What if Karl Polanyi was right?

Addressing societal needs thanks to material circularity as-a-tool.

Article first published on Renewable Matters magazine in May 2018. Subscribe here.

"Instead of the economy being embedded in social relations, social relations are embedded in the economic system." With this sentence, Karl Polanyi was highlighting the fact that since the early 1900s our societies are forced to conform to needs of market mechanism, whereas we could have chosen the other option: a more logical approach of economics as an instrument to societal needs.

In the mid-20th century, Karl Polanyi was an Austro-Hungarian economic historian, economic anthropologist and economic sociologist to name just a few of his expertise. He is famous for his book The Great Transformation (1944) whereby he explains how the market economy has changed our perception of human social relationships since the first industrial revolution.

our daily decisions are no longer taken based on our natural social skills

Social norms directed by market prices

Polanyi pointed out that prior to the market economy, reciprocity and redistribution - as main means of exchange - existed between the people. With the emergence of industrialisation, relationships between humans changed under highly influential centralized institutions promoting the self-regulation of market economy. In other words, our daily decisions are no longer taken based on our natural social skills – our ability to build personal and communal relationships – but merely on 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 recognizant of the fact that the market economy has led to material prosperity, “he warned that turning people into puppets and playthings of mindless market forces, and that people did not take well to this new role”, according to J. Bradford DeLong (thesis, 1997). Instead, Polanyi suggested that prosperity could be achieved by avoiding poverty, creative destruction and community erosion. All three of them being the root cause of top socio-economic risks highlighted every year by the World Economic Forum in the “Global Risks” report[1]: rising income and wealth disparity, increasing polarisation of societies, rising urbanisation, growing middle class in emerging countries, shifting power and so on.

we find it hard to see the link between our daily life and our social and natural environment

Reciprocity and redistribution

“Man’s economy, as a rule, is submerged in his social relationships” he added and thus the economy should be embedded in our social, traditional and cultural web of interactions, primarily as a tool - among others - leading to our mutual well-being, and not dictating our individual and collective decisions as we know it too well today. He noticed that pre-modern societies of China, the India Empires, Kingdoms of Africa and Greece - to name a few - functioned on the principles of reciprocity and redistribution. Lands and labour were not determined by market prices but utilized 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 centralized entity and then redistributed to the said community according to the needs of their members. In the economy of reciprocity, the allocation of goods was based on the reciprocal exchanges between social entities i.e. a positive action from one group triggers another positive act from another group. Lastly, the house-holding 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.

On these basis, Polanyi proposed to use the other meaning of “economics” - the original definition of economics, oikonomia in Greek, meant “house handling” and focused more on “house management”. This designation is far from the neoclassical economists’ inclination to use it as a logic of rational actions and decision-making processes commanding our behaviors - based on how humans make a living interrelating within their social and natural environment. This was quite a statement at the time as still very much aligned with the mission we call, at the present time, ‘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 on every occasion perceptible.  

we have the opportunity to identify a new baseline and advance wisely from that point on

From an economy of having towards an economy of being

At present, we have an opportunity window: to rethink about our humane relationships and how they could be realigned with the understanding of how systems work. Why is that? On one hand, we are in the middle of an unprecedented technological transition that will - once more - change our behavioral patterns, from cryptographic means of exchange to machine-led decisions. On the other hand, we have come to comprehend that technologies will not be enough to design a safer space for humanity on this planet. Relying solely on them is highly risky. We have no choice but to rediscover our collaborative patterns: to rebuild our interrelating connections, and to link us back with these wider interfaces, i.e. the fading biosphere to start with.

The circular economy, in its current shape, recognizes planetary boundaries as a booster to innovate within them. 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 on: our total stock of resources and flows of energies. From this reference point we should draw a line on a blank sheet, and redesign our economic model with unheard of approaches such as for instance: openly manage global resources and redistribute energies 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 could be designed from: the Biosphere (Mother Nature, our biological stock to regenerate), 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 imitate the effectiveness of natural cycles: endless flows of energies. Such renewable flows are available from these three stocks and we should take advantage of them by aligning our economic world with them. Achieving such exercise might take time but will positively influence our thinking patterns: we will be able to estimate the true value of each of these resources and energies available and, start managing them more wisely i.e. communally and with care.

if designed well those plummeting hurdles will enable to lift more people up into a renewed distributed economic model

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 them, in a more effective approach if compared with our current product-based model: goods will disappear behind a service or an experience. Services will be designed grounded on the effectiveness of energy streams. They will also be shareable, adaptable and versatile so that anyone could access them according to their needs. Light-as-a-service – where you pay for the light not for the bulbs - remains for instance quite costly today as it is based on bulbs using physical elements, requiring centralized logistics and fossil energy. If we project ourselves in few years from now, imagine a renewable energy based lighting service accessed in a collaborative manner in the instant endlessly. Its cost will become highly marginal after years of utilisation (in reference to Jeremy Rifkin’s Zero Marginal Cost Society). But let us look beyond this at what is available today in the bioeconomy space, Glowee[4] replicates marine organism bioluminescence[5] to light our urban streets and shops. Natural lights are already lasting a little less than a week as we speak! Light will therefore no longer be a cost to an organisation or to individuals. These economic barriers will drop, others might rise, but if designed well those plummeting hurdles will enable to lift more people up into a renewed distributed economic model.

our behaviors are fully dictated by the market economy that has destroyed our social and communal senses (Polanyi, 1944)

Our world is distributive by nature

And this is precisely where an opportunity window is: an economic model based on services enabling resources to disappear behind customer experiences might be our chance to rethink our basic social patterns!

Circular economy is distributive by nature. It recognizes that energies are available to all of us on the planet in a constantly renewable way i.e. we know the amount of energies received daily. We also know they are more than enough for our current and future needs[6]. This distributive approach of our system is a complete shift in design if compared to our current hierarchical corporate and social organisations, based on a single mean of exchange - a centralized financial system - driving our models of living towards endless forms of scarcities: scarcity of resources access, scarcity of financial dependence, scarcity in terms of diversity, and many more, leading our communities to scarcity of traditions and social patterns. We have become what Karl Polanyi pointed out with our choice of rational framework: our behaviors are fully dictated by the market economy that has 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 of their components. These material resources, technical nutrients as we call them in circular economics, will have to be designed in such a way that they 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 the longest time possible. In such an economy, some of these resource prices will increase as they go scarce. Managing resources with the approach of caring for the quality of component stocks will reduce the risk of being exposed to prices volatility and increases. The more we enter an economy of experiences, the better their design, the lesser our dependence to complex and sizable volumes of technical nutrients. Yet, the market economy might adjust prices to higher levels since scarcity of these resources in a growing population context will drive prices or taxes up.

humans could gain more control over the market economy which will be highly dependent upon them

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 at what could be alternative solutions, here, designing better 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 more careful of its material resources. A model where maintenance and repair will be at the core of corporate resilience. So far, this model has been thought with technologically advanced machines. They are the right efficient choice, but are they the right effective choice? They are in needs of a lot of rare earth elements that are no longer available widely on the planet. They already are 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 recreate them, and this time, thanks to market economics?!  

In a world of experiences our focus will have to shift on what is available in endless forms. On 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 in numbers (an abundant stock of underutilized resources): once we have eaten and slept, we can achieve numerous tasks considering ourselves as also as sources of endless energies and endless knowledge.

What about ensuring their cost drops in response to higher material component prices? When a resource is available in volume, taxes usually drops so that we take advantage of the potential of that source lavishly. Granting access to humans - considered as a new form of endless energies and a growing stock of resources[7] - may start with a tax drop in manpower. Affordable human energies will lead to countless activities or employment with the aim of rebuilding our biosphere-as-safe-space and maintaining the value of our technosphere-as-just-space. This is precisely the work that has been done by the Ex’Tax Project[8] proposing a new revenue stream model to governments by shifting taxes from labour to scarce resources. This would unleash the creation of jobs and/or regenerative activities while increasing the value of its stock of scarce resources, being therefore managed with care. This way, humans could gain more control over the market economy which will be 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.

imagine that these forms could become endless and highly diversified

Endless means of exchanges

Another factor that could help humans recover their social web is the rise of new forms of exchanges 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 of these new and additional forms of exchanges between two entities willing to agree on a defined consent (deal, agreement, etc.). Imagine that these forms could become endless and highly diversified. All these practices being acceptable as in line with a value-based system of exchange preserving local rules or customs. And how about embedding them into well-designed crypto-currency ledgers as a guaranty to value humans? And why not since we are thus becoming a key circular component maintaining 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 could be reborn. Using humane based economic models such as reciprocity, redistribution or house-holding would make sense again.

Traditions would revive in a truly diverse and distributive model in a modern interrelated world where humans would be fully aligned with their wider spheres.

the economy is just one of our toolbox, nothing else

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 become our next economic model. It focuses on the decoupling of our needs for resources versus economic growth. As Kenneth Boulding’s famous quote - “anyone who believe in indefinite growth in anything physical, on a physically finite planet, is either mad or an economist” - reminds us that, even in 2018, that infinite growth is not possible unless this ‘advancement’ becomes a guaranty of value creation for the planet, for the people and for their 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 our several stocks, with our economy embedded within human relations.

Polanyi has probably been always right and it is time to reconnect us with both, our natural and social environment, as the economy is just one of our toolbox, nothing else.

[1] Global Risks Report 2018, World Economic Forum, Figure II: The Risks-Trends Interconnections Map 2018

[2] The term sustainable development was coined in the paper Our Common Future, released by the Brundtland Commission, in October 1987. Sustainable development is the kind of development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

[3] “Circular Human Flows”, Alexandre Lemille, 2017, www.linkedin.com/pulse/circular-human-flows-alexandre-lemille/

[4] glowee.eu

[5] Bioluminescence is a chemical reaction regulated by a gene, enabling living organisms to produce light naturally.

[6] We receive 173,000 terawatts (trillions of watts) of solar energy on the Earth continuously. This is 10,000 times the world's total energy use.

[7] Replacing Energy by Countless Jobs or Activities, Alexandre Lemille, 2017, www.linkein.com/pulse/endless-jobs-alexandre-lemille

[8] The Ex’Tax Project or Valued Extracted Tax, ex-tax.com