamentary democracies. The latter insisted on the need for a revolutionary rupture and a complete break with the institutions of bourgeois democracy. From his journalistic outpost in Vienna, Polanyi had been an eyewitness to the internecine conflicts between Communists and Socialists in Germany that prevented a united front to stop the triumph of Nazism.

Polanyi imagined that socialists could be reunified once they understood that the struggle for socialism would occur incrementally over many decades, and that there was no way of telling in advance how deep and radical the transformation in society might be.  Polanyi expressed this idea in The Great Transformation by twice invoking a quote from Robert Owen, the early nineteenth century socialist. “Should any causes of evil be irremovable by the new powers which men are about to acquire, they will know that they are necessary and unavoidable evils; and childish, unavailing complaints will cease to be made.”

Polanyi recognized this quote to be a powerful response to T.R. Malthus’ argument in The Essay on Population (1798). Malthus began that influential work by expressing his great admiration for the egalitarian and democratic visions of such Enlightenment radicals as Condorcet and Godwin. However, Malthus went on to argue that these appealing visions were fundamentally in conflict with the nature of human existence that was inevitably shaped by scarcity and the perpetual threat of overpopulation and famine.  Malthus, in brief, was arguing that human beings had no choice but to accept deep inequalities of class and gender.

Robert Owen completely rejected this logic. He believed that the possibility of human improvement was an empirical question rather than an issue that had been resolved by Malthus’ invocation of laws of economics and population. Owen’s argument was that we can and should reorganize society to remove such evils as class and gender inequality and it was only when we had repeatedly tried and failed to remove evils that we should accept them as irremovable. It was implicit in Owen’s formulation that this was a process that would play out over time through experimentation as society learned what could and could not be changed.

In recycling Owen’s insight, Polanyi envisioned a path towards socialism that can be termed “empowerment without hubris.”  Incrementalism meant that people did not have to make the all-or-nothing decision that was required for a revolutionary break with the existing system. Moreover, each set of reforms would be evaluated and modified if they were not producing the intended effects. But the idea of continuous change over a long period of time meant that people did not have to be content with modest reforms. They could still envision a future that would be radically different from the present since successful reforms would create the possibility of further steps to eliminate evils that had not yet been touched. Building socialism required an organized socialist movement that was able to create institutions of popular democracy through which people could learn how society works and become empowered citizens.

For Polanyi, this approach was an alternative to what he saw as the utopian and hubristic element in the Marxist revolutionary tradition. Unrealistic expectations about socialism’s ability to transform human existence overnight were bound to breed later disillusionment. Moreover, the idea that Marxism is a science that understands the laws of history helped pave the way for substituting rule by the party’s leadership for an actual expansion in democratic governance.  

But probably the most important aspect of Polanyi’s socialism was his way of thinking about the problem of socialist transition. In the twentieth century, neither revolutionary nor reformist paths to socialism proved effective. World revolution or even a simultaneous transition to socialism in ten or fifteen major nations appears unattainable, given the different rhythms of political change in different nations. Yet the problem of encirclement effectively doomed efforts to construct decent and attractive socialist societies. It is not just that the Soviet Union, China, and Cuba developed along autocratic lines without creating the expanded human freedom that socialists had envisioned.  It is also that democratic socialist initiatives such as Allende’s project in Chile in the 1970’s, Mitterrand’s efforts in France in the 1980’s, and Syriza’s electoral triumph in Greece in 2015 all came to naught because they were encircled by a hostile global system. 

In Chile’s case, it was an economic boycott combined with US support for a military coup; with France and Greece, it was sustained economic pressures from outside. It seems indisputable that the inability of socialist intellectuals to provide a persuasive narrative of how a socialist transition might actually occur has been a critical element in socialism’s weakness over the last four decades.


Gold certificates were used as paper currency in the United States from 1882 to 1933. These certificates were freely convertible into gold coins.Wikicommons. Public domain. Polanyi, however, brought a new angle of vision to this question. He had watched closely the process by which the Labour Government in England in 1931 and the Popular Front government in France in 1936 were effectively forced to abandon their radical reform agendas by international economic pressures. 

But what he saw at work was not the inherent and necessary logic of a global capitalist order, but the workings of a very specific institutional mechanism – the international gold standard that was restored in the aftermath of World War I. His central insight was that this had been a mistaken historical choice and that it was possible to organize the global economy with a very different mechanism for regulating economic transactions among nations.

To be sure, Polanyi was not alone in this insight. The key British and US architects of the Bretton Woods system, John Maynard Keynes and Harry Dexter White, came to the same conclusion. But among socialist intellectuals, Polanyi was a rarity in recognizing that the global rules and institutions for governing international economic transactions were political arrangements that could be changed in ways that would open space for socialist politics.  Polanyi’s viewpoint was vindicated because the Bretton Woods global order (1944-73), despite its clear shortcomings, did facilitate the significant advances of social democracy in western Europe.

Moreover, the post-1973 global order of floating exchange rates and accelerating liberalization did the opposite. It pushed the world back to the era of the gold standard. Rapid global capital movements are once again a critical barrier to implementing reforms within nations and they exert periodic pressures on nations to reverse social democratic reforms that had been adopted earlier.

Polanyi’s specific contribution to socialist strategy is the idea that socialists must engage simultaneously in political struggle at three or four distinct levels or scales. Polanyi’s specific contribution to socialist strategy is the idea that socialists must engage simultaneously in political struggle at three or four distinct levels or scales. There is first the local level where people must be organized to participate both electorally and in trade unions and other forms of association that contribute to their collective power. There is then the national level where these local movements aggregate their power by fighting for measures that will subordinate the market to democratic politics. There is sometimes, as with the European Community, a regional governance structure where socialists must campaign for region-wide reforms that facilitate continued strong grassroots organizations at the local and national level. Finally, there is a global level where agreements are formulated on the global rules governing finance, trade, environmental policies, and an international regime of rights that is more or less successful in protecting workers, women, children, indigenous people, and others. At this level as well, socialists fight for reform measures that open up more space at the remaining levels of contestation.

This idea of the multi-level struggle for socialism provides an answer to the historical conundrum of socialism in one country. As socialists gain increasing power and influence in particular nations, they push with greater intensity for reforms at the transnational level that would help empower socialist activists to win strategic reforms in other places. For example, global trade rules have long allowed nations to block imports that were produced by child labor or slave labor. Imagine then that the global rules were rewritten to allow nations to exclude products produced in nations that did not have independent trade unions and collective bargaining. Imagine that global rules were rewritten to allow nations to exclude products produced in nations that did not have independent trade unions and collective bargaining. In this way, a transnational socialist politics could open up space for reform politics in places where it is currently impossible. With the same idea of gradually ratcheting up global standards that has been used by the environmental movement, one can envision an incremental process where most nations are moving towards greater democratic control over the market, albeit at different speeds.

Moreover, this vision of multi-level contestation fits with the idea of incremental experimentation at the national level. The process of improving the global level rules will inevitably involve victories and defeats, since the barriers to movements effectively coordinating across international lines are formidable and movements also have to contend with the complexities of power politics among major nations. Nevertheless, the idea is that over time these democratic movements from below will develop greater capacity as people around the world come to recognize that their own futures are highly dependent on what happens at the global level.

Obviously, these Polanyian ideas about the nature of socialism are still far removed from the day-to-day dilemmas faced by activists and parties of the left. But there are strong potential linkages between Polanyian socialism and the sensibilities of many activists who are struggling to protect themselves and their neighbors from out-of-control market forces. 

First, there is a spirit of experimentalism – the necessity of creating new solidaristic institutions which are based on democratic norms. Second, there is the idea that change can and must be both incremental and continuous; the institutions that we are building today are not an end in themselves but a bridge that we are building towards a different social world. Third, there is “empowerment without hubris” that reminds us that our initiatives are inherently provisional and that we must constantly be checking to make sure that our methods of achieving change are consistent with our vision of a society that is more deeply democratic. Finally, the idea of multilevel contestation provides a powerful mechanism for linking the local to the national to the global.

There are, of course, many movements and activists who have deliberately avoided articulating a vision of the future, preferring instead to concentrate on immediate struggles. Occupy Wall Street, for example, famously refused to even issue demands. However, I continue to believe that we can only build an effective alternative to market fundamentalism if we can articulate a powerful and persuasive vision of the kind of society we want to create. In that respect, there is much we can learn from Karl Polanyi’s ideas about socialism.

How to cite:
Block F.(2016) Karl Polanyi and twenty-first century socialism, Open Democracy / ISA RC-47: Open Movements,22 May. https://opendemocracy.net/fred-block/karl-polanyi-and-twenty-first-century-socialism


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