Relaxing the shackles: the invisible pendulum

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Relaxing the shackles the invisible pendulum

• By Frances Stewart

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Why can we expect shackles to be relaxed?

• Shackles consist of excessive role for market
  in many developing countries today
• Polanyis pendulum explains why and how there
  will be a reaction.
• And new conditions including reduced dependence
  of developing countries on IFIs and huge
  importance of environment.

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Polanyis pendulum

• Path-breaking book The Great Transformation. The
  Political and Economic Origins of our Times,
  1944.
• Analysed swing from interventionism to market,
  18th C- 19th C and then swing back 20th C.
• Swing caused by excess outcomes of non-market
  (inefficiency) and of market (impoverishment,
  inequality, cycles).
• Mainly UK. Developing countries not really
  incorporated.
• Not just a matter of economics politics critical
• Political movements lead reaction pick up
  appropriate ideas (mercantilism Smith and
  invisible hand List and Keynes)

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In summary

• Our thesis is that the idea of a self-adjusting
  market implied a stark utopia. Such an
  institution could not exist for any length of
  time without annihilating the human and natural
  substance of societyInevitably, society took
  measures to protect itself, but whatever measures
  it took impaired the self-regulation of the
  market, disorganised industrial life, and thus
  endangered society in yet another way (Polanyi,
  19443)

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Post 1944

• 1950s-1970s
• Confirmed move away from market in developed
  countries (Keynesianism)
• Planning etc. in newly independent developing
  countries
• Did lead to inefficiencies and reaction
• Political (Thatcher/Reagan ideas Friedman
  Krueger).
• 1980s
• Pro-market move in both developed and developing
  countries
• Has led to unacceptable poverty and inequality in
  both developed and developing countries
• Plus financial crisis

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New swing of pendulum today and tomorrow

• Signs already in both developed and developing
  countries.
• Developing countries
• election of populist leaders, e.g.
• Chavez nationalisation of oil social services
  promotion
• Lula (bolsa familia)
• Morales (improve terms of oil cos).
• more social interventions
• India National Rural Employment Guarantee Act
• China health service announced.
• Developed countries
• Interventionism following crisis regulation of
  banks back to Keynesianism
• Obama

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But new conditions

• All countries freedoms are restricted by
  globalisation very difficult to act alone.
• Developing countries restricted by heavy and
  visible hand of IMF/World Bank
• But new sources of finance help relax shackles
• Markets China own savings.
• Environment new reason for interventionism.

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Global collective action may be essential

• How far can national action take us?
• Signs this is happening but will it be enough
  and soon enough?
• Do we have sufficient ideas to be picked up a
  menu of thinkers rather than any single one