ABSTRACT

The Ordering of Change: Polanyi. Schumpeter and the Nature of the Market Mechanism

CRIC Discussion Paper No. 70

Mark Harvey and Stan Metcalfe

This paper brings about a conversation between Schumpeterian and Polanyian perspectives on markets and their central role in the capitalist economy. For Schumpeter, markets were critical to the process of self-transformation of economic activity, but in his vision, markets as such were largely taken for granted. Markets enabled the introduction of new processes and products equally as well as rendering economic activities obsolete, with the entrepreneur and firm as agents of change, generating new combinations of activities and driven by the creative power of knowledge. Innovation and markets are jointly the engines of endogenous growth. For Polanyi, by contrast, although markets were the central feature of the capitalist economy from the beginning of the nineteenth century, his main interest is the constant impulse for markets as institutions to expand into every aspect of social life and the counter-movement of regulation to restrain what he sees as their essentially destructive nature. His focus is therefore on markets as instituted economic processes, driven by the double movement of regulation (order) and de-regulation (disorder). He scarcely considers innovation in production or consumption, concentrating on institutions of exchange and distribution.

The paper explores the two perspectives in order to ask the question that their confrontation raises, namely, What is the relation between intra-market endogenous change and market-framework institutional change? To test out each perspective, a schematic ‘long-duration’ empirical account of the United Kingdom food distribution markets is subjected to a Schumpeterian and Polanyian reading, and each is exposed for complementary deficits. A broader explanatory framework is sketched that proposes analysis of innovation in market institutions – especially processes exchange and distribution – in combination with innovation in production and consumption. It is suggested that to explore the constant change of capitalist economies, these four economic domains each involve different orders of innovation and transformation that have complex feedbacks and interactions with each other. Rather than according primacy to one or other order of change (as did Schumpeter and Polanyi in their respective ways), we require a complex causal account embracing multiple instituted economic processes.

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