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June 12, 2009
Robert Wade in Financial Regime Change in New Left Review makes an interesting point about the global financial crisis. He says:
The shocks of the past year—another thirty years on from the last major shift—support the conjecture that we are witnessing a third regime change, propelled by a wholesale loss of confidence in the Anglo-American model of transactions-oriented capitalism and the neoliberal economics that legitimized it (and by the US’s loss of moral authority, now at rock bottom in much of the world). Governmental responses to the crisis further suggest that we have entered the second leg of Polanyi’s ‘double movement’, the recurrent pattern in capitalism whereby (to oversimplify) a regime of free markets and increasing commodification generates such suffering and displacement as to prompt attempts to impose closer regulation of markets and de-commodification (hence ‘embedded liberalism’). ... The first leg of the current double movement was the long reign of neoliberalism and its globalization consensus. The second as yet has no name, and may turn out to be a period marked more by a lack of agreement than any new consensus.
Polanyi argued in the Great Transformation that under capitalism the economy becomes disembedded and dominant, thereby creating grave dangers for humanity and the environment. Robbed of the protective covering of cultural institutions, human beings would perish from the effects of social exposure; they would die as the victims of acute social dislocation through vice, perversion, crime and starvation. Nature would be reduced to its elements, neighbourhoods and landscapes defiled, rivers polluted, military safety jeopardized, the power to produce food and raw materials destroyed.
In the face of this danger, society develops defence mechanisms that, in turn, can hinder the pursuit of profit. This is the famous 'double movement' which, Polanyi strove to show, emerged spontaneously in market societies--a sort of dialectical relationship between destruction and protection.
Polanyi's work holds explanatory potential in the current period of neoliberal globalisation. Some have even suggested that a new 'double movement' can currently be witnessed: the destructive impact of neoliberal globalisation and attempts, by different groups within society, to regulate it. Wade begins to spell this out when he says that the double movement means that the globalization model itself needs to be rethought. It over-emphasized capital accumulation or the supply side of the economy, to the detriment of the demand side (since the stress on export-led growth implied that demand was unlimited).
The failure of catch-up growth,, stems in part from neoliberalism’s lack of attention to domestic demand, reflecting the dominance of neoclassical economics and the marginalization of Keynesian approaches. Developing domestic and regional demand would involve greater efforts towards achieving equality in the distribution of income—and hence a larger role for labour standards, trade unions, the minimum wage and systems of social protection. It would also necessitate strategic management of trade, so as to curb the race-to-the-bottom effects of export-led growth, and foster domestic industry and services that would provide better livelihoods and incomes for the middle and working classes. Controls on cross-border flows of capital, so as to curb speculative surges, would be another key instrument of a demand-led development process, since they would give governments greater autonomy with regard to the exchange rate and in setting interest rates.
If the second leg of the present ‘double movement’ turns out to be a period from which consensus is largely absent, it may also provide space for a wider array of standards and institutions—economic and financial alternatives to the system-wide prescriptions of neoliberalism. This may give the new regime that emerges from the current upheavals greater stability than its predecessor.
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Always attack the economists! I say. Their conception of the markets' equilibrium-seeking self-corrective mechanism is fictive. A mystifying ideology.