Improvements are bought at the price of Social Dislocation. To what extent do Post-Washington ideas and practices of development take Polanyi´s warning into account?

Introduction

Polanyi´s project was to create a balance between the State, the Market, and Society. The State was able to regain control over market forces and avoid the dissolution of humanity. A particular society, group or community was able to achieve improvements, however, Polanyi noted that these improvements were bought at the price of social dislocation. There is a powerful message by Polanyi in his book “The Great Transformation” which might be interpreted in the following way: In allowing the market to have so much influence we have made a terrible mistake, however, If we use Powerful institutions such as the State to control the risks and mitigate the effects of social dislocations and untrammeled free Market expansion we will be able to re-embed the Market within Society. We will be able to put the Market under social control through a network of measures and policies designed to check the action of the Market relative to Labour, Land and Money. The Washington Consensus did not take Polanyi´s warning into account, instead, it forced us to believe that if we reduce the role of the State in the economy, liberalise, privatize and open our markets we will achieve progress, development and growth. We were told that we might possibly experience some dislocations, but this will be temporary, it will be only in the short term, because in the long-term we will be living in a paradise, everyone will be happy. However, it was not true. Crisis and dislocations emerged all over the world and people reacted against this ideology demanding change, demanding respect for their rights to life, freedom and property. Even people inside the World Bank and the IMF such as Joseph Stiglitz reacted against the dislocations caused by the policies designed by a hidden network of individuals. This essay will explore to what extent Post Washington ideas and practices take seriously Polanyi´s warning into account. I will start first by introducing to the reader the perspective of Polanyi, then I will be describing some of the dislocations created by the Washington Consensus, then I will examine the new Post-Washington Consensus alternative attempting to identify to what extent this new strategy takes Polanyi´s warning into account. My argument is that the ideas and practices of the Post-Washington Consensus are not really taking Polanyi´s warning into account, in fact, this new ideology not only remains strongly committed to market expansion, but also, both the World Bank and Stiglitz might be proposing alternatives that intentionally or unintentionally will be reproducing the previous Neoliberalist regime and increasing social dislocations. A new strategy suggested by Townsend is presented to be explored as an alternative, and finally, crucial elements of a new global strategy is advocated and proposed in this essay.

 

Polanyi, The Great Transformation, Improvements and Social Dislocations

The disconnection of the Market from the Social was accompanied by a “fiction”, a belief that the Self-regulated Market was the answer to all the ills of Society, the Market was thought to generate improvements at the price of social dislocations.   This was a new fiction which might be interpreted as “Short-Term Pain – Long term Gain”. However, contrary to this belief, Polanyi argued that the disconnection or disembedding of the Economy from Society leaves Society exposed to a Self-regulating market, understood as a structure objectively existing out there and arguably, subjectively also existing inside the individual, internalized and capable of destroying humanity as well as the natural world. As a result of this, the Self-regulating Market was a “utopian” goal in the sense that when it was left to its own devices it created dislocations, a double movement was the response understood as a societal spontaneous reaction. Society reacted and protected itself from the effects of untrammeled free market expansion through a network of measures and policies that was integrated into powerful institutions designed to check the action of the market relative to Labour, Land and Money, (Polanyi, 2001: 79 ). The social reacted aiming at safeguarding not only human beings and natural resources, but also crucially, “capitalist production”. Polanyi´s project was to create a balance between the State, the Market, and Society. The State was able to regain control over market forces and re-embed the Social and the Market. For Polanyi, the intervention of the State seemed to be the only means to protect Society from the Market and thus prevent political unrest.  However, this effort was contradicted by the State’s simultaneous need to serve the market capitalism it had originally helped to create.  This vexed situation encouraged the state to resort to the increasing regulation of both society and the market (Hechter 1980: 414-15: Migdal 1997: 219-20 quoted in Väyrynen  2002 ).

Polanyi does not deny that the Self-regulating Market has brought improvements, however, it does so at the price of social dislocations, If the rate of dislocation is too great, the community must succumb in the process (Polanyi, 2001: 79). Objectively,Dislocation implies a disruption of a social order destroying and separating entire communities or groups in order to commodify them, as a result of this, poverty, homelessness, unemployment is generated. Subjectively, Alexander (2010) suggest that it denotes a lack of psycho social integration, it encompass a condition of great numbers of human beings who have been shorn of their cultures and individuals identities by the globalization of a “free market society” in which the needs of people are subordinated to the imperatives of Markets and the economy. Dislocation afflicts both people who have been physically displaced, such as economic immigrants and refugees, and people who have remained in place while their cultures disintegrated around them. Dislocation occurs during boom times as well as recessions, among rich as well as the poor, among capitalists as well as workers.  Dislocated people are prone to depression, anxiety, irresponsibility, violence, suicide while addiction is the predominant way of adapting to dislocation.

The dislocations of the Washington Consensus

It has been acknowledged that the Washington Consensus brought social dislocations through the conditionalities of Structural Adjustment Programs. It forced countries to reduce expenditures and increased absolute and relative poverty leading poor people to face higher prices of products and services. These policies promoted the liberalization of a free global market by eliminating regulation on foreign ownership of capital and business and forcing countries to privatize national industries by eliminating tariffs. Townsend (2002) suggested that Privatization, cuts in public expenditure, reduced trade union rights, low taxation, and selectivity in welfare have produced huge welfare problems. These policies according to Townsend were reinforcing trends for greater inequality, and persisting or growing poverty. It massively increased unemployment levels and interest rates affecting medium and small business. In addition to that, the projects of the World Bank such as dams, roads, power plants and infrastructure intended to assist in economic development led to environmental destruction as well as social dislocations. Improvement during this period has been closely related to economic growth. However, wealth and growth went to very small segments of the populations, those at the top. In a similar way, Faux (2002) expressed that in the roughly 20 years before the acceleration of financial liberalization, median real wages rose, inequality narrowed, and poverty diminished.

 

The Post-Washington Consensus in theory according to the World Bank

The Post-Washington Consensus was a societal reaction to the dislocations and crisis created by the Washington Consensus. Joseph Stiglitz is considered one of the main contributors to the ideas of the Post-Washington Consensus. The World Bank has absorbed ideas from different sources that include Stiglitz and its critics, as well as from Wolfensohn[1], such as the Development Gateway and the Knowledge Bank in order to build its own idea of the Post-Washington Consensus.

The differences between the Washington Consensus and the Post-Washington Consensus lies in the array of policies to be adopted that include new language, new products Management such as: Comprehensive Development Framework (CDF), Poverty Reduction Strategy Papers –PRSPs, Country Assistance Strategies (CASs), and Individual Projects and Programmes. There is a strong focus on improving the state and involvement and participation of Civil Society using language such as country ownership, Country led-Parnership, holism, development results, governance, Civil Society, Consultation, Poverty Reduction, Participatory processes, Empowernment and Human Capital programmes. The message from the World Bank this time is: If we improve the State and we involve and empower more Civil Society, both State and Civil Society will be leading and achieving their own development and improvement. Development and Poverty reduction is possible.

The World Bank has argued that lessons have been learned. The markets produces social dislocations, as a result of this, it has developed programmes such as Social Safety nets, Social Risk Management, Risk Reduction and Risk Mitigation. The new Practices of the World Bank include a focus on Good Governance, Social Capital and Human Capital.

The Post Washington Consensus in practice and the rise of social dislocations

The Post-Washington Consensus implemented by the World Bank in practice entails fostering markets norms through new Products Management and internal and external processes such as PRSPs, CASs, CDFs. This new Products Management and processes are reproducing the same macroeconomic fundamentals of Structural Adjustments: trade liberalization, deregulation, privatization and free market. The World Bank is in practice upgrading the Neoliberalist project using old wine with a new label aiming to embed market-societies through new prescriptions and institutional transformation. Assistance in practice is currently perceived as investments and insurances programmes that lead to global commodification and alienation.

The production by the IMF and the World Bank of copious, cross-conditional second generation reforms (SGRs), such as the Poverty Reduction Strategy Papers (PRSPs), the Comprehensive Development framework (CDF) and the Poverty Reduction Growth Facility (PRGF), are examples of a passive revolution that is attempting to freeze the contradictions created by two decades of top-down, economic and growth oriented policies ( Soederberg, 2004: p.72)

Our generation has witnessed crisis after crisis the effects of the promotion of not only the self-regulated market during the Washington Consensus, but also the social dislocations that has brought the current Post-Washington Consensus. A report to be discussed[1] during the 101st Session of the International Labour Conference of the ILO to be held in Geneva (Switzerland) from 30th May to 15th June 2002 placed will be focusing on “the youth employment crisis” prompted by a renewed sense of alarm at the unprecedented proportion that the youth employment crisis has acquired. The report clearly suggests that this situation has been caused by the global economic and financial crisis and the current global outlook for growth is gloomy. In 2011 the world witnessed a globalised double movement with young people clamouring for jobs, freedom and social justice in countries such as Tunisia, Egypt, Spain, Greece, United States, United Kingdom, Israel and Chile among other countries. The prospects for securing a pension and adequate social protection are also reduced by the current state of public finances.  The report might suggest that the current youth employment crisis is undermining the belief that improvements are bought at the price of social dislocation, the belief that each generation will see improvements in its employment and economic prospects. Improvements not only have brought inter-generational dislocations but also a huge gap in inequality. Since the 1990s youth unemployment rate had held steadily above 11 percent. However at the peak of the crisis, in 2009, the global youth unemployment rate saw its largest annual increase on record. Over the course of one year, 2008-09 it rose from 11.9 to 12.8 per cent. During the transition from the Washington Consensus to the Post-Washington Consensus, the number of unemployed youth increased, on average, by 60,000 per year. Young people suffer from long term unemployment and from temporal, low skilled, low quality jobs with low pay in a high informal environment. The world faces the challenge of creating 600 million jobs over the next decade. And this does include the 900 million working poor who live on less than US $2 per day, mostly in the developing country (ILO, 2012).

The Post-Washington Consensus in practice is not really taking polanyi´s warning into account, in fact it remains committed to market expansion by shifting its perception from the individual as a unit to the development of a individualistic State that is promoting the globalization of commodification through minimal investment in human capital and insurance to minimize risks. This updated strategy of the Washington Consensus is not only achieving growth and improvements at the price of social dislocations, but also, is the central cause that is reproducing the system, its inequalities and its crisis.

The State has been transformed in the individual in the globalization process, an agent in charge of protecting, reproducing and improving the Market. Regulation of Markets is promoted with the objective of improving National markets, yet at the regional and global level regulation remains very weak with poor enforced mechanisms. When a double movement occurs in the form of non-violent emancipation or through violent revolution by Civil Society such event is perceived as a threat, (people are categorized as terrorists), or as an opportunity (investment). Developmental and transitional change characterizes the Post-Washington consensus rather than transformational change. In normal conditions, the Top Society uses the Market and the State to create intentional and unintentional social dislocations to grow in economic terms by implementing dirty tactics such as Creating risks, Absorption (Stealing process), Internal Protection and Exclusion. After this process of extraction of resources carried out by a network of individuals take place, the State appears on the scene providing some targeted minimal assistance. Many of these victims die during this absorption process, others die during the process of recovery, some are able to survive in slums, guettos, refugee camps. They are categorized as the waste left by the economic process, as the rubbish (Bauman 2004). Those who manage to survive are classified as Passive rubbish or Active rubbish by the powerful States. Those who are categorized as Passive rubbish suffer from isolation, insecurity, anxiety, depression, suicide and desperation, however, Institutions and Society blame them and treats them as lazy scroungers, underserving people living off taxpayer´s money. Those who are categorized as Active rubbish are not able to find jobs despite having spent thousands of pound in education. The Absorption process is what is generating the social dislocations during the Post-Washington Consensus. Once some of the Individuals manage to survive during this process the cycle of reabsorption begins once again. This is an ongoing process and is managed by a Self-regulated market a structure existing out there and inside the individual, a virus, a programme that is controlling the Top and Botttom Society.

The Post-Washington Consensus was supposed to be the answer to the previous dislocations created by the previous regime, however, it has created a global state of emergency limiting and suspending civil liberties and human rights.

A Self-regulating market has been born. During Boom times, it has been able to control both the Top Society and Bottom Society by creating addictions in the Top Society and Insecurities in the Bottom society, and during the crisis both Top Society and bottom society has responded, however, the top society ends up promoting the same ideology in order to obtain personal gains rather than universalist redistribution. Addictions have been developed through bad competitive behavior and bad competitive practices.

This Self-regulating market has constrained the reflexivity of the social world, it has created an addictive and insecure society. Despite double movements or spontaneous reactions from Society the Self-regulating market not only is continuing reproducing the system and its dislocations, but also, it has increased inequality while destroying the environment. The Self-regulating market is more than a context or actions it involves an interaction of perceptions, motivations, attitude, knowledge that constrain the actions of individuals. The market incentives individuals to perceive the world in a particular way. Spontaneous reactions from society as well as dislocations and crisis caused during the Washington Consensus has forced the individualist to expand his framework of perception constituted as an image of himself in a future living in a world of pleasure, progress and security to include an image of the social world (State, Civil Society).

During normal times, boom and bust, the Market is perceived to behave like a body, reproducing and prioritising its own survival by using and controlling agents that are already infected by its virus of addiction. These agents are characterised by a particular motivation, attitude of the world and focuses on its individual objectives by using others as means to achieve its own ends. To protect itself the market is constantly reshaping itself, forming its own barriers of protection in the form of walls at different levels to defend itself of transformational change.

A solution to the dislocations – The Post-Washington Ideas

It is commonly known that the theory and the practice of the Post-Washington Consensus have been related to the work of Joseph Stiglitz. While it is true that he has been strongly leading and advocating the Post-Washington Consensus, however, his ideas are frequently confused with the concrete practice. Carroll, (2007) argues that though he advocates for reform he still remain within the Neoliberalist tradition. Policies advocated by Stiglitz include regulation, competition and transparency as important areas neglected by the Washington consensus, a type of market extension. His conception of the Post-Washington Consensus is about how to embed (extend) liberal markets and achieve liberal market efficiency. Here, the basic prescriptive emphasis is on the regulatory requirements of capitalism and the “role of the State”. There is a focus in the process of financial reform by providing a regulatory framework to ensure an effective financial system, which he sees as being critical for macroeconomic stability and long-term development and fostering competition. The State for Stiglitz is the basic guarantor state in that it is expected to make up for where markets fail or under-provide.  Society can be changed via a concerted process of institutional engineering without political conflict, in this way, the ideas the Stiglitz and the new practices of the World Bank are related. For Carroll, both participation and ownership in Stiglitz play an important part in engendering society transformation. One of the differences of the ideas of Stiglitz and the practice of the World Bank, the author suggests, lies in his emphasis upon democracy which has been ignored by the Bank, on the other hand, contrary to the Washington Consensus the market is extended (institutionally) – not market extension per se. Participation and ownership still serve a highly functional role in Stiglitz that guarantees successful transformation in a neoliberal sense.  The message of Stiglitz could be: If we increase regulation not only at the domestic level but at the global the State as well as improve and promote transparency and Democracy we will be controlling risks and social dislocations.

Contrary to the solutions proposed by the World Bank that focuses on upgrading the Washington Consensus with the development of the State and  with minimalist assistance to support those who have been dislocated and Social Risk Management, Townsend´s proposal is to revive the Universalism, the legacy left by Keynes that perceive the State planning the economy with universalist purposes, modernizing social insurance, creating more jobs in the public services, and generating more redistribution and less privatization in the economy. Keynes focused on dealing with unemployment through unemployment benefits and government investment in jobs, implementing social security programmes that will ensure that buying power would remain strong in times of high unemployment when there is low demand in the economy. Townsend might be interpreting as suggesting that Improvements must come with some form of control at the global level promoting Universalism and using the State to regulate and plan the economy. If we focus on unemployment with more redistribution and less privatization we will be able to control any social dislocation.

Townsend (2004) argues that the failure of the Neoliberalism has obliged a re-consideration of present policy in the line of Keynes thinking such as a reformulation of the Bretton Woods Institutions, an international transactions tax social security to fulfill the fundamental right laid down in the Universal Declaration of Human Rights; a universal benefit for children; definition of minimal basic social services in all countries and local and national rights to establish public social services; international company law; and international definition of the framework of social policy expected of transnational corporation. Townsend proposal might be able to produce some change, but given the strategic attitude of the individualist, the high level of inequality, the attitude of defense by powerful States and Regional organizations (that protect the system against transformational change), and the concentration of power in established global institutions (such as the WTO, IMF and the World Bank), it might be likely that if there is any improvement through such policies, it will in the form of developmental change rather than transformational change..

We live in a globalised society. If we instead propose a new global social contract expanding the meaning of protection to be applied in different areas using the principles of International Human Rights Law including Civil, Political, Economic, Social and Cultural rights as the basis of a flexible strategy at the global level and as the framework that provides a vision that focuses on protection and durable solutions and minimum standards of treatment we will have a serious strategy to deal with Social dislocations. This will require creating and empowering new institutions to take seriously the needs of different groups of developing countries and enforce international law legislations as well as a redefinition of what we mean by improvements. A clear commitment to deal with the dislocations would be to set a new organization such as the World Equality Organization. This organization could be in charge of research, monitoring and implementation of global strategies to deal with inequality and promote universal Social Justice around the world.  Importantly, is to highlight the type of agent that could lead this revolution. The Revolutions that we have perceived during the Post-Washington has led to some developmental and transitional changes. The transformational change that we require might be achieved by new associations of countries such as the BRICS countries or Regional organizations such as UNASUR or CELAC in Latin America in order to introduce new changes in International Economic Law, Justice and Development.

Conclusion

Both Stiglitz and the World Bank acknowledge the dislocations created by the Market and present their own proposals to deal with them. However, after examining their proposals closely this essay concludes that they are not taking seriously Polanyi´s warning into account. Their projects in fact are considered as a rectification of previous policies, an upgrading of the market which intentionally or unintentionally ends up reproducing the Washington Consensus. One of the reasons is because the system has clearly developed mechanism of self-protection in the form of walls against transformational change, therefore, the outcome of the revolutions that we have recently witnessed has led only to developmental and transitional change that is perceived as an opportunity for those in power to improve the system in their own interests. This essay suggests an alternative of transformational change by proposing a new global social contract led by new regional institutions such as the BRICs countries, UNASUR or CELAC that might expand the meaning of protection to be applied in different areas using the principles of International Human Rights Law including civil, political, economic, social and cultural rights.

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[1] Report V: The youth employment crisis: Time for action. Report submitted to the delegates of the 101st International Labour Labour Conference for general discussion.


[1] James David Wolfensohn was the ninth president of the World Bank Group.

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