The state is not neutral and autonomous (Part 1)

The first modification about the assignment I did last year is about the role of state in economic development, especially in the beginning of Great Divergence.

However, the seemed spontaneous order concealed the cost of establishing a free market and the role of government in economic life. Before the Great Divergence, the market was not autonomous but embedded in social relations. In order to create a self-regulating market, natural environment and human beings had to be turned into the commodities in form of land and human capital, which made social fabrics face severe disruptions and go through long-time adaption. The international trade of wool and cottage resulted in enclosures and conversion of the farmland into sheep runs. The destruction of the habitation and labor dislocation from the countryside ensued. The Industrial Revolution strengthened the impact and made urbanization irreversible, forcing the rural proletariat into urban industrial workers (Polanyi, 1957). The problem of poverty thus gained public awareness (Ravallion, 2011). At the expense of social dislocation, the rearrangement and creation of property rights, stimulated by deliberate state action to capture the gains from specialization, brought the realization of modern economic growth (Polanyi, 1957; North & Thomas, 1973). It was also government enforcement and delineation of property rights that brought incentives for individuals to undertake socially beneficial activities and encouraged innovation, advance of technology, and investment in human capital (North, 1990; Schultz, 1993). “Laissez-faire was planned; planning was not.” (Polanyi, 1957, p.141)

It was true that the seemed spontaneous order and vibrant market economy in Europe after the Great Divergence comes at the price of social fabrics destruction.  However, I ignored the reason for deliberate state action. Yes, I cited Polanyi’s “Laissez-faire was planned; planning was not,” but why planning laissez-faire?

In other words, I unintentionally kept the state as a black-box or an independent existence beyond social forces and treat the society as a coherent entity in explaining the history. But it was not true.

The isolation of state from other social forces leads to two opposite but the same wrong thoughts about economic development:

  1. The destruction from economic development is a natural disaster, horrible but neutral and inevitable as if it was just the time for the state to rearrange and create property rights (for nothing).
  2. The destruction from economic development is a melancholic but necessary sacrifice, planned by a benevolent social planner wishing to advance the whole society, but just too fast for the whole society to adapt and absorb. (As a result, the society rebels to protect itself.)

and makes us difficult to explain the action of state.

Other than these two drawbacks, it also takes the capacity of state as given as if the state could rearrange and create property rights as it wanted. But for this point, I will elaborate more afterwards.

I just fell into technical and engineering view to economic development.

However, the extent of destruction is not exogenous and fixed, and the state itself consists of bureaucrats having their own objectives and also embedded in social structures. The reason for its action should be endogenous and needs explanation. As for the idea of regarding society as a whole, it just seriously conceal the conflicts of interest and the related collective action of interest groups in the society, let alone the competition for political power.

I was in hurry in finishing the assignment then. I felt a bit weird, but just a feeling. I didn’t know how to express this confusion until I saw War and Social Change in Modern Europe: The Great Transformation Revisited written by Professor Sandra Halperin.

Let me cite the paragraph of the preface in the book as the end of this article. “…Though he (Polanyi) wants to de-naturalize the rise of unregulated market, he then treats its operation and in many aspects, its demise, as analogous to the force of nature.  Thus, while he is unsparing in his depiction of the horrors of industrialization, …. , these horrors appear in his account as the outcome of a sociologically neutral plague-like visitation on “society as a whole"; for Polanyi’s market system, is not only “unregulated" – once in operation, it appears to be largely self-sustaining. States, embodying the contradictory impulses that governed the time, put in place “pro-market" laws but also helped to undermine the market through the introduction of protectionist legislation. (p.xvi, Halperin, 2004)"



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