• Matthew Smylie

Polanyi and the 2008 Financial Crisis

Reading Polanyi is critical if we are to fully understand the 2008 Financial Crisis. The Great Transformation sheds light on the political outfall of the crisis, particularly austerity and the rise of far right groups.

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Following the 2008 financial crisis, many European nations suffered economic and social strife; none more so than Greece, where ‘draconian fiscal austerity’ (Kitromilides, 2011: 522) cast a dark shadow over the nation. In response to this neoliberal crisis, scholars have drawn on the work of Karl Polanyi in order to analyse the failings of the Eurozone and the fallout from the crisis. This post will argue that Polanyi’s analysis in The Great Transformation (TGT) helps us to understand the Eurozone crisis and the harsh austerity measures imposed on Greece, as well as the political and social effects that the crisis has had. The extent of this understanding relies on a greater inspection of Polanyi’s work, transcending his concept of the double movement to consider his theory of the ‘always embedded market’.

In the first section, I outline Polanyi’s key analytical insights in TGT before reviewing the existing literature surrounding his work and its application to the case of post 2008 Greece. This will show that the ways in which we can use Polanyi’s analysis to understand the situation in Greece relies heavily on the distinction between the double movement and the ‘always embedded economy’. The second section utilises the double movement to show the ways in which this framework provides a deeper understanding of the crisis, austerity measures and the social tensions that exist in Greece. The application of the ‘always embedded economy’ concept will be explored, showing that this deeper reading of Polanyi provides a greater understanding of the political and social factors which have underpinned the imposition of austerity and the tensions which exist in Greek society.

The Great Transformation’s contemporary relevance

In TGT, Karl Polanyi sets out to explain ‘the breakdown and subsequent collapse of the liberal market order’ (Watson, 2005: 142). As an anthropologist, Polanyi sought to understand how societies changed over time; his focus was to analyse how, in the late nineteenth century, human economies moved from being organised around principles of redistribution and reciprocity to a situation whereby the global economy was organised by the principles of the self-regulating market. Analysing the creation of capitalism would allow Polanyi to develop a greater understanding of the destructive social effects of laissez-faire ideology (Wjuniski & Fernandez, 2010: 423), with market liberalism resulting in the emergence of fascism, the Great Depression and ultimately World War Two.

To explain this dramatic shift, Polanyi develops his concept of the double movement. In this analytical framework, Polanyi views pre-market society as a state where the economy is ‘embedded’; political and social relations determine the function and organisation of the economy. In transitioning to market society, a ‘laissez faire movement to expand the scope of the market’ (Block, 2001: xxviii) is deliberately installed from above by the state. This initial movement aims to organise society around the principles of the self-regulating market, substituting reciprocity and redistribution for the interactions of supply, demand and exchange; this creates a situation whereby ‘social relations are embedded in the economic system’, instead of the ‘economy being embedded in social relations’ (Polanyi, 2001: 60). In order to achieve this mode of organisation, Polanyi argues that land, labour and money must be subjected to the forces of supply, demand and exchange; they become commodities which are traded in the market.

Polanyi argues that this idea of a self-regulating market is simply a ‘stark utopia’ (Polanyi, 2001: 3). This is because land, labour and money are, in fact, fictitious commodities; they were not created to be sold on the market and any attempt to treat them as pure commodities would lead to ‘the demolition of society’ (Polanyi, 2001: 76). In turn, the devastating effects of ‘subordinating society to the logic of the market’ (Block, 2001: xxiv) are met with an active response as society creates a countermovement to ‘resist the disembedding of the economy’ (Block, 2001: xxviii). In this sense, all classes within society rebel against laissez faire ideology and seek to re-embed the economy within social relations in order to protect themselves from the destructive nature of the self-regulating market.

Following the successful re-embedding of the economy, ‘Polanyi believed that humanity would never again experiment with market fundamentalism’ (Burawoy, 2015: 22). Similarly, Dale argues that the concepts which Polanyi utilises in TGT are tailored to the particular historical-anthropological argument being made, rather than as a systematized analytical schema’ (Dale, 2012: 8). Therefore, Polanyi’s analysis of the double movement and the failings of market society would prove of no value when we try to gain greater understanding of the issues facing the contemporary international political economy (IPE); Polanyi’s arguments are designed to explain a very specific dynamic which occurred in the late nineteenth and early twentieth centuries, a dynamic which he believed was confined to history.

Whilst these arguments suggest that Polanyi’s analysis may be of no contemporary relevance, there has been a resurgence in studying Polanyi’s work in an attempt to better understand the issues present in contemporary IPE. For example, Holmes (2014) argues that there is a close similarity between the Gold Standard and the Eurozone, with the social and political effects of the Gold Standard providing an analogy to the recent experiences of the Eurozone. In this sense, the creation of the Eurozone can be seen as a disembedding of the economy, with member nations giving up control ‘over the value of money to the supranational level’ meaning that they were no longer able ‘to seek competitiveness or to cushion their domestic economies from shocks through monetary policy adjustment’ (Holmes, 2014: 585). Holmes argues that the double movement can be applied to understand the political and social fallout in Greece, analysing the austerity measures and countermovements which followed the 2008 financial crisis.

Whilst the application of the double movement to the Eurozone crisis may provide a deeper understanding of the post 2008 world, such a reading of Polanyi’s work is too simplistic. This is because TGT contains several contradictions, none more notable than that between the ‘disembedded economy’ and the ‘always embedded economy’ (Dale, 2010: 193). Whilst this idea of the ‘always embedded economy’ is relatively undeveloped in TGT, Polanyi does provide clarity in his later work where he argues that ‘the human economy is embedded and enmeshed in institutions, economic and non-economic’ (Polanyi, 1957: 250) with markets being integrated in society according to the differing logics of reciprocity, redistribution and exchange. In this sense, ‘there can never be a self-regulating market system’ (Block, 2003: 297), instead the economy is always embedded within social relations; it is just embedded in different places at different times. The ways and the extent to which we can understand the Eurozone crisis and its effects on Greece therefore rely on bringing the concept of the always embedded economy into play.

Polanyi and Greece: The Double Movement versus the ‘Always Embedded Economy’

As highlighted by Holmes (2014), the analytical framework of the double movement can be used to deepen our understanding of the Eurozone crisis and its effects on Greek society and politics. Here, the action of the Greek government to join the European Monetary Union in 2001 is understood to represent the disembedding of the Greek economy from Greek society. In becoming a member of the Eurozone, Greek policy makers hoped to reap the benefits of belonging to a free market with a single currency; including greater levels of trade, economic growth and security for businesses (European Commission, 2017). However, in joining the euro, Greece also gave up its control over national monetary policy and experienced greater integration with financial markets, leaving the nation exposed to the world of deregulated finance. In this sense, the Greek government had decided to relinquish control over its economy; currency, monetary policy and to a large extent fiscal policy were now subject to the free market ideology of the Eurozone.

The risks of disembedding the economy were soon realised when, in 2008, the global financial crisis struck, leaving Greece in recession with a sovereign debt exceeding 115% of GDP (Sibert, 2010:13). Having been shut out of private bond markets, Greece was forced to impose strict austerity measures in return for multiple bailout packages from the troika; including large cuts in public spending and extensive deregulation (Karger, 2014: 37). This shows that, far from trying to protect society from the destructive forces of the free market, the response from European policy makers was to try and restore the financial sector to full health and extend the scope of the self-regulating market (Markantonatou, 2014: 77).

Therefore, following the crisis, the protective movement was not in the interest of society but rather the market; the Greek people were put second and forced to suffer harsh conditions in order to aid the market back to full health. As Polanyi predicted, this subordination of society to the workings of the market has had destructive effects on the Greek people. With restrictions on state funding and large taxation increases; unemployment has soared, mental disorders and suicide rates have increased, health services have been destroyed, and diseases have spread (Ifanti et al, 2013: 10).

Fitting with Polanyi’s analysis, these harsh conditions, caused by the imposition of austerity in order to maintain the health of the free market, have resulted in a number of responses by Greek society. Firstly, the deprivation caused by the crisis has resulted in violent protests (Rüdig & Karyotis, 2014: 494) as the Greek people fight against austerity measures and attempt to achieve greater protection from the workings of the free market. Portions of Greek society have sought to combat the destructive nature of the free market and protect themselves from the harsh conditions that austerity measures have created by developing solidarity networks and local currency systems. Such activities focus on covering the gaps left by the state and ensure that people get what they need to live; this involves healthcare provided by volunteers, social retail stores and socially embedded systems of food distribution (Rakopoulos, 2014). This demonstrates a clear attempt by Greek society to develop different ways to organise the economy, challenging the ideas of modern day capitalism in light of the Eurozone crisis.

Polanyi’s analysis of the rise of fascism, as a response to the destructive forces of the free market, can also provide us with a greater understanding of why far right groups have seen a surge in public support following the 2008 crisis. In Greece, the violent and neo-fascist Golden Dawn party achieved an increase in the vote from 0.29% in 2009 to 6.97% in 2012 (Ellinas, 2013: 544), becoming Greece’s third largest party. Such a transition can be explained using Polanyi’s framework; as the Greek people have been subjected to harsher economic conditions and have become increasingly sceptical about the functioning of the Eurozone and austerity measures, portions of society have turned towards a more radical and self-centred political ideology centred on nationalism and xenophobia. In analysing the rise of the Golden Dawn through a Polanyian lens, it is evident that a large movement in support of the radical right can be seen as a countermovement by portions of society seeking to protect against the free market, thus making such ideology ‘more politically legitimate’ (Holmes, 2014: 586).

Therefore, by employing Polanyi’s concept of the double movement to the Eurozone crisis and the case of Greece, we can gain much greater understanding of the causes and issues of the ongoing situation. By treating the Greek economy as a disembedded entity, which operates according to the self-regulating logic of the Eurozone, we can move beyond claims that the sovereign debt crisis was caused by fiscal profligacy and corruption, focusing more on the destructive nature of the free market (Seccareccia & Correa, 2015: 13). We can also use the double movement concept to analyse the harsh austerity measures imposed on Greece. By analysing austerity policies as a means to restore the health of the free market and expand its scope, we can move beyond the basic idea that the Greek people must pay off their debts and instead challenge austerity as a political decision taken to look after, and work in accordance with, the laws of the free market. In this sense, Polanyi’s analysis can deepen Greek society’s understanding of the austerity measures imposed, allowing them to view austerity as a political choice to subordinate them further to the market (Watson et al, 2014). This would allow Greece to consider alternatives to the self-regulating market, for example by leaving the euro to re-embed their economy, especially their control over monetary policy, within social relations.

Finally, we can use Polanyi’s double movement to analyse some of the social and political responses that have occurred following the Eurozone crisis and imposition of austerity measures. By viewing solidarity networks, violent protests and increased support for radical right parties as protective countermovements made by society, we gain a deeper understanding of the sources of such issues, treating these activities as deliberate attempts to challenge the Eurozone’s existence and protect society from its instability and destructive nature (Worth, 2013: 908).

Whilst this application of the double movement to the Greek case may provide us with a greater understanding of the crisis, Polanyi’s concept of the ‘always embedded economy’ serves to provide a richer account of the issues confronting Greece. Taking the idea of the always embedded economy, we no longer understand the joining of the Eurozone, the financial crisis and the subsequent austerity measures imposed as a cycle of disembedding followed by re-embedding; rather, we understand the Greek economy as shifting between different systems of embeddedness. From this view, the joining of the Eurozone did not represent a disembedding of the economy but rather a change in the system of embeddedness. This is evidenced by the fact that after joining the Eurozone, there was no retrenchment of the state, rather, the Greek government focused on trying to achieve political and economic convergence with the rest of the EU, with reforms to social protection, investment programmes and mild forms of deregulation and privatisation which were compromised by middle class interests (Souliotis & Alexandri, 2016: 7). Therefore, the decision to join the Eurozone did not result in a self-regulating Greek economy running adjunct to society; it was rather a change in Greek politics whereby elites forwarded neoliberal policies to develop their economy and achieve greater unity with their European neighbours.

After the crisis struck in 2008, there was a shift to a new system of embeddedness, in which the Greek economy has been increasingly embedded within the interests and social norms of European financial elites. When the crisis hit, the interests of French and German banks were put at risk, since they held a large amount of the Greek debt and the potential of Greece becoming bankrupt posed significant threats to the global financial system (Mann, 2012). In response, French and German elites were able to use their political clout to influence the direction of the decisions taken by the troika (Matthijs, 2016: 376). This meant directing the response to the Greek sovereign debt crisis towards imposing harsh austerity measures on the Greek people in order to further instil neoliberalism and nurture the financial system back to health in order to maintain profitability (Cahill, 2011). Therefore, the crisis marked a movement towards a new system of embeddedness whereby the economy was no longer governed by the decisions and interests of the Greek government and public, rather the power and influence held over the Greek economy was largely in the hands of the troika (Souliotis & Alexandri, 2016: 9).

This analysis of the Greek economy shifting between different systems of embeddedness provides a much deeper understanding of the issues currently being experienced in the Eurozone and Greece. We no longer view the self-regulating market as the cause of all evils; instead we can gain a greater understanding of the underlying political relations which have served to destroy Greek society. Firstly, we gain greater understanding of the power that financial elites are exercising over the Greek economy; austerity measures are a pure political choice whereby French and German banks have used their power to divert the costs of the crisis onto the Greek people and maintain the global financial system. This also provides deeper understanding as to why Greece has been unable to escape from the vicious cycle of austerity which it has endured, despite electing SRYZIA who had promised to put an end to austerity measures (Kelemen, 2015: 399). This is because, the power of the Greek government has been severely reduced and the public no longer have a say in how the economy is run; the Greek people are held captive by the decisions of the troika and the interests of financial elites (Konings, 2015).

Analysing the situation through the concept of the always embedded economy also changes the ways in which we understand social responses in Greece. The countermovement’s previously discussed no longer represent an attempt to insulate and protect society from the destructive nature of the free market. Rather, solidarity networks, protests and radical right wing politics resemble attempts to reinvent social power (Souliotis & Alexandri, 2016: 10). These countermovements therefore resemble deliberate attempts by the Greek people to regain control over their economy, allowing them to judge what is best for the interests of Greek society, rather than having their interests dictated to them by the troika (Weeks, 2015).


I have argued that Polanyi’s double movement framework allows us to gain a greater understanding of the Eurozone and the issues following the 2008 financial crisis. By analysing the Greek economy as disembedded, we can gain a greater comprehension of austerity, viewing it as a political process whereby elites have chosen to disembed the economy and then impose measures which favour the interests of the market rather than interests of society. Further, the concept of the countermovement helps us to understand the political and social tensions present in Greece, showing the rise of the radical right, violent protests and solidarity networks as deliberate attempts to re-embed the economy and protect society from the destructive force of the self-regulating Eurozone.

The extent to which we understand austerity as a political project can be furthered if we consider the always embedded economy. From this perspective, we can understand austerity measures as a shift in embeddedness whereby the Greek government has lost power to the troika and financial elites. This allows us to understand austerity measures as sitting firmly in the interests of the European financial elites which have sought to maintain their profits. Further, it allows us to understand why Greece has continued to impose more austerity measures despite their destructive effects- the Greek government no longer has control over its own economy. Finally, we can understand the rise of solidarity networks, radical right politics and violent protests as deliberate attempts to try and reinvent social power, rather than just protective measures against the effects of austerity.


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