With this sentence, Karl Polanyi outlines the idea that, as of the early 1900s, society was forced to conform to the needs of the market mechanism instead of choosing the more logical approach of economics as an instrument for societal needs.
Karl Polanyi was a Austro-Hungarian economist in the mid-20th century who, to name just a few of his expertise, specialised in history, anthropology and sociology from an economic perspective. He is most famous for his book The Great Transformation, where he explains how the market economy has changed our perception of social interactions since the first industrial revolution.
Social norms directed by market prices
Polanyi pointed out that, prior to the market economy, reciprocity and redistribution existed as means of exchange between people. With the emergence of industrialisation, relationships between humans changed due to the strong influence of centralised institutions promoting the self-regulation of a market economy. In other words, our daily decisions are no longer dictated by our natural social skills – our ability to build personal and communal relationships – but merely by prices. He argues: “To allow the market mechanism to be the sole director of the fate of human beings and their natural environment… would result in the demolition of society.”
Although he recognised the fact that the market economy has led to material prosperity, “he warned against turning people into puppets and playthings of mindless market forces” (J. Bradford DeLong thesis, 1997). Instead, Polanyi suggested that prosperity could be achieved by avoiding poverty, creative destruction and community erosion. These are the same three risks outlined by the World Economic Forum in the “Global Risks Report”(1) to explain the causes of top socio-economic problems, namely: rising income and wealth disparity, increasing polarisation of societies, rising urbanisation, a growing middle class in emerging countries, shifting power and so on.
Reciprocity and redistribution
Polanyi claimed that “man’s economy, as a rule, is submerged in his social relationships.” He believed that the economy should be embedded in our social, traditional and cultural web of interactions primarily as a tool that leads to well-being and not for dictating our individual and collective decisions, as occurs today.
He noticed that the pre-modern societies of Indian Empires, Kingdoms of Africa, China and Greece – to name a few – functioned on the principles of reciprocity and redistribution. Land and labour distribution was not determined by market prices, but according to rules of tradition, redistribution and reciprocity: the basis of human nature. The redistributive economy was about a group of people producing for a centralised entity that then redistributed to the community according to the needs of its members. In the economy of reciprocity, the allocation of goods was based on reciprocal exchanges between social entities i.e. a positive action from one group triggers a positive response from another. Lastly, the household economy starts with the family as the unit. The family produces for their own use and consumption. A highly distributive approach, but quite the opposite of our current models, at least in the Northern Hemisphere.
Polanyi proposed to use the other meaning of “economics,” focusing on how humans make a living interrelating within their social and natural environment. In fact, this is based on the original definition of economics, from the Greek oikonomia, meaning “house handling” or “house management.” This designation is a far cry from the neoclassical economists’ inclination to use it as a logic of rational actions and decision-making processes commanding our behaviours. This was quite a statement at the time and still very much in line with the present day concept of ‘sustainable development,’ as defined by the Brundtland Commission in 1987.(2) Understandably, decades after our decision to opt for ‘rational actions’ based economics, we find it hard to see the link between our daily life and our social and natural environment. The disconnect and our insensitiveness to these wider interactions is everywhere and constantly perceivable.
From an economy of having towards an economy of being
At present, we have a window of opportunity to rethink our human relations and how they can be re-aligned with an understanding of how systems work. Why is that?
On the one hand, we are in the middle of an unprecedented technological transition that, once again, will change our behavioural patterns radically: from cryptographic means of exchange to machine-led decisions. On the other hand, we have come to comprehend that technology will not be enough to design a safer space for humanity on this planet.
Relying on technology exclusively is extremely risky. We have no choice but to rediscover our collaborative patterns, rebuild our interrelating connections, and link back to wider interfaces, i.e. the fading biosphere to start with.
In its current form, the circular economy recognises planetary boundaries as a booster for innovation. In a world with a growing population and disappearing environmental functions, we have the opportunity to identify a new baseline and advance wisely from that point: our total stock of resources and flows of energies. From this point of reference, we should draw a line on a clean slate and redesign our economic model with unheard of approaches, such as managing global resources openly and redistributing energy by applying the economic models of reciprocity, redistribution and house-holding where applicable.
There are three common stocks of resources on the planet from which many services can be designed: the biosphere (mother nature, our biological stock); the humansphere(3) (an abundant stock of humans); and the technosphere (a limited stock of components to manage carefully). The circular economy also seeks to replicate the effectiveness of natural cycles: endless flows of energy. Such renewable flows are available from these three stocks and we should take advantage of them by aligning our economic world with them. Achieving this might take time. However, it will influence our thinking patterns positively: we will be able to estimate the true value of each of these resources and energy available, and start managing them more wisely i.e. communally and with care.
Based on this approach we will no longer produce goods but design services or, even better, experiences. These services will help us access everything we need when we need it, in a more effective approach if compared to our current product-based model. Hence, goods will disappear behind a service or an experience. Services will be designed and grounded on the effectiveness of energy streams. They will also be shareable, adaptable and versatile so that anyone can access them according to their needs. For instance, light-as-a-service – where you pay for the light and not for the bulbs – remains quite costly as it is based on bulbs using physical elements, requiring centralised logistics and fossil fuel derived energy. If we project ourselves to a few years from now, imagine a renewable energy based lighting service, accessed instantly and endlessly in a collaborative manner. Costs will become marginal after years of utilisation (in reference to Jeremy Rifkin’s Zero Marginal Cost Society). But, let us look beyond this at what is already available today in the bioeconomy space: Glowee(4) replicates marine organism bioluminescence(5) to light our urban streets and shops. These natural lights are already lasting a little less than a week as we speak! Light will therefore no longer be a cost to organisations or individuals. These economic barriers will fall, others might rise, but if designed well those plummeting hurdles will enable us to lift more people up into a renewed and evenly distributed economic model.
Our world is distributive by nature
And this is precisely where we find a window of opportunity: an economic model based on services that enable resources to disappear behind customer experiences, giving us a chance to rethink our basic social patterns!
The circular economy is distributive by nature. It recognises that energy is available to all of us on the planet in a constantly renewable way i.e. we know the amount of solar energy the planet receives daily. We also know it is more than enough for our current and future needs.(6) This system, based on a distributive approach, is a complete shift in design when compared to our current hierarchical, corporate and social organisations based on a single means of exchange: a centralised financial system. The financial system is driving our existence towards countless instances of scarcity: scarcity in resource access, scarcity caused by dependence on the financial system, scarcity in terms of diversity, and many others that all bring our communities to scarcity of traditions and social cohesion. As Karl Polanyi had anticipated, with our choice of a rational framework, human behaviour is dictated by the market economy, that has in turn destroyed our social and communal senses.
Instead, if we look at a system which is truly distributive in nature, relying on endless access to energy flows and a careful management of resources (i.e. our ‘house handling’ definition), we could rethink the way we design our goods and how we will value their components. These material resources, or technical nutrients as we call them in circular economics, will have to be designed in such a way as to have a specific role to play for numerous experiences. Managing them would mean that all their original features and functions will have to be preserved for the longest amount of time possible. In such an economy, some of these resource prices will increase as they get scarce. Managing resources with the approach of caring for the quality of component stocks, will reduce the risk of being exposed to price volatility and inflation. The more we enter an economy of experiences and the better their design, the lesser our dependence on complex and sizeable volumes of technical nutrients. However, the market economy might adjust prices to higher levels, since scarcity of these resources in a growing population context will drive up prices and/or taxes.
Designing for beings
Higher resource prices or taxes might become good news. When we have no other choice than facing a surge in price, we always look for alternative solutions. An opportunity to better design our human capital.
With this upcoming shift in the way we manage stocks and flows, how about rethinking our roles as humans on this planet? We are about to enter a new economic model that will be more careful with its material resources. A model where maintenance and repair will be at the core of corporate resilience. So far, this model has been imagined with technologically advanced machines. They are the right efficient choice, but are they the right effective choice? They require a lot of rare earth elements that are no longer easily available on the planet. They are already at the origin of fierce competition and tensions between international powers. Building a world economy solely on a machine-based model might become a highly risky option when it comes to managing access to resources.
As explained earlier in this article, our relations with our social and natural environment has been misled by our choice of economic model. How about revisiting these relationships and recreating them, and this time, thanks to market economics!
In a world of experiences our focus will have to shift to what is available in endless forms. On the one hand, we have renewable energies and natural cyclical environmental functions that we need to rebuild and grow. On the other hand, we have us, human beings. We are numerous (an abundant stock of underutilised resources) and once we have eaten and slept, we can achieve countless tasks and consider ourselves as sources of endless energy and boundless knowledge.
What about ensuring a fall in costs as a response to higher prices for material components? When a resource is available in high volume, taxes usually drop thus ensuring that we take advantage of the potential of that resource lavishly. Granting access to humans – considered as a new form of endless energy and a growing stock of resources(7) – may start with a tax drop on labour. Affordable human energy will lead to countless activities and employment, with the aim of rebuilding our biosphere-as-a-safe-space and maintaining the value of our technosphere-as-a-just-space. This is precisely the work that has been done by the Ex’Tax Project,(8) proposing a new model for revenue stream to governments, by shifting taxes from labour to scarce resources. This would unleash the creation of jobs and/or regenerative activities, whilst increasing the value of its stock of scarce resources, therefore being managed with care. In this way, humans could gain more control over the market economy, which will become highly dependent upon them.
A service based economy is highly versatile, multi-layered and distributed in nature. Let us take advantage of all of these functions to recover our senses.
Endless means of exchanges
Another factor that could help humans recover their social web is the rise of new forms of exchange between them. Whether you choose to access your experiences using the latest technologies, local bank notes, cryptographic ledgers, barter or even gifts, there is a resurgence in these and new forms of exchange between two entities willing to agree on a defined consent (deal, agreement, etc.). Imagine these forms becoming endless and highly diversified. All these practices being in line with a value-based system of exchange, preserving local rules and/or customs. And how about embedding them into well-designed crypto-currency ledgers as a guarantee of human value? And why not, since we are thus becoming a key circular component, maintain a material resource-scarce economy?
Micro-economic models will emerge thanks to virtuous local loops where individuals, groups of individuals or organisations will decide to use a large diversity of technical or biological economic tools. Coupled with customs-based means of exchange, the natural social interactions of humans can be reborn. Using human based economic models such as reciprocity, redistribution or house-holding would make sense again.
Traditions would be revived in a truly diverse and distributive model, in a modern interrelated world, where humans would be fully aligned with their wider spheres.
Regenerative at all levels
Our next economy will have to be regenerative and equitable, as a non-negotiable solution to our environmental, societal and economic challenges. The circular economy is considered to be the next economic model. It focuses on the decoupling of our needs for resources versus economic growth. As Kenneth Boulding’s famous quote states – “anyone who believes in indefinite growth in anything physical, on a physically finite planet, is either mad or an economist.” This reminds us that, even in 2018, infinite growth is not possible unless this ‘advancement’ becomes a guarantee of value creation for the planet, for the people and for the economy. Believing that the circular economy will be implemented at scale, without taking into consideration how people perceive the preservation of what they value most, might not lead to the expected outcome.
Today, we have the opportunity to evolve from an economy of having to an economy of being, where humans could be revalued by the careful design of circular flows and the management of several stocks, with an economy that is embedded in human relations.
Polanyi was probably right all along. It is time to reconnect with both our natural and social environment, and the economy is nothing more than one of the tools at our disposal.