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Labour as a fictitious commodity: The insight of Polanyi and the double movement in the development of the European Union

In this article, Yazdon Taghinia (4th year LLB) examines the concept of labour as a fictitious commodity as argued by the works of Karl Polanyi in the context of the development of the EU.

Labour as a fictitious commodity: The insight of Polanyi and the double movement in the development of the European Union

 

Labour holds a tripartite position in the works of Polanyi alongside land and money, defined under what he called “fictitious commodities”. Indeed, the term seems at once to be incompatible with logic. How can a commodity be fictitious? A good or service offered for exchange surely offers its ambit to almost anything imaginable so long as there is a demand for that particular thing. The key to understanding how a commodity can be fictitious is to first understand that the institutions under which the very term subscribes is a fiction – that of the market. The phrase ‘fiction’ here is not meant in the sense that it does not exist; market forces are obviously tangible things. The point is to define the commodity in the framework of what it is subjected to and not in the literal understanding of the word. Indeed, Polanyi’s assertion is that labour, along with money and land, were never intended to be subject to market forces in the manner they began to be in the late 18th and early 19th centuries. Indeed he explicitly states that the market for land and labour was upheld on the fiction that they were produced for sale.[1] He furthers this point by detailing the consequences of subjecting the fictitious commodities wholly to market forces, stating that it shall lead to their annihilation.[2] Polanyi famously states that the double-movement of market forces met with the establishment of protections to counter them is the balance that presents itself once this creation of labour markets has occurred. It is of great importance to understand that the commodification of labour came last in the progression of commodification of land and money before it. There are two reasons for this importance. One is that it allows us a greater understanding of precisely why the labour market came to be created. The second is that, when considered with my later analysis, it will aid us in gaining an insight as to exactly how this creation of fictitious commodities came about and the main overarching theme that reveals itself, particularly in our examination of the European Union. The posit briefly is this; that labour markets are created for the very reasons Polanyi details, but the advent of the EU and its development meant that the critical role of the double-movement became impeded by the nature of the EU construct. The creation of labour markets ultimately removes power from the labourer in both Polanyi’s view and in the context of the EU. Furthermore, in times of economic turmoil, the labour market becomes a tool of exploitation and is almost invariably de-regulated in a bid for further competitiveness and economic growth. The political balance is only favourable to labourers in times of relative economic ease. Polanyi’s counter-movement does not equally protect all parts of society, just as the initial movement does not equally benefit all parts. In arguing this, I will first establish in detail Polanyi’s conception of labour as a fictitious commodity and the consequences of its commodification, and then examine these insights in the context of the European Union’s approach to labour and social policy, and how Polanyi’s insights are ultimately affirmed by this.

The Creation of Labour Markets

As has already been stated, Polanyi believes that labour is a fictitious commodity because it was not made to be subject to market forces in the way that other commodities such as grain are. This is because the proximate impact upon the individual when subjecting labour to market forces meets a certain threshold. The meeting of this threshold, and the consequence of this creation of labour markets, annihilates organic life and replaces it with an “atomistic, individualistic one”[3]. In this sense, sellers of labour are forced to compete against each other, whereas before there was a degree of the workforce as a whole (in the existence of entities such as guilds). To validate and understand these assertions, it is necessary to examine the historical progression that Polanyi puts before us in how these labour markets arose. Once an understanding is gleaned of why things developed as they did, it is possible to extrapolate Polanyi’s insights to other contexts.

Polanyi recognised that freedom of contract was designated as the way to realise these labour markets, and was implemented first in Britain on the pretence of “non-interference” – also known as laissez-faire.[4] Thus, the existing non-contractual relationships were dismantled in favour of one that subjected wages to market forces. This was done in a bid to increase productivity. But how does creating a labour market increase productivity? More importantly, what would compel an individual to work? Polanyi cites hunger as the artificially created impetus behind such a system.[5] Speenhamland provided a paternalistic guarantee that no individual would be subject to the scourge of hunger. Indeed, Polanyi noted this method of coercion in indigenous, primitive societies that colonialism came across which he noted were “more humane than market economy, but less economic.” [6] In this sense, economic advancement can be seen as being driven by the threat of starvation, and it is here that the “annihilation” Polanyi speaks of reveals itself. It also explains why, despite the supply of workers provided by the old Poor Laws particularly to the agriculture sector, there was nowhere near the level of economic growth that came with the industrial revolution. Certainly, it follows logically. No persons are compelled to work for a lower wage, or indeed even one slightly more than they were making, if the necessary difference is already being compensated. One does not concern themselves with the functioning of an economic machine to its maximum efficiency. Rather, humanity is motivated by their own best interest – in this case their interest not to starve to death. The market is subordinated to their needs, or as Polanyi notes, is embedded. When the functioning of an efficient economy places itself above the needs of the individual with the threat of starvation, this can be said to be an attempt to disembed the market and to subordinate the labourer. From this, it is not hard for one to envisage how this leads to dislocation and the unravelling of society; organic society becoming liquidated[7] as a result of the creation of labour markets to increase productivity and ultimately economic advancement.

Indeed, a result of this sudden dislocation was that the workers place in society became precarious at best.[8] Excluded from the vote, these individuals were essentially at the mercy of the factory owners (or in Marx’s words, those with the means of production). Creation of labour markets served to provide them a disservice to their livelihoods whilst allowing the factory owners to profit in a system devoid of democratic process for the worker themselves. This notion is key and I shall refer back to it in my later discussion.  In keeping with Polanyi’s ideas, this movement towards marketization was met with counter-movements – a number of spontaneous attempts to check the potentially catastrophic effects this dislocation would have. Owenism and Chartism, however, would fall short in Britain, and the working man’s dislocation and political exclusion gave him nothing to replace the loss of identity he once had. This was not the case on the Continent, for a number of reasons. For one, it happened some fifty years later. Already, then, the population was more prepared for such a change. Higher wages attracted people to towns where they felt elevated to a new state of being that was an improvement from before.[9] Critically, on the continent, there was a “rise in the social and political status of the labourer”, whereas the converse was the case in Britain[10]. What is the insight one draws in this distinction between the industrial revolution in Britain and the Continent? How is this relevant to labour markets? This observation illustrates that while a cultural catastrophe is not necessarily entailed in a systemic upheaval of the old system and creation of markets for “fictitious commodities”, what is absolutely inescapable is the consequences of market exposure. Polanyi himself recognised that the continent did not need protection from the industrial revolution, but rather “the continental worker needed protection… against the normal action of factory and labour market conditions”.[11] While in Europe this was achieved via legislation due to the earlier access of the vote, in Britain it was achieved through trade unions. But this comparatively abysmal transition to a fully industrialised society with the advent of the labour markets in Britain to the relatively smooth one on the continent provides more than just an opportunity to distil what is a possible consequence from a certain one. It ultimately reinforces Polanyi’s insights regarding the double movements. On the one hand, in Britain, the extremely forced commodification of labour and land via enclosure laws and poor law reform was not met with protections for the wellbeing of the labourer. On the other hand, on the continent the advent of industrialisation came hand in hand with protections for labourers from the effects of market forces. The differences in social protection amongst nations is crucial when considering Polanyi’s insights in the context of the European Union.

We have seen, then, precisely why Polanyi regards labour as a fictitious commodity and the potential consequences of the creation of the labour market. Additionally, we have also distilled the nature of the double movement; steps to disembed the economy met with concomitant attempts to re-embed it to a degree. Polanyi is most relevant in the context of the European Union when examining these particular insights in its context. The entire development of the EU can be seen as one big double-movement; an attempt on one hand to increase competitiveness by removing barriers to trade, and on the other to safeguard the social well-being of the individuals in the member states. As will be seen, this endeavour is heavily paradoxical and the balance is heavily tipped towards the former to the extent that any semblance of a double-movement essentially evaporates and we are left with pure marketization, particularly in the recent times of financial crisis. There are, however, caveats that Polanyi could not have possibly accounted for, due in large part to the layers and layers of machination of the functioning of the EU and how it relates internally to itself and externally outwith the EU. One is that, for all the assertion and explanation in Polanyi’s writings that marketization and deregulation, whilst debasing society provides on the whole economic growth, this has not been the case in the context of the EU and the financial crisis. Deregulation is having little to no effect in competitiveness (arguably the opposite). As we will see, however, Polanyi’s insights still apply once we extrapolate the insights regarding commodification of labour in relation to the EU.

Polanyi and the EU

Polanyi’s insights can be seen from the inception of the EU. The initial creation of the EU saw two spheres developed – the common market at the supranational level and the social levels which operated at a national level. In actuality, it was only one sphere whilst the other was simply left to the whim of member states. Already, then, we see echoes of Polanyi’s double movement. France and Germany (particularly France) at this stage wanted social considerations to be included as a precondition for industrial harmonisation. However, the Ohlin[12] and Spaak[13] reports quelled these notions. The notions themselves were brought upon genuine concerns; that not harmonising social standards would lead the economic state of countries to naturally pursue a “race to the bottom” that would pose a threat to countries with high wages and strong employment protections. This is the very essence of the nature of a labour market and the consequences of its creation as described by Polanyi, simply transposed into the context of the European Union. You have barriers to trade removed in the name of economic growth, met by the possibility of adverse effects for the labourers. Furthermore, Polanyi’s embeddedness reveals itself in the reasoning of Scharpf[14] when he describes the intrinsic nature of social policy to the state from which it originates. It can be argued in this sense any attempts to harmonise at a supranational level must therefore be doomed to fail; it certainly helps to explain why no serious attempt to do so was ever made. At any rate, this worry was dispelled by the Ohlin committee, the only social recommendation it made being that female worker pay be regulated at the European level. The committee argued against further social harmonisation by saying that exchange rates reflect economic activity, thus states with higher social protection had nothing to fear. As we will see later on, this does not prove to be the case indefinitely.

Thus it was that social protections were left to member states. If there was a phrase to characterise the following decades of social protection at the EU level, it would be “all talk, no action”. The social policy agreement of the 70s and the Single European Act of the 80s did not actually provide any binding rules regarding social protection. It was not until the Maastricht Treaty in 1992 that  there was a tangible establishment of these institutions in the EU, but even this had massive shortcomings.[15] Certainly now, it is believed to an extent that the European Social Model is all but gone[16], but it is arguable it ever existed in a real sense. This is something that Scharpf and Crouch[17] would contest.

Once Scharpf’s foresight inevitably came to pass in Greece, the legal constrictions of the EU were felt both on the side of the Greeks who wished to resist the impositions given by the ECB, and the Germans who did not wish to bear the burden of another nation. In the case of the former, since exchange rates were not capable of being changed and exiting the EU was not a favourable option to the creditors, they were forced to take the bailout plan. For the latter, the CJEU simply told those who brought the case that the Germans as a people did not have the right to refuse to shoulder the burden. Polanyi’s double movement, then, whilst not necessarily wholly due to labour markets themselves, can be seen to reach its full “annihilation” in this instance. The EU’s answer to the Greek crisis was to subject the labour force to the brunt of the cost by enforcing public bailouts and the continuation of the deregulation agenda – not the regulation of the financial market one surely would have expected at the start of the financial crisis. Of course, this has led to further social degradation.  When compared with Iceland’s antithetical response to the crisis the policies of deregulation and the economic efficiency, and fairness, of public bailouts is called into question.

It is here that the link is made between the turmoil of the EU’s economy, the position of the worker, and the position of the worker in Britain over a century ago that I made a point of referring to later. While it did not happen at first on the Continent, what happened in Britain in the 19th century is now the case for Europe. In a time where efforts are made to garner economic growth, the labour market is exploited and deregulated with virtually no power to the labourer in deciding their fate. Methods such as quantitative easing benefit the asset owning class. Even the open-method of coordination is extremely lacking for Scharpf.[18] Policy choices were kept national but agreed to be in view of a common goal with set indications and parameters for success. However, this is non-binding and requires voluntary cooperation, mirroring more or less any attempt to regulate labour standards. The goals set for the OMC in policy favour deregulation for the most part. As for why deregulation is pursued despite it clearly not being the answer; there is no one correct answer. It is a combination of factors that once again represents the caveats that Polanyi could not account for. Hill and Myatt[19]give a good brief account – that those who were profiting from deregulation were successful in lobbying for its continuance and further managed to influence public opinion. Indeed, this again mirrors the original way in which labour markets were created in Britain in the 19th century. What Scharpf states as the answer is as follows: “But what one might and should demand is a balancing of market-enhancing and market-correcting concerns at the European level, instead of the lexicographic ordering that presently prevail”.[20] Scharpf does not believe this is impossible, although his evidence to support this view is extremely niche.[21]

Overall, it can be seen that Polanyi’s insights are disturbingly pervasive in the development of the European Union. In many ways, the dire consequences of the commodification of labour are worse than he envisioned in the worst-case scenarios where it is not met with a counter-movement. In the case of the EU, the labour market transitioned from something that was subject to a nation’s own social protection devices to an entity which superseded them. For decades, marketization continued at the supranational level whilst no counter-movement in social protection at that same level was made. Devoid of the necessary tools to protect themselves, the member states unwittingly carried on until the day that their creation of a currency union would reveal the devastating consequences of failing to regulate properly. The ultimate irony is that despite the known causes of such consequences, deregulation of the labour markets is still always pursued as the answer. Indeed, Polanyi’s annihilation of society is abundantly clear; the current political state of the EU is evidence enough.

 

 

[1] Polanyi, K – The Great Transformation pg 137, 1957 Beacon Press, 25 Beacon Street Boston Massachusetts

[2] Ibid.

[3] TGT pg 171

[4] Ibid.

[5] Ibid.. pg 173

[6] Ibid. pg 172

[7] Ibid. pg 173

[8] Ibid. pg 175 – “in statu nascendi” (in reference to the state of the working class)

[9] Ibid. pg 182

[10] Ibid. pg 184

[11] Ibid. pg 184

[12] http://aei.pitt.edu/6508/1/000432_1.PDF

[13] http://aei.pitt.edu/995/1/Spaak_report.pdf

[14] F Scharpf, ‘The European Social Model: Coping with the challenges of diversity’ (2002) MPIfG working paper No. 02/8, section 3

[15] P Davies, ‘Market Integration and Social Policy in the Court of Justice’ (1995) 24 Industrial Law Journal pg 49

[16] Alain Supiot, ‘Towards a European policy on work’ (2013)

[17] C Crouch, ‘Entrenching neo-liberalism: the current agenda of European social policy’ in N Countouris and M Freedland (eds), Resocialising Europe in a Time of Crisis (Cambridge 2013)

[18] Ibid Section 4

[19] Postscript: a case study on the global financial meltdown,’ by Hill and Myatt, The Economics Anti-Textbook pg 262-263

[20] F Scharpf, ‘The European Social Model: Coping with the challenges of diversity’ (2002) MPIfG working paper No. 02/8, section 4.4

[21] Gebauer et al. 2001

 

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