Power and progress: the swing of the pendulum

Frances Stewart

Address to the 2009 meeting of the Human development and capability Association,

Lima, Sept 10th

-11th

Abstract

This paper uses Polanyi’s 1944 analysis of policy change - in which there are long-

term swings from state regulation to markets and back again, as the consequences of

one regime lead to political reactions which in turn reverse the policies. It shows how

the Polanyi analysis continued to apply throughout the twentieth and early twenty first

century, well beyond when he wrote, and that the swings also apply to developing

country policy-making. It argues that there are new signs of policy change - this time

against market domination - in a number of developing countries. The paper

concludes that Polanyi’s view of the conditions behind policy change, notably long-

term political movements, political struggle and political conflict needs to be

introduced into the analysis of policy change for the promotion of Human

Development and the expansion of capabilities.

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Power and progress: the swing of the pendulum1

Frances Stewart

1. Introduction

The aim of this paper is to explore the ‘long swings’ in policy-making. We observe

fluctuations in policy-making, with periods when policy regimes favour statist models

of development, and periods when policies favour market-domination and market

regulation is minimised: the first type tend to involve more direct attention to

expanding basic capabilities and more egalitarian income distribution, while the

market model is normally associated with less direct focus on developing basic

capabilities policies together with a rise in inequality, though HD and capabilities may

nonetheless benefit from market success.

This periodicity was powerfully illustrated for Europe, focussing on the period from

the 18th

to the mid-20th

century, by Karl Polanyi, whose analysis I shall draw on

heavily (Polanyi 1944). He showed how the regulatory and interventionist stance that

had governed economies from medieval times gave way to market forces in the

nineteenth century, and then, as a reaction to the harsh human consequences of this

change, the role of the market was curtailed and that of the state increased in a series

of steps – whose timing and nature differed among countries - culminating in the

mid-twentieth century, in the introduction of the welfare state and Keynesian macro-

economic management in Western Europe and the communist state in Eastern Europe.

The Polanyi pendulum – as this is sometimes termed2 – swung slowly over this

period, each swing taking 100 years or so. But since Polanyi published his book in

1944, the pendulum seems to have speeded up. From the late 1970s, the pendulum

swung back again, away from a welfare state and a regulated market towards a free

market. This in turn had many of the consequences analysed by Polanyi for earlier

periods – including harsh human effects. The main question I want to investigate here

is whether this is causing a new reverse swing towards a statist policy regime,

especially within developing countries. The second question is to explore the

1 I am grateful to Graham Brown, Richard Gott and Severine Deneulin for insightful comments.

2 E.g. Mitchell, M. T. 2006 Michael Polanyi : the art of knowing, Wilmington, Del.: ISI Books.

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implications of the Polanyi analysis of policy changes for the human development and

capabilities approaches.

Although Polanyi himself was not writing about developing countries – which at the

time he wrote were mainly colonies, and their policy regimes primarily reflected

colonial priorities - my prime concern in this paper is explore the current position of

developing countries in the light of the Polanyi analysis of policy swings. In this

context we need to consider two layers of Polanyi type influences over policy-making

and consequent policy swings. First, there are the swings in the developed countries.

These obviously influence (and, indeed, often determine) what happens in developing

countries; and secondly, there are developments within developing countries

themselves, which potentially might lead to ‘domestic’ Polanyi swings.

My hypothesis is that in the first decade of the twenty first century we can observe the

beginning of a new swing against the market and in favour of the state in some

developing countries. But the situation today is complicated by countries’ global

connections and constraints which limit independent policy change. Some Polanyi

type swing also appears to be occurring in some developed countries following the

financial crash of 2008 and the subsequent recession, with state intervention in the

economy, the takeover of banks, and the subsidising of some industries, as well as the

adoption of Keynesian fiscal and monetary policies. But my exploration of

developing country swings relates to impulses and changes that predate this

development.

The discussion has implications for Human Development and Capabilities from two

perspectives. First, because the policy regime affects the extent to which pro-HD

policies are adopted: in particular it seems that the pro-state phase of the Polanyi

pendulum tends to be more effective in promoting HD and CA than the pro-market

phase. And secondly, because the Polanyi analysis focuses on the type of political

struggle needed to bring about policy change, which seems to me is an area which has

been neglected, or skated over, in much of the analysis of HD and CA. Polanyi’s

analysis is not just about the socio-economic consequences of different policy

regimes, but rather about how economic and social consequences have political

effects which in turn influence policy regimes.

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To explore this difficult and ambitious agenda, my paper will be organised as follows:

the next section will summarise Polanyi’s approach so as to provide the basic

structure for further analysis. Then section 3, will consider whether this structure

needs to be amended to include developing countries. Section 4 will then update the

Polanyi analysis in three subsections – first the 1945-1975 period of sustained and

expanded Keynesianism and the welfare state; secondly, the period of increasing

market domination in the following thirty years; and then, more tentatively, recent

years with the ‘green shoots’ of a new swing towards state interventions and social

support systems. Section 5 will elaborate on political and policy changes in a few

countries. Section 6 will conclude by considering implications of the analysis for

human development and capabilities, as such, and for what the way of understanding

the determinants of policy change suggests for the HD and C approach.

2. Polanyi’s pendulum

Polanyi’s main thesis is that each system, whether dominated by the market or by the

state, has consequences which provoke intellectual, political and policy reactions

which, in turn, lead to a reaction against the ruling model and a return to its opposite.

For example, interventionist strategies lead to inefficiencies and severe constraints on

entrepreneurial activities, which eventually result in an abandonment of the model, to

deregulation and the establishment of a market driven model; but this in turn has

harsh consequences for human conditions and for economic equilibrium which leads

to political pressures for renewed state interventions and eventually a policy change in

this direction. This is the pendulum that Polanyi analyses:

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 society…Inevitably, 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, 1944: 3)

Polanyi draws on the experience of Europe, and especially England, in the years

between about 1700 and the time of his writing (1944) to illustrate this.

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Market transactions of some kind are pervasive throughout human history. Yet

according to Polanyi –drawing on anthropological and historical research - in all

economic systems prior to 19th

century Europe, the market played a subordinate role.

‘Though the institution of the market was fairly common since the later Stone Age, its

role was no more than incidental to economic life’ (Polanyi:45). In a truly self-

regulating market system, according to Polanyi, all transactions are ‘directed by

market prices and nothing but market prices.’ (ibid: 45). ‘the control of the economic

system by the market .. means no less than the running of society as an adjunct to the

market. Instead of economy being embedded in social relations, social relations are

embedded in the market.’ (ibid: 60).

This situation did not obtain in Europe up to the nineteenth century. From medieval

times, trade within and between countries was subject to strict regulations, much of it

administered by guilds. Tolls and prohibitions restricted trade between towns. Though

many of these were abolished as a result of mercantilist pressures in the 16th

and 17th

centuries, they were replaced by extensive government regulation. Equally, land was

embedded in social relations and controlled politically and socially, rather than

through the market. Labour was subject to numerous regulations and controls,

including those governing the relations of master, journeyman and apprentice, by

guild, custom and statute, while there were severe restrictions on labour mobility,

since each parish had the duty to providing for their own destitutes. In general, ‘The

economic system was submerged in general social relations; markets were merely an

accessory feature of an institutional setting controlled and regulated more than ever by

social authority’. (Polanyi:70).

The intellectual justification for removing market restrictions was provided most

prominently by Adam Smith, who argued against the many restrictions on trade, and

that a laisser-faire market would promote efficiency and growth, while Bentham,

among others, supported a free market in land: “The condition most favourable to the

prosperity of agriculture exists when there are no entails, no inalienable endowments,

no common lands, no rights or redemptions, no tithes” (quoted in Polanyi: p189). The

political impetus for reform came from an emerging entrepreneurial class, first

making money by using the ‘enclosed’ (or appropriated) lands to keep sheep and sell

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wool, and then moving into manufacturing and exporting. 3

But their activities were

constrained by the heavy regulations in being and they used their growing power to

oppose them. Political reforms reflected the growth of this class, as the 1832 Reform

Act enlarged the franchise, so that representatives of the emerging industrial

entrepreneurial class gained representation in the reformed House of Commons.

Land was the first factor of production to be ‘freed’ with the enclosure movement of

the late eighteenth century. Restrictions on land transfers in England were formally

abolished in 1801.4 The restrictions on labour mobility were loosened in 1795, but

replaced temporarily by the unworkable Speenhamland system (which essentially

entitled every worker to a quite generous minimum income, irrespective of their work

situation or earnings, discouraging work and imposing heavy burdens on the rates).

This was abolished in 1834 by the reformed House of Commons, leaving only

minimal and demeaning support for the destitute via Workhouses. Combined with the

Combination Laws of 1799 and 1800 which banned workers’ combinations, this

marked the beginning of a competitive labour market.5 With the repeal of the Corn

Laws in 1846, England came close to a purely market economy.

These reforms – which allowed the rapid of growth of industry and indeed what came

to be known as the industrial revolution – had their own consequences which then

provoked an intellectual, political and policy reaction. The social consequences of the

unregulated industrialisation, in particular, were appalling, in terms of poverty,

squalor and indignities. Workers were forced to work very lengthy days in dangerous

conditions; child labour abounded; and health, sanitation, and housing were all of

abysmal standards. 6 Moreover, there were also economic problems: unhealthy and

uneducated workers had low productivity; and the unregulated market was subject to

3 According to Polanyi ‘Enclosures have appropriately been called a revolution of the rich against the

poor’ (Polanyi 1944:37). 4 By the Prescriptions Act, the Inheritance Act, the Fines and Recovery Act, the Real Property Act and

the general Enclosures Act of 1801 as well as subsequent legislation. 5 Workers combinations developed, nonetheless, and the Act was repealed in 1824 in the belief that if

legalised they would be less threatening. In fact, they burgeoned and in 1825 a new Combination Act

was enacted which permitted Trade Unions to form but limited their right to strike (Briggs, 1979, 212). 6 Engels was among the first to record the conditions of the English working class in detail. Later in the

century Rountree started his pioneering investigation into poverty. .Among many more recent accounts

see, e.g., Thompson, 1964, Brown, 1990, Huck 1995.

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acute fluctuations – the so-called ‘business cycle’ - with adverse consequence for the

owners of capital as well as for workers.

These extreme consequences led to reactions which again limited market freedoms.

The intellectual reaction came from many critiques, both liberal and socialist. These

included Robert Owen who initiated the cooperative movement; the writings of Marx

and Engels, as well as more moderate socialists such as Shaw, Tawney and Cole; and

later Keynes’ powerful critique of the economic model. Political movements emerged

in reaction to the situation, reflecting the new ideas. Such movements included the

Chartists; the Trade Unions; the Reform league; the Socialist League; the Fabian

Movement; and the Labour Party which brought together socialists and the Trade

Union movement – whose constitution required that the state take over the

‘commanding heights of the economy’; while Communist movements (and in a few

countries Fascist ones) also played a role. Ultimately, the outcome of the political

movements was policy reform which took two forms: on the one hand, piecemeal

progressive regulation of markets and provision of social protection in Britain and

other countries in Western Europe; and, on the other, massive changes in the whole

organisation of society and the economy following the Marxist and Fascist

revolutions.

Focussing on Britain, the reforms which were gradually introduced in response to

these critiques and political pressures, included a succession of Factory Acts which

regulated hours and conditions and banned child labour; the extension of the franchise

to the (male) urban skilled working class in 1867; and to skilled and semi-skilled

agricultural labourers and miners in 1884 which increased political pressure to

improve working conditions. These reforms were soon followed by the expansion of

education to much of the working class and by further acts improving factory

conditions. Unemployment insurance and pensions were introduced in the first decade

of the twentieth century. The contributions of many of the still disenfranchised men

and of working women in the first world war convinced the government to agree to a

further extension of the male franchise, and to introduce female enfranchisement, in

1918. The reintroduction of tariffs in reaction to the massive unemployment of the

twenties and thirties represented a further move away from the self-regulating market.

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Then, during the second world war, planning and controls basically replaced the

market. This was when Polanyi was writing.

This did indeed represent a ‘Great Transformation’ – from an almost unadulterated

market system to a strongly controlled one. Similar developments occurred elsewhere

in Europe, but in Russia, there was a more abrupt and extreme reaction with the

communist revolution which led to total state control over the economy; and in

Germany, Spain and Italy, Fascist states took over, again involving state controls.

3. The Pendulum and Developing Countries

My interest here is how developing countries fit into the schema which was not a

major concern of Polanyi. The most important difference from the European situation

is the much lesser degree of economic and policy autonomy. Of course, under

colonialism there was very little autonomy. And this situation continued, to varying

extents, in the post-colonial era. Policy autonomy was subject to several severe

constraints: first heavy dependence on international markets; secondly, aid

dependence; thirdly, dependence on the IMF for financial support in times of crisis;

and fourthly, a pervasive intellectual dependence, arising from the fact that most of

the leaders and many of the civil servants were educated in the west, imbibed their

ideas and formed part of a single ‘epistemic community’. Latin American countries

were to some extent an exception here, mostly gaining political independence in the

early 19th

century; with their governance dominated by former colonial settlers, they

appear to have had more policy autonomy at least until the debt crisis of the 1980s

when they became heavily dependent on the IMF. Yet they too were heavily

constrained by the nature of their markets (dominated by primary commodities, the

production of which was largely controlled by Western companies) and by their

proximity to Uncle Sam, always ready to intervene if a country adopted too radical a

path.

In addition to dependence on the West, from the 1950s to the 1980s, most

governments were partially insulated from internal political pressures by their non-

democratic nature and by government controls over political freedoms which

repressed most popular protest. Over this period, for the most part, governments in

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developing countries tended to be overturned by military coups rather than popular

protest and day-to-day policy was also relatively free of mass pressures, though, of

course, there were some local groups with significant influence.

These two factors – dependence on the West and insulation from domestic political

pressures – both weaken the domestic Polanyi pendulum. Consequently, developing

countries were affected more by the ongoing movement of the pendulum in the

advanced countries, which then altered views of appropriate policies in developing

countries, than by economic, social and political developments in the countries

themselves. In so far as the latter had an influence, to a large extent it was because

they affected advanced countries’ perceptions of and policies towards developing

countries rather than in a more direct way, through their own Polanyi pendulum. Yet

this is an oversimplification – the larger countries, the more developed countries,

those with more educated people and with strong ideologies, always had more policy

autonomy than small highly dependent countries, and consequently were more

affected by their own cycles. Moreover, I shall argue later that important changes

have occurred which have extended domestic policy autonomy more widely. But for

much of the twentieth century, the developing countries were subject to a Polanyi

pendulum, but one filtered through the politics and perceptions of the developed

countries.

4. The post-Polanyi pendulum

4a. From the 1950s to the 1980s

During this period, the advanced countries saw a continuation of the swing of the

pendulum towards the state. Political change underlay this, with a massive victory for

the Labour Party in Britain in 1945 representing a rejection of the market policies

which had been responsible for unemployment and recession and limited and unequal

social services; progressive governments were likewise elected in other European

countries. In the US, the Polanyi upswing began with Roosevelt and the New Deal

and these policies were continued post-second world war by President Truman.

Keynesian macro-policies were widely adopted to counter the business cycle, while in

Britain a comprehensive welfare state was established, following the

recommendations of the Beveridge Report. Similar changes happened elsewhere in

Europe, and to a lesser extent the US (Lindert 2004). Other features which

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constrained the market included the nationalisation of a number of major industries

(including energy, transport and steel), a strong role for Trade Unions, national wage

bargaining, industrial and agricultural subsidies, a large state sector, tariffs on imports

(gradually reduced with a succession of trade rounds) and limitations on currency

convertibility (also gradually removed).

At the time Polanyi was writing neither Keynesian macro-policy, nor nationalisation

of major industries, nor the comprehensive welfare state had been introduced. Yet all

fit so well into his Great Transformation that they only serve to strengthen the case he

was making – that this transformation was the inevitable consequence of adopting a

pure market economy because of its harsh and unacceptable human and

environmental consequences.

The newly independent developing countries also saw their own Great

Transformation. Development planning was seen as desirable by developed country

observers and policy advisers as well as by local theorists and practitioners.7 Plans

were drawn up, with heavy Western inputs, to promote industrialisation. Major

industries were taken into public ownership. Investment subsidies were offered to

private sector investors as well as subsidised credit. The newly developing industries

were provided with heavy import protection. Legal minimum wages were established

and Trade Unions encouraged. Public provision of health and education services was

increased.8

The strategy was endorsed by Western aid givers at the highest levels, with support

from World Bank assistance programmes.9 There was also strong local political

support for the strategy. The independence movements and the national political

7 For example, the Argentinian economist Prebisch was highly influential in Latin America, influenced

by the Western economist Hans Singer; in Africa, most plans were drawn up with Western inputs,

including for example, advice from Dudley Seers; in India the economist Mahalanobis was most

influential, but was supported by visiting economists from the West. 8 Widely documented including, e.g. by Little, I. M. D., Scitovsky, T. and Scott, M. F. 1970 Industry

and trade in some developing countries: by Ian Little, Tibor Scitovsky, Maurice Scott: London:

published for the Development Centre of the Organization for Economic Co-operation and

Development by Oxford University Press.; Killick, T. 1976 'The possibilities of development

planning', Oxford Economic Papers 41(4): 161-184.. 9 In a famous statement, Truman announced that ‘We must embark on a bold new program for the

making the benefits of our scientific advances and industrial progress available for the improvement

and growth of underdeveloped areas. The old imperialism s dead – exploitation for foreign profit has

no place in our plans’ (Truman, Inaugural address, 1949).

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parties that they developed into were fully committed to ‘catching up’ the advanced

countries, which was interpreted as requiring policies to promote industrialisation.

They also wished to reduce foreign control over the economy, and nationalising major

industries provided a useful mechanism for this. The pervasive controls also

generated economic power and a useful source of patronage for the new political

leaders.

4b. The 1980s to 2000s

According to the basic Polanyi logic, this swing back to heavy state control over the

market should itself eventually provoke a reverse swing, and a return to the market

model, as a result of the consequences of state interventions in generating

inefficiencies, and reducing opportunities for profit-making. I.e. as Polanyi put it in

the quotation already cited, because it ‘disorganised industrial life and thus

endangered society in yet another way’. This indeed occurred, initiated in developed

countries but soon followed in developing countries.

In the developed countries, the intellectual critique of the Keynesian approach was

famously associated with the writings of Milton Friedman, who pointed to the

inflationary consequences of a Keynesian approach, while Frederich Hayek had long

criticised planning for its inefficiencies; others such as Alan Walters and Arthur

Laffer argued that public sector industries were inefficient, and high levels of taxation

were a disincentive to entrepreneurial activity. On the ground, rising inflation,

associated with high levels of world demand and the oil price hikes of OPEC, as well

as the increasing power of the Trade Unions, provoked a strong political reaction, and

leaders were elected who preached the monetary message – notably Margaret

Thatcher and Ronald Reagan. They soon reversed many of the policies of the Great

Transformation. Keynesian macro-policies were generally discredited, disavowed in

theory, though not always in practice. Britain led the way in privatising previously

nationalised industries. Marginal tax rates were reduced and expenditure on social

services and social protection kept down. There was radical change in the role of the

trade unions, whose powers were severely reduced. The private sector began to make

headway even in the provision of public services. Financial services were deregulated

in what in Britain was described as the ‘big bang’ in 1986; similar reforms were

adopted in the US and in Japan. The market once again dominated society, albeit a

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much regulated market, constrained on most fronts by numerous regulations relating

to employment conditions, market structure, trading conditions etc. Moreover, in most

developed countries extensive measures of social protection were maintained.

Similar critiques had been made of developing country interventionist policies, by

Western economists – for example, Little Scitovsky and Scott (1970), (Balassa 1965),

(Krueger 1974)- and later, by (Little 1982), Bhagwati (1982) and by (Lal 1983) (the

latter two being Western educated economists of Indian origin, whose careers have

been in the West); the main brunt of the critique was that the interventionist policies

had led to inefficiencies, had reduced growth below its potential, and had not

improved the position of the poor. However, there was no political support in

developing countries for a change in strategy at this stage.10

The change occurred

because of the debt crisis which forced countries – notably in Sub-Saharan Africa and

Latin America – to turn to the IMF and World Bank for financial support. Monetarist

and pro-market policies were demanded by these institutions in the successive

stabilisation and adjustment loans that dominated policy-making in the 1980s. Thus

for developing countries in the 1980s, this was not a true Polanyi pendulum swing,

since it resulted from outside insistence and not from domestic political reactions.

The reforms were correctly described as the ‘Washington consensus’(Williamson

1989). They included elimination of price controls and subsidies; privatisation;

abolition of import quotas and reduction of tariffs; a rise in interest rates; abolition of

restrictions on private foreign investment; reduced tax rates and a switch away from

direct towards indirect taxes; and, often, reduced public expenditure on the social

sector; a reduced role for Trade Unions, elimination of minimum wage laws and

reduced labour regulations.

Later, in the 1990s, some reforms were also introduced by India and China, on their

own volition. However, these reforms - which stemmed from domestic decisions if

not from major domestic political movements – were much more carefully controlled,

more limited in extent and more protective of social expenditures. In these two

10

Chile, perhaps is an exception, where the dictator, Pinochet, introduced market reforms early on –

although without any popular support. See Martinez, J. and Diaz, A. H. 1996 Chile, the great

transformation, Washington, D.C.: Brookings Institution ; Geneva, Switzerland : United Nations

Research Institute for Social Development.

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countries, the role of the market increased, but the state remained a very important

economic actor.

4c. 2000s and beyond: A new swing of the pendulum?

Already in the 1990s, there was some reaction to the consequences of pro-market

reforms in the developed countries – progressive governments were elected which

reversed the tax cuts and the decline in public services. But the central economic pro-

market reforms continued unabated, the harsher consequences of which were

moderated by low unemployment, associated with a prolonged boom, and state

support for the unemployed. Only after the 2008 financial crash and subsequent

world recession did the developed countries seriously question some aspects of the

market model and take action, including taking some banks into (temporary) public

ownership, subsidising some industries which were threatened with bankruptcy, and

adopting Keynesian fiscal and monetary policies.

In developing countries, the 1990s also saw much more attention to poverty – which

had risen sharply with the market reforms of the 1980s – and some modest forms of

social protection were introduced, but here too the market model remained dominant,

and pro-market reforms continued (e.g. with further privatisations; tariff reform etc;

and capital market liberalisations). Thus while there was some small adjustments to

the model, they were certainly not such as to be described as a swing back in the

pendulum.

Deficiencies in the model were, however, becoming apparent, particularly in

developing countries. While growth occurred in many countries as world markets

expanded, inequality was rising almost everywhere (Cornia 2004), employment

expansion was generally sluggish (Ghose, et al. 2008; Stallings and Wilson 2000) and

poverty reduction was very slow and in some countries non-existent (Berry 1998;

Bhalla and Lapeyre 1997). In the US, two decades of growth brought virtually no

change in the real wages of the unskilled. In China, dramatically high growth was

associated with only small reduction in poverty, and similarly in India, where some

questioned whether poverty was falling at all. In most Latin American countries,

poverty was virtually unchanged. In China, the reforms led to a dramatic deterioration

in the health services. In India, removal of agricultural subsidies was associated with a

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spate of suicides. ‘Happiness’ research revealed that, despite economic growth,

happiness was not improving (Easterlin 1995). In addition, where capital markets had

been liberalised, countries were subject to acute fluctuations – for example in Chile in

1982; in Mexico in 1994 and 1998; in South East Asia in 1997. In each case, a sudden

capital outflow led to sharply rising unemployment, and then further cutbacks in

government expenditure were insisted on by the IFIs.

Thus the conditions were ripe for a new swing of the pendulum in developing

countries. Such a swing, however. would not be sponsored by the advanced countries

who continued to preach further market reforms, although they increasingly

recognised the need to support the social sectors (as a necessary investment) and to

improve social protection, generally on a limited scale, so as to make the reforms

more palatable. If a swing was to take place it would need to be the consequence of

domestic political pressure – and such political pressure would have to be strong

enough to enable the governments to introduce reforms opposed by the international

donors.

This is where the political reforms of the 1980s and 1990s become relevant. Along

with economic reforms, this era had also seen political reforms in many countries in

Latin America and Sub-Saharan Africa (Whitehead 2002); UNDP 2002). In Latin

America, the military rulers withdrew almost everywhere and ceded to democratic

institutions –including voting rights, freedoms of association and of the press

(Garreton Merino and Newman 2001; UNDP 2002). By 1999, 25 out of 26 countries

in Latin America and the Caribbean had multiparty electoral systems. In Africa, long

term Presidents (in some cases, the same people who had headed the independence

movements, in others, rulers who had gained power through war or coups) agreed to

allow elections to determine who would govern. In Sub-Saharan Africa, 29 out of 42

countries had multiparty electoral systems by 1999 (UNDP 2002).

These political reforms enhanced local participation in decision-making, and though

flawed and fragile, allowed political pressures to play a greater role in policy-making.

Initially the democratic governments did not seem very different from the military

rulers they replaced – and indeed were often responsible for the market reforms. But

over time, the political reforms have generated space in which local political

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movements can develop and potentially contribute to the sort of domestic political

struggle which underlay the movements of the Polanyi pendulum in Europe (Avritzer

2002). Developing countries, however, remain constrained in their policy decisions by

three factors: first, their heavy financial dependence on developed countries, and

especially the IFIs and consequently their need to adapt policy to IFI requirements.

But as a consequence of the experience of the 1980s and 1990s, many countries

decided to lessen their dependence on the IMF and World Bank, reducing their

balance of payments imbalances. Secondly, political conditions for policy change

were constrained by the common weakness of political institutions, particularly as a

result of the dominant role played by financial interests (often foreign interests) in

government, parliament and political parties. Thirdly, cultural and occupational

diversity in most developing countries increased the difficulty of developing strong

and united political movements, in contrast to the more homogeneous societies of

Europe in the nineteenth and twentieth centuries.

We need here to differentiate the African and Latin American situations. In Latin

America, the political reforms seem to have been more ‘real’: widely accepted with a

number of elections in which power has been transferred peacefully and without

strong dispute; and there seem mostly to have developed genuine press freedoms and

some space for political movements. Moreover, in general Latin American societies

are less diverse than African ones, and their particular diversity (ladinos, blacks and

indigenous peoples) has given rise to political movements, notably indigenous

movements; Latin American countries are also more urbanised with larger formal

sectors which make it easier for social movements to develop. In Africa, in contrast,

on the whole democratic change has been more formal than real; the validity of the

elections are questioned, and very rarely (Ghana is an honourable exception) is

transfer of power through the ballot box agreed. Moreover, Africa remains much

more dependent on aid than Latin America – indeed all the capital budget and much

of the current budget is supported by aid in many African countries. Some freedom

from IFI policies is conferred by access to finance from China. But for the most part

African countries have little policy freedom. In addition, societal diversity and

economic conditions make it more difficult for strong political movements to emerge.

Thus neither from the perspective of domestic politics, nor from that of policy

autonomy, are African countries in a position to experience a domestic Polanyi swing.

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Thus it is to Latin American countries – and some Asian ones, which also have

sufficient political freedoms and policy autonomy – to which we must turn to observe

whether there are signs of a new swing of the pendulum.

In-depth knowledge of the many Latin American and Asian political, economic and

policy developments would be needed to answer this question fully – a knowledge

which I do not possess. But I would argue that there are important signs of some

political changes, of policy debate, and some actual policy changes to suggest that

such a swing may be beginning in some countries. But to date, in each case, changes

are largely limited to the social sectors and do not challenge the underlying economic

model. This may be because domestic politics do not support such a radical change;

but it is also because international constraints are such that no developing country can

by itself challenge the model.

Some such changes can be observed in Brazil; Bolivia; Ecuador and Venezuela in

Latin America. In each country, the market reforms which led to land expropriation,

unemployment, and rising poverty, have generated movements of protest, among

workers and indigenous peoples (Gott 2006). In India, mass movements have given

rise to the extension of the Employment guarantee scheme and greatly improved

terms for food distribution. In the next section of the paper, I will give examples –

not a full account – from some of these countries. My aim is to illustrate the role of

political movements – provoked by particular policies and events – in bringing about

policy change.

5. Small signs of a new swing: country examples

5 a. Bolivia

In Bolivia, military governments were replaced by elected ones in 1982. Suffering

from to the debt crisis, and acute problems because of the fall in the price of tin,

Bolivia was subject to an exceptionally drastic adjustment policy in the early 1980s. It

effectively reduced inflation, but at the cost of loss of output, high unemployment and

worsening poverty and income distribution. This, together with US cum government

policy of trying to eliminate coca production radicalised the population, especially

16

indigenous coca farmers. Evo Morales, himself indigenous who had been general

secretary of the cocaleros union (the coca cultivating peasants) and subsequently

leader of the federation of unions, was elected President in 2005, with the support of

the Unions and indigenous peasants. A series of social movements were behind this

election, including the Peasant confederation (Confederacion Sindical Unica de

Trabajadores Campesinas de Bolivia and the Asamblea de la Soberania de los

Pueblos) which together formed the the Moviemento al Socialism-Unzaguista (MAS),

bringing together indigenous peasants and workers(Stefanoni and Alto 2006).

Morales’ main policy objectives in the years 2006-9 were, first, to nationalise

hydrocarbons and retain a greater proportion of the revenue for the state; and

secondly, to introduce a new constitution. He achieved both these objectives. He

nationalised hydrocarbons, while a new constitution giving more power to indigenous

people, more state control over natural resources, more decentralisation, and abolition

of limits on how often the president can be reelected was endorsed by over 60% of

the electorate in January 2009. On the social side, a small universal pension was

introduced for everyone over 60; and education programmes have been expanded,

including policies to eliminate illiteracy. The constitution vote also included

agreement to impose (non-retroactive) limits on landownership of 5,000 has

(Crabtree 2009)

At a more micro-level, the example of the water rights movement in Cochabamba

illustrates the relationship between politics and policy in Bolivia. In 2000, there was a

‘ Water War, a popular uprising that kicked out Bechtel, a multinational

company that had privatized the water in everything from communally built

wells to rain cisterns. Many citizens from across the economic spectrum

couldn't afford the exorbitant rates set by the company, so they joined together

in protests and road blockades, sending Bechtel packing and putting the water

back into public hands’. ( (Dangl - Znet 2009)

5b. Venezuela11

11 I have drawn this account largely from Gott 2005.

17

Chavez’ assumption of power in 1998 and his subsequent reforms is the most far

reaching example of a political reaction to the neo-liberal agenda, which resulted in

some important reforms towards reinstating the economic and social role of the state.

Although initially Chavez tried to gain power by military means, ultimately he did so

through democratic election. This election was not an isolated one-off event, but

followed and was supported by growing political movements in favour of change: as

early as the 1950s there was a Movimiento Izquierda Revolucionaria ; other more

recent movements included the Moviemento al socialismo, the Patria para todos, the

Partido comunista de Venezuela, but above all the Moviemento Quinta Republica

which itself was supported by La Causa R (Radical cause), a mass movement which

started in 1970.

Venezuela had long been a highly unequal society: but it was the neo-liberal agenda

that Perez introduced in 1989 that triggered the attempted coups and the subsequent

democratic take-over of power. The reform programme of Perez was a radical one,

entitled El Gran Viraje (the big turn round). It was agreed with the IMF, intended

among other things to include the ‘elimination of all trade restrictions, and reduction

of tariffs to a narrow band;….the restructuring of the public sector with widespread

decentralisation and privatisation of parastatal enterprises…eliminate the system of

massive subsidies’ (Rodriguez, Minister of Planning, quoted by Gott 2005: 54). The

immediate impact was an acceleration in inflation and a huge rise in unemployment as

many public sector workers lost their jobs; there was a fall in GDP and a rise in

inequality.

On the economy, Chavez stated that his ‘project is neither statist nor neo-liberal; we

are exploring the middle ground, where the invisible hand of the market joins up with

the visible hand of the state’ (Chavez, 1999 speech, quoted by Gott 2005: 175). In

practice many of the policies consisted in stopping planned privatisations (notably of

the oil industry; and of the country’s social security system). In addition, land reforms

were introduced that put a ceiling on land holdings and gave the state the right to

redistribute lands that were ‘idle or unproductive’ (Gott 2005): 220). The

Hydrocarbons Law increased state revenue from oil. There was major expansion of

social services and of food deliveries to the poor. Evidence suggests (though much

18

depends on the source of data, dates used etc.) that these changes have been

accompanied by reduced poverty, and, probably, improvements in income

distribution (Beezy 2008; Brouwer 2007 )

5 c. Brazil

Brazil notoriously has had one of the most unequal income distributions in the world.

Like many other Latin America countries, Brazil adopted democratic institutions in

the early 1980s, and undertook drastic stabilisation and adjustment policies, supported

by the IMF. Lula da Silva came to power in 2002 with the support of the Workers

Party as well as the Moviemento Sem Terra (MST) (the movement of landless

workers) after standing as a candidate for over a decade, partly because of the

unpopularity of the adjustment measures. Yet, Lula continued to follow orthodox

economic policy, and in no way challenged the neo-liberal model. Moreover, he did

little for land reform and continued to support agro-business. But he did greatly

increase expenditure on basic services and introduced large scale cash transfer

programmes to reduce poverty (Bolsa Familia). During his presidency the Gini

coefficient measure of inequality fell quite sharply, from 0.59 in 2001 to 0.53 in 2007;

it is estimated that 0.2 of this is accounted for by expanded access to education and

the cash transfers accounted for another 0.2. For the period 2001-2007, ‘the bottom

six deciles, which account for only 18% of income, accounted for 40% of total

income growth’. (IPC 2009)

In Brazil too, a micro-example illustrates the way policy is formed by political

struggle, with the case of Brazil's Landless Workers Movement (MST).

‘Over the course of the MST's twenty-five years of work, it has expropriated

some 35 million acres, land that is now occupied by roughly a million

families. The settlements, which are cooperatively organized, are home to

hundreds of MST-built schools, which have enabled tens of thousands of

people to read and write.’ (Dangl - Znet 2009)

5d. India and the NREGA

In India, market deregulation has progressed - in a Polanyist way, through domestic reactions

to the inefficiencies of state interventions. The reforms did nothing for rural poverty, and

there are high levels of rural underemployment, open unemployment (much seasonal) among

19

landless labourers and poverty. A mass movement developed, based on a coalition of left

wing parties and including huge popular marches, to secure a National Rural Employment

Guarantee scheme. The Act introducing this was passed in 2005. It potentially revolutionises

opportunities for work and income in rural India, as it guarantees 100 days of work

per household at minimum wages. It ‘provides and indispensable lifeline to the

millions of poors in the rural areas of the country. This social security measure, for

the first time make the right to work a fundamental legal right- a new radical deal for

India’s poor.’(Pandey 2005): 7-8). This Act was introduced as a result of huge

popular mobilisations, themselves a reaction to the abysmal conditions many rural

poor face (Dreze 2008).

5 e. What we learn from the examples.

In summary, what we observe, in an increasing range of countries, is that protests and

social movements, provoked by the economic and social consequences of the pure

market model, are leading to the election of leaders who oppose the pure model, and

promise to introduce alternatives. Even where organised social movements have not

developed, protests against the model, and particularly the deep inequalities and

poverty it is associated with are evident, as in South Africa and Nigeria. In practice, to

date the new leaders, representing these movements, there have introduced only

modest changes , with some important social reforms and some controls (including

state ownership) over natural resource production but not much other market

interventions. This rather limited change is probably a result of both external and

domestic pressures. Domestically, elected leaders and parliamentarians are subject to

strong pressure from capitalist interests, while they and their technocrats have mostly

learnt the virtues of the market model in their Western dominated education. In

addition, there are also strong economic constraints imposed by the heavy dependence

of developing economies on finance, technology and markets from advanced

countries which consequently still have considerable power over developing country

policies. We should also note that a gradual change is just what Polanyi observed in

his account of the European pendulum: the pendulum swing both ways took many

decades of piecemeal reforms.

20

6. Implications for Human Development and capabilities and for the analysis of the

HDCA approach.

The analysis of Polanyi swings has important implications for the HD and CA

approach. On the one hand, the swings have implications for achievements on HD, as,

in general, state promoted social sector expenditure and anti-poverty policies are

greater in the pro-state element of the swing, and less in the pro-market element,

although market entitlements may grow faster in the market phases. Moreover, in

extreme versions of statism – as represented by communist states –there is sharp

curtailment of other freedoms which may offset achievements on other dimensions.

This is not the case in the ‘social democratic’ versions of the Polanyi upswing .

The second implication is for the appropriate approach to the analysis of conditions

for promoting HD and CA. For the most part research into the HDCA approach has

tended to neglect the political struggles underlying much progress. The argument of

this paper is that we cannot understand what determines the change in policy regimes

in a way that favours (or disfavours) HD and CA without understanding the role

played by political movements, or ‘voice’ and ‘power’ reflecting the theme of this

conference.

6 a. HD achievements

Can we say which of Polanyi’s swings is best for human development? The pure

market model will tend to involve less resources devoted to social security or to

investment in human resources, and it is likely to increase human insecurity generally,

through increased market fluctuations12

; on the other hand, it may involve a faster

growth of market entitlements and of technology that enhances HD.

Going back in history, along with Polanyi, the HD achievements of the pre-industrial

revolution model, of regulation and intervention were extremely poor in terms of life

expectancy and of education, although data is deficient.

12

Rodrik, D. 1997 Has globalization gone too far?, Washington, D.C.: Institute for International

Economics. has shown, for developed countries increased fluctuations associated with globalisation

and governments reduced ability to protect people.

21

In Europe's preindustrial and overwhelmingly agricultural society, people did

not in general live long lives. While there were exceptions, by our standards,

life expectancy was appallingly low for most and almost inconceivable to a

modem audience living in an advanced industrial society where longevity is

constantly being revised upwards. Europe's impoverished past came -to an end

in the nineteenth century with the advent of the agricultural and industrial

revolutions. But before then, a great deal of suffering had taken place as

Europe, as a whole, was plagued by a very high rate of infant mortality that

significantly reduced, statistically, overall life expectancy. (Knapp 1998)

It seems to be agreed that there was a slow growth in population in England from the

mid- 18th

century, and some have suggested that this was due to an improvement in

living conditions, mainly on the grounds that other explanations (such as medical

advances) seem implausible (McKeown and Brown 1955). But data for the 19th

century shows no decline in death rates from 1841 (the first date for which there are

statistics) to 1861, and indeed rises for some of the main cities (Szreter 1997;

(McKeown and Record 1962)) – a period at the height of the unregulated market.

There was a definite decline in mortality rates from 1861 to 1900, although there was

no change in the infant mortality rate throughout the 19th

century, which remained at

around 150/1000 live births (McKeown and Record 1962). The improvement in

death rates in the last decades of the nineteenth century has been attributed to

improved diet (leading to a decline in tuberculosis and typhus) and changes in

sanitation (associated with public investment and public health measures) which led

to a reduction in typhus and cholera (Ibid;(Szreter 1997)). Szreter has argued that

public health measures were critical and at least in part were due to ‘poitlical

organisation, particularly the extent to which poorer sections of the community have

an effective voice’ (Szreter 1997: 717).

In the US, ‘Life expectancy likely reached a high point in the late eighteenth century

and the declined until the later nineteenth century’ (Boyer 2001) (from 57 for white

males in 1790-94 to 48 in 155-1859). Similar , evidence of worsening conditions in

the mid nineteenth century is shown by the declining heights of recruits to West point

from the 1830s to the 1870s (Ibid).

22

In England before the nineteenth century there was extensive and seemingly effective

relief of destitution through the Act of Settlement of 1662 which essentially made it

the duty of each parish to look after its own poor. As labour mobility threatened this

system (in much the same way that global migration today threatens developed

country social security systems which are designed to look after each country’s ‘own’

poor), the Speenhamland system was introduced in 1795 which guaranteed to

everyone a minimum income (in real terms). This generously protected the poor, but

raised huge opposition from rate payers, because of its high costs, and from

employers because of the disincentives to work, especially at low wages.13

The Poor

Law reform of 1834 then made poor relief minimal and degrading which allowed

employers to pay very low wages. Hence at the height of the market, for many there

was appalling poverty. The experience of the 17th

to 19th

centuries thus support the

view that HD achievements tended to be worst when the market was supreme.

Charts 1a, Ib and Ic, derived from (Astorga, et al. 2005 ) show a similar picture for

the twentieth century for the US and Latin America. LA 6 consists of the major Latin

American economies – Argentina, Brazil, Chile, Colombia, Mexico and Venezuela –

for which data are more reliable, while LA 13 includes the remaining 13 countries.

The historical living standards index is essentially an estimated HDI, using literacy as

the education indicator and 1950 as the base year (Astorga et al 2005). We can see

from all three charts that there was some progress in all the decades, but the marked

acceleration occurred in the ‘Great transformation’ years and there was a slow down

in the pro-market years from 1980 in the Latin American cases. For the US similar

developments are observed except for literacy where very high rates had already been

achieved by the beginning of the twentieth century.

13

In 1820-21 spending on relief for the poor was estimated at 2.7% of GNP, a considerable increase on

the pre-Speenhamland system in 1997 of 1.6%. but after the 1834 Poor Law Reform expenditure

dropped to 1.1% - still more than many other countries (Lindert, P. H. 2004 Growing public : social

spending and economic growth since the eighteenth century, Cambridge, UK ; New York: Cambridge.

23

Chart 1a

Life expectancy in the twentieth century, Latin America and

the US

0

10

20

30

40

50

60

70

80

90

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Year

Lif

e e

xp

ecta

ncy a

t b

irth

LA 6

LA 13

US

Chart 1b

Literacy rates in the twentieth century, Latin America and the

US

0

20

40

60

80

100

120

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Year

% o

f ad

ult

po

pu

lati

on

, li

tera

te

LA 6

LA 13

US

Chart 1c

Historical living standards index, Latin America and US

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Year

Ind

ex

LA 6

LA 13

US

24

Chart 2a

Decadal change in life expectancy by region

00.20.40.60.8

11.21.41.6

Sub-

Saharan

Africa

South Asia Mid East

and N Africa

Latin Am

and Carr

Europe and

Central Asia

East Asia

and Pacificlife

exp

ecta

ncy i

n e

ach

decad

e

as a

rati

o o

f p

revio

us d

ecad

e60-70

70-80

80-90

90-00

Chart 2b

Decadal change in per capita income

0

0.5

1

1.5

2

2.5

Sub-Saharan

Africa

South Asia Mid East and

N Africa

Latin Am and

Carr

East Asia and

Pacific

inco

me i

n e

ach

decad

e a

s r

ati

o

of

pre

vio

us d

ecad

e

60-70

70-80

80-90

90-00

Looking at other regions from 1960- 1980 (Chart 2a and 2b), we observe that there is

a general slowdown in the improvement in life expectancy from 1980, even in the fast

growing regions in Asia. This (and the actual worsening in Sub-Saharan Africa in the

1990s) is, of course, partly due to AIDS. The increase in the level of per capita

income increases decade by decade in East Asia, and also improves in the ‘market’

era in South Asia, both regions where there is strong state that continues to intervene

economically; but it slows down in the regions that come closest to the pure market

model – Africa and Latin America.

In general, this quick review supports the conclusion that the pure market model is

less good for progress on Human Development than the more state oriented strategies.

State action is needed to advance human development and capabilities. This doesn’t

of course mean that the market should or need play no role, but rather that it needs to

to be ‘governed’, to use Robert Wade’s term (Wade 1990), and to be supplemented by

25

public action for promoting HD. Broadly, this is what Drèze and Sen concluded,

when they argued that one can promote capabilities through ‘growth-mediated

security’, in which the state supplements market generated entitlements, or through

‘support-led security’, in which the state takes the lead (Drèze and Sen 1989).14

6c. The implications for understanding change in policy regimes

From the point of view of analysis of the HD or CA approaches, the important

conclusion from a reading of Polanyi type movements is that politics have to be

incorporated into the analysis. By this I mean the political movements that emerge, in

response to economic and social developments. Taking a broad historical sweep, the

major changes in policy regimes did not come out of the blue, but were generally the

outcome of a long history of political movements and struggle. Yet analysis of both

capabilities and HD approaches have tended to be ‘politics light’.

The two leading proponents of the CA approach, Amartya Sen and Martha Nussbaum,

have been concerned primarily with defining the approach – both point to the need for

a ‘consensus’ to determine the valuable capabilities which a society should seek – in

the case of Sen it is a ‘reasoned consensus’ based on deliberative democracy, an

informed discussion among citizens, aimed at achieving a consensus about the way to

go forward. Yet, what we have seen in the Polanyi swings is that the way forward, for

much of the time, seems to be about political struggle and conflict rather than

consensus. A consensus may eventually be reached but only after decades of political

movements, and often there is not a consensus for change, but one side ‘wins’, as for

example with the repeal of the Corn Laws, or the Poor Law reform of 1834, or Lloyd

George’s reforms. As Feldman and Gellert argue:

The welfare states, which perhaps come closer to providing for the

capability(ies) that Sen and Nussbaum advocate, did not emerge in the abstract

world in which people decided to 'assign responsibilities' to institutions that

promoted social welfare programmes ((Nussbaum 2004): 15). Rather, welfare

states were historically produced in Western Europe and North America in the

early decades of the twentieth century through struggle and negotiation by

working-class and women's movements. (Feldman and Gellert 2006): 429)

14

And see also Ranis, G. and Stewart, F. 2000 'Strategies for success in human development',

Journal of Human Development 1(1): 49-70.

26

Moreover, as Deneulin showed, it is possible to reach an apparent consensus

by inclusive discussions, but yet not achieve any significant change, as occurred in the

Dominican Republic; while in Costa Rica, there as not much consensus (or

discussion) but change occurred (Deneulin 2006). Nussbaum’s ‘overlapping

consensus’ has some of the characteristics of the democratic consensus, but process is

less well defined in space and time, and is not society specific as is Sen’s consensus,

so it is less grounded in actual political discussions. In both cases, the consensus

seems to be more about defining where the society should go in broad terms, than in

specific policy changes needed –it is generally easier to get broad agreement on the

former than the latter.

The HD approach is much more concerned with specific policy change, and has

therefore moved a little further in the direction of incorporating politics into the

discussion. However, the Human Development Reports generally are careful to avoid

pronouncements about politics, and most analysis (including my own) has classified

countries according to their policies (e.g. high social expenditure or low; more or less

equal income distribution) but not according to the underlying political systems

(Ranis and Stewart 2000; UNDP 1990).

Yet it was noted at an early stage that ‘political will’ is needed to promote an HD

approach, and that to achieve this one needs to ‘build’ a coalition of the willing

(Griffin and McKinley 1992; Streeten 1995);.

It is not enough to design programmes which if implemented will increase the

well being of the great majority of people, it is also necessary to create the

political conditions which make it possible actually to implement human

development policies. Thus policy makers intending to introduce a human

development strategy cannot afford to neglect the need to create a supporting

coalition.

This coalition may or may not be based partly on political parties, but even if

it is, support from other organised groups will be needed as well. (Griffin and

McKinley 1992).

27

The historical analysis presented here supports the view that change requires

coalitions (which often, indeed, are in conflict and not in consensus with others), but

not that policy makers, especially outside ones, can readily ‘build’ them as suggested

by Griffin and McKinley. Such coalitions for change usually come from long-term

participation in political organisations by groups of citizens.

The review of policy change presented above – based on Polanyi’s analysis -

suggests the need to incorporate political struggle into the analysis of CA and HD to a

greater extent than hitherto. Democratic discussions without underlying political

organisation is not likely to give the deprived sufficient space or lead to policies in

their favour. (Deneulin 2006).

Indeed, for Polanyi it is the political reaction to the consequences of each swing that

leads to policy change. This political reaction is not just that of polite debate, but of

movements of protest, involving strikes, marches and sometimes even violence.

Progressive change is always particularly difficult to achieve because the elite possess

the most powerful weapons: they can buy people off; they can control the media; they

often control the police and army. This is one reason why so many of the progressive

leaders in Latin America see the first need as constitutional reform, in order to reduce

the constraints imposed by elite interest groups.

In conclusion, what we learn from Polanyi is that if we are to understand how to

achieve progress in expanding capabilities we have to understand not only the nature

of valuable capabilities and how to choose the capabilities we have reason to value,

but also the political forces underlying choice of policy regime.

28

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