This article was first posted online on October 31, 2017.
While the 2016 US presidential election surprised many people, there is one person, if he were still alive, who would not blink an eye that Trump—the corporate magnate—won. Economist Karl Polanyi (1886–1964) studied the evolution of capitalism. His 1944 book The Great Transformation argued that the market and the state (business and government) increasingly work together to advance their mutual self-interest, often at the expense of the people. This is because the market, rather than being truly “free,” requires legislative policies to support it. Examples include legal enforcement of contracts, private property rights, and labor policies to influence wages.
If such entanglement between the state and market benefited all equally, this would be a non-issue. However, Polanyi claimed the effects of this transformation come at the expense of the majority of the population. He showed that before the industrialization of England, trade was limited but the economic exchange that did take place within villages was based on norms of reciprocity. As capitalism expanded, it increasingly benefited those who already had resources, often at the expense of those who didn’t. Examples of one-sided benefit practices today include rent seeking (making money without creating value, which produces social costs), and suboptimal competition (taking advantage of vulnerable people through businesses like high interest payday loans).
But Polanyi was nuanced in his thinking, arguing that capitalism actually fostered a dialectic. On the one hand, there can be no market without a state. In contrast to the myth of their supposed opposition, the two actually depend on each other because capitalism requires a more invasive state than any economic system preceding it. In today’s mixed capitalist economies, for example, government takes up between a third and a half of gross domestic product in most countries, including the United States.
On the other hand, Polanyi observed that capitalism generated the need for a welfare state because it increasingly created social problems as it expanded production. The need for welfare protections led to the development of social forces (unions, etc.)—and indeed the nonprofit sector itself—as a way to generate those social protections. He wrote that this “double movement,” personified as the action of two organizing principles in society, each of them setting itself specific institutional aims, having the support of definite social forces and using its own distinctive methods.
The one was the principle of economic liberalism, aiming at the establishment of a self-regulating market, relying on the support of the trading classes, and using largely laissez-faire and free trade as its methods; the other was the principle of social protection aiming at the conservation of man and nature as well as productive organization, relying on the varying support of those most immediately affected by the deleterious action of the market—primarily, but not exclusively, the working and the landed classes—and using protective legislation, restrictive associations, and other instruments of intervention as its methods
(Polanyi, The Great Transformation, pp. 77).
As Polanyi shows, there is no end point to this process. In the past few decades, the social protections that were carefully constructed have eroded as corporations, aided and abetted by government, have escaped safeguards like unions and minimum wages through means such as globalization, outsourcing, information and communication technology, etc. While some embrace the fiction that our system is functioning well, we know all too well that it is not. For nonprofits, this means we must find our voice to protect core social values and help create new systems of social protections. We must enter the fray to re-embed the market in society.
For we know all too well how things are working today in our current “pay to play” system. To obtain legislative support, businesses spend billions of dollars annually to influence political campaigns and rulemaking. In 2016, total spending on lobbying was $3.15 billion, led by pharmaceutical companies ($284 million), insurance ($152 million), and business associations ($143 million). Beyond policy victories, results of lobbying often have a cascade effect, generating more power for those who already have power. For example, the Arizona Public Service Co. is a utility company privately owned by Pinnacle West Capital Corp. Over the past four years, it has legally