GY200 Assessed Essay

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Neoliberalism is underpinned by the neoclassical economic theory that sees the market as the maximal promoter of social wellbeing. Using Polanyi's ideas, discuss the limits of this ideology, using an example from the UK to illustrate your argument.


Neoliberalism denotes a form of political-economic governance that has dominated economic policy-making in the UK and the US for some two decades (Kotz & McDonough, 2010). Neoliberal theory reflects the revival of the classical liberalist premise that individual freedom is to be secured through minimal government intervention and laissez-fair economics (Barnett, 2012). Neoclassical economic theory on productivity, utility and social welfare maximization through deregulation and privatization provides the intellectual rationale for neoliberalism as a body of economic theory and a political stance (Larner, 2000). As such the meta-ethical basis of neoliberalism is social economic wellbeing that is to be achieved through a free and self-regulated market economy (Karagiani et al., 2013). Social scientists have widely deployed the notions articulated by the 20th century political economist Karl Polanyi to critique the ideology and prevailing order in the neoliberal era (Dale, 2012). Polanyi's interpretation and conceptualization of modern markets can provide a valuable insight to contemporary issues within a neoliberal context. This essay will utilize Polanyi's (2001) 'double movement' theory, fictitious commodity concept and ideas of the separation between the self-regulated market and society as a framework to assess the limitations of the premise that neoliberalism is underpinned by the neoclassical economic theory that sees the market as the maximal promoter of social wellbeing. The UK Transition Town grass-root initiative will be used as an exemplification of Polanyi's (2001) 'double movement' theory and will seek to illustrate the arguments advanced in the assessment regarding the limitations of this ideology.

Social wellbeing is a multidimensional concept that is concerned with the overall quality of life within society. The wellbeing of society is influenced by factors of economic, social and environmental nature. Spicker (2006) suggests that the factors that determine social wellbeing generally reflect shared values for economic prosperity, economic stability, individual freedom, social justice and environmental quality. In "The Great Transformation" Polanyi (2001) introduced the idea that self-regulating markets necessitate the separation of the economic and the social sphere and that this dislocation of social values and traditions would be met with protective social 'counter-movements'. He coined this struggle between the economic forces of the self-regulating market and the efforts to re-embed the economy within society the 'double movement'. This form of social protectionism seeks to re-establish specific social values that are undermined by the "deleterious action of the market" such as social justice and the conservation of nature (Polanyi, 2001). Polanyi's (2001) notion of the spherical separation of the market and society, the 'double movement' and the exemplification of this theory in the Transition Town movement in Totnes, Devon, England will be used as an analytical framework to evaluate the extent to which the market is able to promote aspects of social wellbeing and at what point it undermines those factors that are embedded in social values and not readily reproduced in the market due to the previously described spherical dislocation. The dimensions of social wellbeing explored within this framework are economic prosperity, economic stability, individual freedom, social justice and environmental quality.

Economic prosperity and individual freedom are fundamental determinants of social wellbeing and paramount within the neoliberal discourse (Spicker, 2006). The ideological foundations for neoliberalism argue that a deregulated, liberalised market grants corporations and their agents the necessary freedom to accumulate capital, exploit their comparative economic advantage and be unfettered in pursuit of their economic interests on the market (Himelfarb, 2011). Furthermore, an underlying assumption is that the removal of barriers to enable the freedom of exchange on the market encourages the division of labour and consequentially the growth of the wealth of its citizen and the nation as a whole (Clarke, 2005). The positive relationship between economic freedom and economic growth rates assumed in neoliberal economics is supported by Cohen's (2010) studies that reveal the existence of such correlation. Kotz and McDonough (201) suggest that GDP growth rates in the United Kingdom have significantly accelerated in the neoliberal era as opposed to the crisis phase characterized by governmental regulation and intervention that preceded it. Within this context it could thus be argued that deregulated markets not only promote prosperity, but also appeal to on one of the highest human values and factors of social wellbeing - individual freedom.

Polanyi (2001) recognizes the potential for uninterrupted markets to generate "prosperity of gigantic proportions" and promote individual economic freedom, however, he also warns of the narrow definition of economic freedom within this interpretation. Himelfarb (2011) suggests that without the reintegration of social values and ethics the economic freedom created through the market remains reserved to few and at worst, gives freedom to exploit and abuse. This imbalance created in the absence of a counteracting 'double movement' has implications for social and environmental aspects of social wellbeing.

While the markets under neoliberalism appear to contribute to economic growth, prosperity appears to be increasingly concentrated amongst few (Kotz & McDonough, 2010). While it could be argued that social wellbeing relates to the collective welfare of a group which may not coincide with the individual welfare of the people within it, Ebert (1987) argues that not only the size but also the distribution of wealth in the context of social justice is an important factor in the social welfare function. Rising inequality under the market economy and neoliberalism within and outside the UK indicate that the lack of redistributive mechanisms within the market and a reduced provision of public services can cause socially undesirable economic polarization. When left to their own forces neo-liberalist market systems can thus be drivers to social inequality (Yeung, 2000). Furthermore, Kotz and McDonough (2010) argue that besides economic inequality these markets also foster social injustice through the appropriation of vast amounts of income amongst the already rich and financial "wheel-dealers", while increasing the financial vulnerability of lower-and middle class citizen as well as limiting their individual freedom. Within this context it appears that the social welfare benefits of a free self-regulated market economy can only fully be realized in an economically balanced and stable society where individuals across all class backgrounds have the same level of economic freedom and thus the same opportunities to accumulate wealth. In response to this the Transition Town movement encourages a strengthened reintegration of the value of sustainable intra-generational justice into the market system by encouraging equal economic opportunities within the local community (Hopkins & Lipman, 2009).

Besides the reduction of individual financial vulnerability, one of the primary objectives of the Transition Town counter-movement is the establishment of a stable and resilient economy as a whole (Hopkins & Lipman, 2009). When left to its autonomy Kotz and McDonough (2010) argue that the market creates macroeconomic instability when removed from the regulatory sphere by increasing the vulnerability of the system through the removal of automatic stabilizers, deregulation of the financial sector and the removal of counter-cyclical state spending policies. Although prosperity is a highly significant component of the quality of life neoliberal markets appear to pursue economic growth at the cost of economic stability (Wolfson, 2000). Not only does this have detrimental effects on social wellbeing, as the social consequences of the recent financial crisis suggest, but it undermines pre-crisis capital and wealth accumulation efforts (Kotz & McDonough, 2010). The 'double movement' embodied by the Transition Town movement in this instance calls for the reintegration of effective automatic stabilizers within the social welfare program and a tightened regulation of the financial sector to counteract the market forces that promote economic growth at the cost of economic stability (Hopkins & Lipman, 2009). Within this context markets therefore appear to promote societal welfare through economic freedom and economic growth, but their separation from the social and political sphere induce macroeconomic and social instability that can significantly undermine social wellbeing.

Polanyi (2001) suggests that a market economy, such as the one advocated by contemporary neoliberalism, requires the inclusion of land, labour and money into the market mechanism through their commodification. Because labour is essentially made up of the human beings in society and land the natural environment in which they exist, their commodification is argued to be fictitious. The inclusion of these fictitious commodities into the market mechanism forces "the substance of society itself to the laws of the market" (Polanyi, 2001). Because the intrinsic value, environmental services and quality-of-life-enhancing aspects of nature are not valued and accounted for in the market we observe the phenomenon of market failure (Lemos & Agrawal, 2006). Environmental quality plays a significant role in social wellbeing, yet economic growth under global neo-liberalist markets have caused the rapid depletion of natural resources and uncontrolled pollution have contributed to the global climate change threat (Kotz & McDonough, 2010). The Transition Town initiative, amongst many other social movements, has sought to counter-act the depletion of natural capital by proposing an energy descent action plans that seek to reduce fossil fuel dependency, encourage waste recycling and a reduction of food miles through the promotion of local food production (Hopkins & Lipman, 2009).

Although the change in social relations to nature associated with the neoliberal agenda has been associated with the exploitation of the natural environment and subsequent reduction in the social welfare derived from environmental quality, market-based instruments appear to play an increasingly crucial role in environmental governance (Plastow, 2010). In theory, the economic incentives provided through market-based approaches such as a tax or cap-and-trade system ensure allocative and productive efficiency, which translates into social welfare maximization in economic terms (Lemos & Agrawal, 2006). In practice, schemes such as the SO2 Allowance Trading in the US have proven to be exceptionally efficient in cutting emissions by 50%, thereby creating a positive welfare effect mostly with respect to human health that are estimated to be ten times greater than the cost (Stavins, 2005). As governmental regulation is not associated with these forms of efficiency and does not provide the same economic incentives for innovation, it could therefore be argued that the markets are maximal promoters of social wellbeing in environmental governance. Nonetheless, it is important to recall that the environmental damage that these schemes seek to repair is at least partially caused by the initial failure of markets themselves (Lemos & Agrawal, 2006). It would thus be wrong to argue that markets are the maximal promoters of social wellbeing with respect to environmental quality as a whole.

In conclusion, the neoclassical and economic liberalist theory that assumes that free, self-regulating markets are the maximal promoters of social wellbeing is flawed to the extent that the structural imbalances and instabilities created by neoliberal markets and their inability to value and secure elementary factors of wellbeing such as social justice or environmental protection limit their ability to be a maximal promoter social wellbeing (Yeung, 2000). The Transition Towns Movement UK has been used as an example to illustrate the ideological foundations upon which larger forms of double-movements such as income redistributive mechanisms within the welfare state, financial market regulations and international climate governance are built. The aim of this paper is not to propose that the state is necessarily a better promoter of social wellbeing, instead this paper has sought to illustrate that that within a neoliberal system social wellbeing maximization requires some form of 'double movement' that ensures that welfare aspects that lie outside the realm of the market are promoted through the re-embedding of the market into the social sphere. The conclusion reached within this framework of analysis suggests that the maximal promoter of social welfare may be an 'embedded state' system (Yeung, 2000). This concept formulated by Block (1990) moves beyond the ideological and practical limitations of neo-liberalist market systems, to recognize that social wellbeing is maximized in an economy where the market, governmental interventions and social interests are embedded in the same sphere.

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