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Battle for Social Democracy and Unfettered Capitalism

by Marc Saxer and Rainer Hank
Two opposing schools of thought face each other at the sickbed: neoliberalism and social democracy. But didn't the death-bells of neoliberalism ring in the course of the financial market crisis? Were not neoliberals unmasked as charlatans who first caused the whole mess with their deregulation medicine? 
Decisive Battle for Social Democracy

by Marc Saxer
[This article posted on 6/19/2019 is translated from the German on the Internet,]

The ideological waves are running very high in the agony of the Euro-crisis. The physicians at the sickbed of the European patient diagnose different sicknesses and disagree about the right medicine - bloodletting or infusion.

Have Europeans lived above their means for years - or lent their savings to the sick bank uncle (the same uncle who now demands ridiculous interests)?

Two opposing schools of thought face each other at the sickbed: neoliberalism and social democracy. But didn't the death-bells of neoliberalism ring in the course of the financial market crisis? Were not neoliberals unmasked as charlatans who first caused the whole mess with their deregulation medicine? 

Today, neoliberals can hardly contain their joy. Wasn't it an extraordinary stroke of luck that the Euro-crisis began in Greece? Despite decades of subsidies, Greece never succeeded in controlling corruption, clientelism and tax fraud.

Dawdling, social hammocks and state debts are mixed up in an unsavory concoction. The abstract financial crisis became a moral lesson about diligent northern peoples and lazy idlers in the South...

In Germany, the simple-minded reasoning of the "Schwabian housewife" fell on very fruitful soil because the trauma of hyper-inflation slumbers eternally in each of us. To banish this spirit, drastic cures are now prescribed that are as suited for treating the resignation or submission of political economies as medieval bloodletting.

However, the long-term prognosis for European patients is even more dubious. To get back on their feet, they cannot live above their means anymore. That the Euro-crisis began in heavily indebted Greece was a happy coincidence. A glance at Spain and Ireland shows state indebtedness first skyrocketed as a consequence of the bank bailouts. A sober comparison with the United States and Japan confirms that the European state indebtedness on average is not unusual. Such nuances do not fit the picture of neoliberal ideologues.

The fog banks prepare the ground for the amazing return of neoliberalism. Failure was successfully disguised by putting the blame for the financial crisis on the states that bailed out the financial markets three years ago in accepting new debts on a gigantic scale.

In the course of the American debt crisis in 2011, the insidious advice was that a solution is only conceivable when both sides are finally ready ready to bring their sacred cows into the slaughter house of austerity. We lived beyond our means for decades.  In the long run, no one can outwit gravity. This explanation now spills over the great pond to Europe.

One does not have to be a psychic or clairvoyant to foresee the consequences. The social states will be dismantled again if this explanation of the Euro-crisis prevails. Southern European welfare states will be the first to drop their deadwood to elude the stranglehold of the financial markets. The pressure to follow the path of frugal virtue is also increasing in the Protestant North. The location preachers will growl we simply cannot afford the social state anymore if we do not want to be overrun by the global competition.

Thus, the knives are sharpened and social democracy is on the chopping block not only in Greece. Not only the American presidential election will decide whether social democrats succeed today in enforcing their explanation of the crisis. Whether the drastic austerity cure or Keynesian growth stimuli are offered will decide the fate of the European community. How the crisis is interpreted will decide whether social democracy will realize its social-political vision in the next decades.


Karl Polanyi - Unfettered Capitalism

by Rainer Hank
[This article posted on 12/26/2010 is trqanslated from the German on the Internet,]

Karl Polanyi condemned profit greed and deregulated markets. Today's capitalism critics are his disciples - and don't know it.

Since the financial crisis in the early 21st century, the impression has spread in middle-class German circles that "unfettered capitalism" is responsible for the world coming out of joint. Even positive friends of the market warn that capitalism and the economy must be embedded in society again.

The ancestors of the idea that the economy needs social embedding hardly know him. Karl Polanyi (1886-1964) was one of the most mysterious thinkers of the 21st century. "That the market system dug its own grave and destroyed the social institutions on which it was based was a dilemma," Polanyi wrote, in his epochal 1944 book "The Great Transformation" written under the experience of the Great Depression and the Second World War.

No thinker resisted the insight represented by Adam Smith (1723-1790) that the market was the dominant institution of modern societies as passionately as Polanyi. For Polanyi, markets are always a threat for society from which grows the greatest danger when they are allowed to work according to their own laws independent of a regulatory state embedding. This "Great
Transformation" that led to a destructive autonomization of the markets occurred in England from the beginning of the 19th century and later in Germany.

The disaster began in that land, labor and money (fictitious commodities for Polanyi) were treated like very normal raw materials or goods (potatoes, clothing or coal). That human labor is regarded as a commodity and covered with a price was a scandal for Karl Marx and the early socialists. However, Polanyi, certainly influenced by Marx, argued more systemically than morally. He called land, labor and money "virtual resources" that have their home in social life. Labor is only the name for a humanactivity. Land is another word for nature and money is a metaphor for purchasing power in a society. Land, labor and money belong in the realm of all-encompassing life, not to the field of particular markets and tradable goods.

His father's business crashed

In the early 19th century, a first wave of economization occurred in which land, labor and money were torn out of their social life world and forcibly subjected to the laws of supply and demand. The price that people had to pay for this was the moral destruction of the social foundations of life. "Vices, perversion, criminality and hunger" are consequences that spread in the social world and dehumanize. 

Polanyi knows his subject. He experienced capitalism's history of disappointment in the boom years of the economic miracle of the industrial expansion in Vienna and Budapest. His father, a successful railroad entrepreneur, was part of the emancipated Jewish bourgeoisie... Karl and his brothers and sisters were converted to Calvinist Protestantism. His mother, a Russian,
managed one of Budapest's prominent salons.

Polanyi witnessed the collapse of his father's business in 1900 as a traumatic experience since he was dependent on his support. "Nineteenth century civilization has collapsed," the first sentence of the "Great Transformation" can be understood on the background of his personal humiliation. Polanyi joined the communists, studied this and that, and journeyed to England as a political writer. He was an essayist, pamphleteer, brilliant stylist and cultivated historian. In a 1925 letter to a friend, he wrote he felt the deep need to organize society "like the inner life of a family."

What was "disembedded" can be "embedded" again... Polanyi vigorously denied that free markets were the natural beginning of history. Later, the regulatory intervention of the state came into fashion. He insisted the liberal market order was itself a result of a political intervention that tore down the protective mercantile fences. With a romantic imagination, he dreamt of the original state of humanity as a paradise of exchanging goods based on voluntary giving where people were not devoured by greed. There was no market in the paradise of redistribution and housekeeping.

Polanyi was not so naive to think the pre-economic original state can be restored. The hope for a world where the economy would again serve society and be subordinated to society was enough for him. That money (the financial markets) labor (the labor markets) and land (the real estate markets) should be withdrawn from the market and regulated by the state goes without saying. That would be a second "Great Transformation" that would correct the mad world and embed the economy in society.

For Polanyi who understood himself as a socialist, the "social market economy" was certainly not the fulfillment of his hope. However, he shared its orientation "connecting the principle of freedom on the market with social balance" (Alfred Mueller-Armack). The tension between stable social integration and self-regulating markets is part of the basic cyclical fluctuations of human life. If social integration spreads, a society threatens to lose its dynamic of prosperity generation. If the pendulum strikes too strongly in the other direction, inequality and uncertainty threaten to destabilize society paralyzing economic activity.

Many of today's capitalism critics adopt Polanyi's orientation. The criticism of "economism," "pure capitalism" and the admonition to moderation that are heard daily has its origin here. When German chancellor Merkel says we need a "market-conforming democracy," Polanyi's friends today demand a "democracy-conforming market."

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