A POLANYIAN ANALYSIS OF

CAPITALISM: A COMMENTARY
ON FRED BLOCK

Nina Bandelj

ABSTRACT

This chapter responds to Fred Block’s article about the weaknesses of

the concept of capitalism because of its close association with Marxism,
and his proposal for a Polanyian analysis of political economy. In this
chapter, I interrogate what may be the commonalities as opposed to div-
ergences between Marx and Polanyi, and I question whether the concept
of capitalism is really so wedded to Marxism so as to loose its analytic
value, and be better replaced by notions such as market society, or political
economy, as used by Polanyi. I agree with Block that a Polanyian analysis
importantly widens our view beyond economic reductionism to an under-
standing of economy and society as co-constitutive. However, I see utility
in adding the qualifier ‘‘capitalist’’ to ‘‘political economy’’ to differentiate
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between socialist and capitalist political economies, for instance, and to

properly characterize a system based on private property rights, guided
by pursuit of material gain, which advantages some strata in society
more than others, leading to endemic social inequality. I propose that a
Polanyian focus on society and economy as co-constitutive is more
effectively coupled with an analysis that considers capitalism not as a

Political Power and Social Theory, Volume 23, 293–302

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All rights of reproduction in any form reserved
ISSN: 0198-8719/doi:10.1108/S0198-8719(2012)0000023014
293
 294 NINA BANDELJ

self-driven system of surplus extraction and accumulation, but as an

institutional order dependent on political choices. Such a perspective would
advance a Polanyian analysis of capitalism.

‘‘What is the analytic value of ‘capitalism’ as a concept?’’ asks Fred Block in

his thought-provoking essay. ‘‘Does it help illuminate key features of
existing societies, or does it carry with it burdensome associations from
earlier historical periods?’’ By earlier historical periods, Block means the
historical materialist analysis offered by Karl Marx of the ‘‘genetic theory of
capitalism’’ that ‘‘retains an irreducible teleology about the direction
of history.’’ Block first argues that the term capitalism is inextricably
intertwined with the Marxist conceptualization and, second, he points to
the weaknesses of the Marxist perspective. Mostly, according to Block,
Marxist analysis has been undermined because of its inability to account
for the expanding role of government in managing the tensions created by
capitalist accumulation. He also notes that efforts, like the Wallersteinian
move to take the analysis of capitalism to the world-system scale, have
its own problems. This leads Block to conclude that capitalism has lost
its analytic value. Instead, he urges us to revive a critique of political
economy and replace the concept of capitalism with the framework
proposed by Karl Polanyi (1944) in his book The Great Transformation,
which ‘‘generally substitute(s) the term ‘market society’ for capitalism,’’ and
brings to the forefront politics and political choices, rather than insists on
the primacy of the economic in a Marxist fashion.
I should disclose from the start that I am very sympathetic to the Polanyian
perspective. My own work in economic sociology and about postsocialist
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transformations finds inspiration in Polanyi’s ideas of the always-embedded

economy. For one, in my research on the social foundations of foreign direct
investment markets in Central and East European countries after 1989,
I argue that one can draw parallels between the institutionalization of self-
regulating markets in the 19th century England, that Polanyi discusses in
The Great Transformation, and postsocialist economic transformations after
1989 where, contrary to the neoliberal emphasis on the importance of state
withdrawal from economy to free markets, postsocialist states were crucial
in building market institutions and creating demand for foreign capital
(Bandelj, 2008, 2009). Further, my short book on Economy and State
theorizes the relationship between these two spheres as that of state-economy
embeddedness, which is grounded in the Polanyi’s notion of fictitious
commodities (Bandelj & Sowers, 2010). Recently, with two graduate student
 A Polanyian Analysis of Capitalism: A Commentary on Fred Block 295

collaborators, we reviewed the literature on the impact of neoliberal

globalization on work, and applied the Polanyian double movement dynamic
at the global level to understand this relationship (Bandelj, Shorette, &
Sowers, 2011). Finally, in an analytical piece debating the utility of the
concept of relational work (Zelizer, 2005, 2012) in economic sociology,
I distinguish between the Polanyian notion of embeddedness from the
one more widely adopted in contemporary economic sociology, namely
the Granovetterian embeddedness (Granovetter, 1985). Here I pinpoint the
crucial difference in how the relationship between the economic and the
social is understood in these two traditions, as co-constitutive and analyti-
cally separate, respectively, which has serious implications for the under-
standing of relationality in economic processes and the theory of economic
action (Bandelj, 2012; see also Krippner & Alvarez, 2007).
This said, simply concluding that I agree with Fred Block’s key point
about the utility of a Polanyian analysis would not provide for much of an
intellectual exercise that I was asked to engage in by writing a response to
his essay. Therefore, I want to question Fred Block’s conclusion about the
obsolescence of the concept of capitalism as much as I want to be critical
about his (and my own) embrace of a Polanyian perspective. I do this by
asking (a) what may be the commonalities as opposed to divergences
between Marx and Polanyi, and (b) whether the concept of capitalism is
really so wedded to Marxism so as to lose its analytic value, and be better
replaced by market society or political economy.
My position is that a Polanyian analysis indeed importantly widens our
view beyond economic reductionism and teleological view of history toward
the analysis of economy and society that treats these two spheres as
co-constitutive. However, embracing the term market over capitalism can
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also dangerously reinforce the rightist views that markets are benevolent,
and enable anyone who tries to get ahead. I also want to point to the
vagueness hidden in the concept of political economy, proposed as an
alternative by Block, which does not distinguish between particular types of
social organization of the economy beyond broadly characterizing that
political choices dictate economic arrangements. From this perspective,
socialism and capitalism are both types of political economies, as they are
both sets of institutional arrangements about economic production, dis-
tribution, consumption, and exchange that result from political choices on
how economy should be governed. But no one will argue that socialism
and capitalism are not crucially distinct. We need to retain the qualifier
‘‘capitalist’’ in the ‘‘capitalist political economy’’ to denote that the vast
majority of the contemporary economic systems are heavily privatized, and
 296 NINA BANDELJ

guided by pursuit of material gain, which advantages some strata in society

more than others, leading to endemic social inequality. In fact, one might
expect that in advancing the Polanyian alternative, Block would discuss
Polanyi’s mosaic typology of the types of social organization of economy-
market exchange, reciprocity, and redistribution. In my view, this typology
is very useful in describing how different forms of the social organization
of economy can coexist, but we need to be able to emphasize that the
system where market-exchange strongly prevails over other forms is analyti-
cally distinct from other possible combinations of these three economic
arrangements. To capture the characteristics of such a system, in my view,
the qualifier ‘‘capitalist’’ in front of political economy is necessary.

DIVERGENCES AND COMMONALITIES BETWEEN

MARX AND POLANYI

Block proposes that Polanyi’s notion of political economy as laid out in

The Great Transformation is a better starting point to analyze the contem-
porary societies and the global economy than the (Marxist) concept of
capitalism is. Polanyi, writes Block, was influenced by Marx in the 1930s,
but in The Great Transformation, he ‘‘eschewed Marxist terminology and
generally substituted the term ‘market society’ for capitalism.’’ Moreover,
Polanyi diverged from Marxist historical materialism to emphasize ‘‘the
primacy of politics’’ over the primacy of the economy. Nevertheless, both
Marx and Polanyi were keenly interested in interpreting the transformations
in the economic systems brought about by industrial revolution. While
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Marx has a clear view of the direction of history through different stages
that all have to deal with their inherent contradictions, Polanyi’s perspective
more closely approximates a cyclical movement, with politics dictating the
type of economic system on the one hand, and the societal reaction
potentially changing the existent system on the other, as captured in the
notion of a ‘‘double movement.’’ Polanyi also puts more emphasis on the
power of the state as a change agent, rather than on class dynamics
that stands as a central revolutionary force in the Marxist account. This is
consistent with Polanyi’s view that state can play a crucial role in protecting
society from market forces, rather than, to use a famous quote from Marx,
functions as ‘‘but a committee for managing the common affairs of the
whole bourgeoisie.’’ Block summarizes the key tenets of the Polanyian
framework, including that ‘‘market economies are always and everywhere
 A Polanyian Analysis of Capitalism: A Commentary on Fred Block 297

embedded,’’ that ‘‘market society and the contemporary world economy are
shaped by an ongoing double movement,’’ and that ‘‘political contestation
at multiple levels – local, regional, national, and supranational – shapes
the economic paths that are available to societies at any given moment.’’
All in all, the Marxist analysis retains economy as a sphere analytically
separate from society and state, while the Polanyian approach insists on
co-constitution between economy and society.
Given Block’s rightful reputation as the authoritative interpreter of
Polanyi’s work, it comes as a surprise that in discussing these tenets Block
does not mention Polanyi’s central notion of fictitious commodities of
labor, land, and money. Polanyi argued that land, labor, and money are not
commodities in the same sense as these things are produced by firms to be
sold on the market. For one, it is a fiction that land, labor, and money are
inherently produced with the intention to be supplied for sale on the market,
thus state action is needed to constitute them as commodities, in the push
to create a market system. In another sense, it is also illusory that land,
labor, and money can be easily multiplied should demand increases, as could
other ‘‘proper’’ commodities. In fact, state action is needed to constrain
their full-blown commodification and prevent the complete exhaustion
and consequent destruction of these resources, and this represents the
‘‘countermovement’’ in the Polanyian double movement logic.
Focusing on the commodification of labor, land, and money is not only
central for understanding the logic of the double movement, but also
important for drawing comparisons between Marx and Polanyi. For
Polanyi, commodification of labor is central to his arguments about the
rise of market society. For Marx, the necessity of the proletariat to sell
their labor as a commodity is the crux of Marxist capitalism. While Marxist
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and Polanyian accounts may diverge on the ‘‘fictitiousness’’ of labor and

the role of the state in labor commodification and decommodification, the
pressures to commodify labor are central to both of their analyses, as is
the concern with social inequality. Even in global financial capitalism, class
distinctions are not eradicated. On the contrary, one could say that they are
resurfacing with potency in the times of crises, as we can see in the Occupy
Wall Street movement. Protesters may not use the word capitalism, but their
collective action is nevertheless propelled by the clash between the 1% and
the 99%, a clash resulting from patiently obvious social inequality. Block
suggests that Polanyi envisions various actors as participants in a protec-
tive countermovement but he, nevertheless, singles out trade unionists as
those ‘‘who provide the backbone of the protectionist countermovement.’’
Labor remains an integral, if not the only, actor. In this sense, the Polanyian
 298 NINA BANDELJ

and Marxist analyses share some common concerns, even if they diverge on
identifying the source of these concerns. This is important for the discussion
of the relevance of the concept of capitalism. As much as the Marxist
version of capitalism is defined by its historical materialist teleology, it is
also characterized by the focus on the need to sell labor on the market and
consequent social inequality. One could argue that the use of the term
market society instead of capitalism masks this inherent inequality between
market participants, albeit inequality that transcends just class lines.
A case in point is the much more frequent use of the word ‘‘market’’
rather than ‘‘capitalism’’ to characterize the transformation of the economic
systems after the fall of communist regimes in Central and Eastern Europe.1
Block’s point on how the word capitalism fell out of favor in the United
States because it was too closely associated with the communist left is
telling. One wonders whether in describing the transformations after the fall
of communist regimes in Central and Eastern Europe, the word capitalism
was eschewed because it smacked too much of the opposite of socialism.
‘‘Market transition’’ and ‘‘democratic transition’’ were more palatable
descriptions of the systemic transformations than ‘‘transition to capital-
ism.’’ But the systems put in place in Central and Eastern Europe after
dismantling command economy are nothing but capitalist if capitalism
denotes an economic system based on private property rights in which
economic activity, including the production, distribution, consumption, and
exchange, is basically determined through market operation where private
actors can exchange their property rights with other private actors for
material gain. Differences between owners and non-owners are endemic to
the capitalist system, and they bring with them significant inequalities.
While it is true that the classifications of owners and non-owners are more
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blurred in contemporary times of shareholder capitalism and certainly not

confined to production given the rise of financialization, in practice the
system retains clear divisions between ‘‘haves’’ and ‘‘have-nots.’’ This is in
contrast with the expectations associated with the notion of ‘‘a market,’’
‘‘free-market,’’ or ‘‘emerging-market,’’ which in their neoliberal interpreta-
tion by-and-large describe a form of individual choice and freedom that
everyone has in succeeding economically only if they try. This kind of
understanding of markets was very appealing in promoting market reforms
in the postcommunist context, while the ‘‘downsides of markets’’ have
been largely underplayed in political discourse, even if they represent an
integral part of the postsocialist experience, as also evidenced in analyses of
rising inequality in Central and Eastern Europe after 1989 (Bandelj &
Mahutga, 2010).
 A Polanyian Analysis of Capitalism: A Commentary on Fred Block 299

CAPITALISM AS INSTITUTIONAL ORDER BASED

ON PRIVATE PROPERTY RIGHTS AND MARKET
COMPETITION

After interrogating whether Marx and Polanyi provide divergent frame-

works, as intimated by Block,2 I want to also question Block’s conclusion
that the analysis of capitalism is so wedded to the Marxist framework that
it has lost its value. While I am sympathetic to Block’s critiques of ‘‘the
genetic theory of capitalism,’’ I am not so ready to dismiss the notion of
capitalism altogether. First, what to make of the fact that over the past
couple of decades it was the literature with the word capitalism in its name
that gained quite some traction, namely the ‘‘varieties of capitalism’’
perspective. As Block himself notes, this literature largely moved away from
the Marxist analysis to emphasize that there is no one single (or right) way
of organizing the capitalist economy. Block acknowledges the value in
making this point against ‘‘the Right’s embrace of the concept of capitalism
and its insistence that there was one single model of how to organize an
efficient and effective society.’’
I agree with this conclusion as I also agree with the point that the analysis
of the ‘‘varieties’’ detracted from the analysis of ‘‘capitalism.’’ Indeed,
the main distinction delivered in the varieties of capitalism literature was
that between the liberal market economies (LME) and coordinated market
economies (CME) (Hall & Soskice, 2001), to differentiate between econo-
mies where markets and competition are the primary way of coordinating
economic action from those where firms depend more on non-market
modes of coordination, relational contracting, network monitoring, and
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a greater reliance on collaboration than on competition. Although the

LME vs. CME distinction refers to the macro-organization of the economy,
it was derived from the analysis that takes firms as central actors and
questions what firms need to do in different systems to exploit their core
competencies in the areas of industrial relations, vocational training and
education, corporate governance, relations with employees, and interfirm
relations. With firms as the focal units of analysis, it is not surprising that
the literature lost sight of the macro-systemic properties of capitalism,
and that, indeed, by using the LME and CME designations, the varieties of
capitalism perspective practically replaced the word ‘‘capitalism’’ with
‘‘market economy.’’
This move is not unlike the one that Block suggests was done by Polanyi
in substituting the term capitalism with market society in The Great
 300 NINA BANDELJ

Transformation. However, it is precisely the loss of historical specificity in

the analysis of the varieties of market/political economy, generally, that
has been a point of critique of the varieties of capitalism perspective,
recently launched by Wolfgang Streeck, and Dorothee Bohle and Bela
Greskovits. These scholars have argued for ‘‘bringing capitalism back in’’
(Streeck, 2010a), understanding ‘‘capitalism tout court’’ not only its varieties
(Bohle & Greskovits, 2009) and for ‘‘taking capitalism seriously’’ (Streeck,
2010b). Interestingly, their analyses have found inspiration in Polanyi,
just as Block’s has. Still, these scholars have reached the opposite conclusion
from Block, in that they not only retained but even emphasized the value
of calling the object of their analysis capitalism, and not just political
economy, or market society. This is because they approached capitalism
‘‘not as a self-driven mechanism of surplus extraction and accumulation
governed by objective laws, but as a set of interrelated social institutions,
and as a historically specific system of structured as well as structuring
social interaction within and in relation to an institutionalized social
order’’ (Streeck, 2010b, p. 1). Moreover, among key defining feature of the
capitalist social order are ‘‘legitimate greed’’ and ‘‘differential endowment
of social classes with agentic capacities’’ (Streeck, 2010b, pp. 7, 11). Even
more basically, for Bohle and Greskovits (2009) at the core of the
understanding of capitalism lie two fundamental motives of action, fear
and greed, and their dynamic interplay. Interestingly, referencing Polanyi’s
use of the notion of ‘‘satanic mill,’’ the title of section one of part two in
The Great Transformation, Bohle and Greskovits (2009, p. 374) note that in
any variety of a capitalist system ‘‘workers are anxious about the ‘satanic
mill’ (Polanyi, 1944) that undermines the stability of their existence by
abruptly and permanently changing their professional and social status and
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identity.’’
This brings us back to the commonalities between Polanyi and Marx that
I discussed earlier. The countervailing forces of workers’ fear and capitalists’
greed can be well imagined in a Polanyian analysis, even if class conflict is
not at the crux of a Polanyian political economy. Nevertheless, attention to
class inequality is not completely foreign to a Polanyian perspective, given
that labor is one central fictitious commodity. In fact, to understand the
countermovement better, one may need to theorize the political action that
happens outside of the state purview more forcefully than Polanyi does. In
my reading of Polanyi, the emergence of the countermovement is rather
under-theorized; it seems to appear quite spontaneously and it is confined to
state institutions. A Marxist analysis gives us potential insights into how
labor becomes a political actor, even if the result is not a proletarian
 A Polanyian Analysis of Capitalism: A Commentary on Fred Block 301

revolution, nor is labor the only civil society actor that participates in the
countermovement dynamic.
In sum, Block makes a persuasive and important argument for an analysis
of political economy that considers society and economy as densely inter-
twined and not as separate spheres, and I am fully on board with this. Still,
I think that such an analysis should call historically particular kinds of
political economy by their rightful name. That name is capitalism if the
system is based on private property rights and market competition for
material gain. In my reading, a Polanyian analysis, which treats capitalism
as an institutional order, has great promise. It would be worthwhile to
advance a Polanyian theory of capitalism along these lines.

NOTES
1. Doing a simple search in Sociological Abstracts with the words ‘‘capitalism’’ or
‘‘market’’ or ‘‘democracy’’ in the title, and ‘‘Central and Eastern Europe’’ in
keywords, yields nearly twice as many articles with the word market and 60% more
articles with the word democracy than those with the word capitalism in the title.
2. It should be noted that in his other work Block (2003) does discuss the Marxist
influences on Polanyi more explicitly.

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