Canadian development economist Kari Polanyi Levitt has a reputation in Canada and abroad as an advocate for economic policies rooted in social justice and distributional equity. Levitt has worked tirelessly to build development studies as a multi-disciplinary field of scholarly endeavour, in which development economics plays an essential role but must be complemented by essential contributions from other social scientists and historians. Now in her ninety-first year, the Professor Emerita of Economics at McGill University has published a new book entitled From the Great Transformation to the Great Financialization: On Karl Polanyi and Other Essays.
Professor Levitt is the daughter of Karl Polanyi, most famous for The Great Transformation: Political and Economic Origins of Our Time. Levitt has done much to build the intellectual legacy of her father, whose thinking has enjoyed something of a rebirth in recent years. As its title suggests, her own book—a compilation of essays and lectures written over a number of years—serves as a bridge between the thinking of Karl Polanyi, which emerged from the Great Depression, and the crisis-ridden world that confronts us today.
Although he has been appreciated by anthropologists, sociologists and political scientists, Polanyi’s recognition, let alone acceptance, among mainstream economists has been conspicuous by its absence. The reasons are fairly straightforward. First, Polanyi was a thinker not constrained by disciplinary boundaries. He drew on the work of all the social sciences as well as history and philosophy. But since his magnum opus was published, and particularly since the 1970s, mainstream economics (known more formally as “neoclassical economics”) has become narrowly focused on the analytics of markets, increasingly utilizing highly complex mathematical tools, and divorced from the social and political realities that policymakers and business people must contend with daily.
Second, although Polanyi was not opposed to markets or the market economy per se, what he profoundly objected to was the “market society” in which “self-regulating” markets dominate social and political norms. In Polanyi’s view, if it is to be socially and environmentally sustainable, and compatible with democracy, the economy must be embedded in society and serve the needs of the entire human community. Polanyi came to this view through his study of human communities throughout history, in which the economy was the servant of society, not its master. Industrial capitalism turned this relationship upside-down—embedding society in the economy, so that individuals and communities are led to serve the needs of the market for labour, commodities and capital. However, Polanyi also believed in the possibilities of human agency to push back against these forces, reasserting the needs of society through the cooperative and democratic efforts of workers, communities and governments.
The Great Depression gave birth in the post-World War II generation to Keynesian policies of intervention aimed at maintaining full employment, supporting the welfare state and a more equitable international distribution of income. This seemed to be a vindication of Polanyi’s thinking. But the last quarter of the twentieth century witnessed the eclipse of Keynesianism and the return of “neoliberalism”, an ideology that asserts the primacy of markets and the dangers inherent in activist governments that intervene in the economy in order to achieve socially desirable outcomes.
Although spearheaded from the late 1970s by Margaret Thatcher in the U.K. and Ronald Reagan in the United States, Levitt locates the origins of modern neoliberalism much earlier, in Vienna of the 1920s, the selfsame milieu in which Karl Polanyi began his career and his profoundly divergent thinking. There, neoliberalism was championed by Friedrich Hayek and his mentor, Ludwig von Mises, who longed for a return to the pre-World War 1 laissez-faire approach. Such longings however remained in the policy wilderness until the 1960s. It was only with the re-emergence of unbridled financial markets that neoliberalism found the means to enforce its policies on a global scale.
Professor Levitt’s “great financialization” refers to the policies to liberalize and deregulate the financial sector, both at the domestic level and ultimately throughout the global economy. Initially championed by neoliberal advocates as the means to “discipline” governments to implement business-friendly policies, financial liberalization has instead brought about a series of crises from the 1970s until today. And far from engendering a self-regulating market that would automatically check against speculative excesses and bubbles, liberalization gave birth to financial innovation with an increasing appetite for risk, cloaked by opacity and the inability or unwillingness of governments to arrest the growing threats posed by all of these tendencies. The latest crisis, erupting in the heartland of the global financial sector—the United States and Europe—has as yet shown only anemic signs of recovery.
Mainstream, neoclassical economics has a lot to answer for in leading the world to the present impasse. As Paul Krugman aptly asked in a New York Times Magazine article in September 2009, how did economists get it so wrong? The answer has much to do with how mainstream economics has turned inwards, like medieval theology, becoming increasingly less relevant to the real world, even to brokers on Wall Street.
While she harbours deep reservations about the usefulness of much present-day economics and its complicity in the Great Financialization, Professor Levitt remains convinced that the basic tools of economics, as modified by Keynes, are essential to understanding the critical issues facing rich countries and poor alike. And like her father, she cannot imagine that economics alone can tackle today’s social and economic problems. Accordingly she urges younger scholars and activists to embrace an understanding of local history and culture, along with an interdisciplinary analysis of the opportunities and constraints facing any country or region, in order to lay the foundations for policies aimed at distributional equity and environmental sustainability.
Roy Culpeper is the former President of the North-South Institute and currently a Senior Fellow of the University of Ottawa’s School of International Development and Global Studies, and Adjunct Professor at the School of Public Policy and Administration, Carleton University.