Fikret Adaman, Pat Devine, and Begum Ozkaynak, 2002
Polanyi argued that the project of creating a fully self-regulating market was utopian, in the sense of impossible. However, movement towards this utopia, the ever greater but never completed process of disembedding the economy from both society and nature, creates growing dislocations and tensions which call forth a counter movement. This double movement may be thought of as successive changes in the way in which the economic process is instituted. The focus of the paper is on the meaning of embeddedness, the ways in which the economy was reinstituted during the Great Transformation and the subsequent counter movements, and alternative approaches to further reinstituting the economy in ways that disembed it further or (re)embed it more firmly in society and nature. It is argued that prior to the creation of the capitalist market the economy was organically embedded in society and nature. However, the creation of separate economic institutions, the institution of the economic process as a distinct system with its own laws of motion, severed these organic links and the economy came to dominate both society and nature. Here, however, the symmetry between society and nature ends. Society has the capacity for conscious, purposeful action; nature does not. For the economy to be reinstituted in ways that create a sustainable organic relationship with nature, it must first be reinstituted in ways that bring it under social control.
“The study of the shifting place occupied by the economy in society is therefore no other than the study of the manner in which the economic process is instituted at different times and places.” Polanyi, 1957, p. 250
“…the control of the economic system by the market is of overwhelming consequence to the whole organization of society: it means no less than the running of society as an adjunct to the market. Instead of economy being imbedded in social relations, social relations are embedded in the economic system. The vital importance of the economic factor to the existence of society precludes any other result. For once the economic system is organized in separate institutions, based on specific motives and conferring a special status, society must be shaped in such a manner as to allow that system to function according to its own laws. This is the meaning of the familiar assertion that a market economy can function only in a market society.” Polanyi, 1944/2001, p. 60
“The choice between capitalism and socialism, for instance, refers to two different ways of instituting modern technology in the process of production”. Polanyi, 1957, p. 249
Polanyi’s analytic and historical vision, as set out in The Great Transformation, is summarised at the very beginning of his major work:
“Our thesis is that the idea of a self-adjusting market implied a stark utopia. Such an institution could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man and transformed his surroundings into a wilderness. Inevitably, society took measures to protect itself, but whatever measures it took impaired the self-regulation of the market, disorganized industrial life, and thus endangered society in yet another way” (1944/2001, pp. 3-4).
Thus, Polanyi argued that the project of creating a fully self-regulating market was utopian, in the sense of impossible. However, movement towards this utopia, the ever greater but never completed process of disembedding the economy from both society and nature, creates growing dislocations and tensions which call forth a counter movement. This double movement may be conceptualised as successive changes in the way in which the economic process is instituted. One way of thinking about this, after the initial institution of the capitalist market economy as a separate system with its own laws of motion, is in terms of successive cycles of regulation and deregulation. The highest point so far in the attempt to assert some degree of social control over the economy was the post 1945 golden age of welfare state Keynesianism. However, the prolonged period of relatively full employment caused the capitalist market economy to seize up, particularly the markets for what Polanyi called the “fictitious commodities” labour and money, resulting in accelerating inflation and falling profits.  The result was the epoch of neo-liberal deregulation and privatisation, with the control of inflation replacing the maintenance of full employment as the principal policy objective together with the drive to extend market principles to ever wider spheres of human activity and its interaction with non-human nature. It may be that the rise of the anti-capitalist, anti-globalisation movement heralds the beginning of a new era of regulation, this time with a more global dimension, in order to deal with the increasingly acutely felt social injustices and the ominous ecological threats facing society at the start of the twenty first century.
The focus of the paper is on the meaning of embeddedness, the ways in which the economy was reinstituted during both the Great Transformation and the subsequent counter movements, and alternative approaches to further reinstituting the economy in ways that (re)embed it more firmly in society and nature. It is argued that prior to the creation of the capitalist market the economy was organically embedded in society and nature. However, the creation of separate economic institutions, the institution of the economic process as a distinct system with its own laws of motion, severed these organic links and the economy came to dominate both society and nature. Here, however, the symmetry between society and nature ends. Society has the capacity for conscious, purposeful action; nature does not. For the economy to be reinstituted in ways that create a sustainable organic relationship with nature, it must first be reinstituted in ways that bring it under social control.
Polanyi coined the term “fictitious commodity” to express the commodification of labour, land and money in a self-regulating market system. He argued that while the first movement, towards instituting labour, land and money markets, was the result of deliberate action by the state, historically the countermovement against economic liberalism was largely piecemeal and spontaneous: “Laissez-faire was planned; planning was not” (1944/2001, p. 147). He also called for social resistance against the market mentality and, looking to the future, in his plea for re-embedding the economy in society and nature argued for coordinated social intervention, through participatory and democratic means, to deal with the fictitious commodities.
This paper offers a possible model for (re)embedding the economy in both society and nature. It first discusses the relationship between institutedness and embeddedness. It then critically reviews the approaches taken by existing economic schools of thought and models to the conceptualisation of the relationship between economic activity and nature and the operationalisation of policy. This covers the capitalist laissez-faire model (with reference to the Coasian approach of assigning property rights to nature), the regulated capitalist market approach (distinguishing between neoclassical environmental economics and ecological economics), the centralised socialist model and the market socialist approach. Following this critical review, the paper then proposes a “participatory planning” approach as a possible alternative model of societal organisation which institutes the economy in a way that embeds it in both society and nature. The model develops a set of social relations and institutions through which civil society exercises control over both the state and the economy and is thus able to mediate the relationship between the economy and nature directly. This marks a qualitative break with approaches that rely on the coercive power of either the state or market forces, which both operate with inherently unpredictable and unintended consequences. The paper concludes by suggesting that participatory planning provides a productive framework for operationalising the argument of Polanyi on the need for economic activity to be (re)embedded in society and nature.
Institutedness and Embeddedness
Polanyi’s basic thesis may be summarised as follows. The economy is “an instituted process of interaction between man and his environment” (1957, p. 248) which produces the means for satisfying human wants. Before the great transformation and the establishment of the capitalist market system there existed an organic relationship between economic activity and society. Markets often existed but they were not a self-regulating mechanism for the organisation of production. Economic activity was instituted as an inseparable, organic aspect of all other forms of social activity. It was inextricably and holistically embedded in society and nature.  The capitalist market system reinstitutes the economy as a separate and distinct sphere, with its own logic and laws of motion, disembedding it from society and nature by creating markets for labour, land and money. Varieties of capitalism may institute the economy in different ways, but what they all share is that economic activity is instituted separately from other aspects of human activity. However, disembedding can never be complete since laissez-faire economic liberalism undermines the conditions necessary for continuous capitalist reproduction and calls forth movements of resistance. Society therefore seeks ways of (re)embedding the economy in society and nature by subjecting it to forms of social control, by continuously revis ing or reinstituting the ways in which markets, above all labour, land and money markets, are instituted.
However, although the tension between the logic of the self-regulating market and society’s attempts to protect itself from the consequences of that logic is ever present, society can never win as long as the economy remains instituted as a separate sphere of activity. Thus:
“For a century the dynamics of a modern society was [sic] governed by a double movement: the market expanded continuously but this movement was met by a countermovement checking the expansion in different directions. Vital though such a countermovement was for the protection of society, in the last analysis it was incompatible with the self-regulation of the market, and thus with the market system itself” (1944/2001, p. 136).
Polanyi rejected the “‘economistic fallacy’ … an artificial identification of the economy with its market form” (1957, p. 270). Instead, he looked for alternative, non-capitalist, ways of instituting the economic process in order to reintegrate economic activity with all the other aspects of social life, to (re)embed it in society and nature. However, this cannot be done by seeking to recreate the organic integration of society, economy and nature along traditional lines, as was the case prior to the great transformation: “The congenital weakness of nineteenth-century society was not that it was industrial but that it was a market society” (1944/2001, p. 258, Polanyi’s emphasis). He looks forward to the replacement of the capitalist market system by a system of democratic social control over the economy, premised on the abolition of labour, land and money markets but not necessarily product markets:
“Socialism is, essentially, the tendency inherent in an industrial civilization to transcend the self-regulating market by consciously subordinating it to a democratic society. It is the solution natural to industrial workers who see no reason why production should not be regulated directly and why markets should be more than a useful but subordinate trait in a free society … it breaks with the attempt to make private money gains the general incentive to productive activities, and does not acknowledge the right of private individuals to dispose of the main instruments of production” (1944/2001, p. 242). In future “the market system will no longer be self-regulating, even in principle, since it will not comprise labour, land and money” (1944/2001, p. 259). However, “the end of market society means in no way the absence of markets. These continue, in various fashions, to ensure the freedom of the consumer, to indicate the shifting of demand, to influence producers’ income, and to serve as an instrument of accountancy, while ceasing altogether to be an organ of economic self-regulation” (1944/2001, p. 260).
Polanyi may have been optimistic about what comes naturally to industrial workers, and his proposals for instituting economic activity in a way that embeds it fully in society remain sketchy, but his brilliant insight into the fact that “A market economy can exist only in a market society” (1944/2001, p. 74) and his insistence that labour, land and money must be reinstituted on a non-market basis if the economy is to be fully reembedded in society have if anything a greater urgency today than when he first published them. The following diagrammatic representation, based on Polanyi’s work, is an attempt to provide a schematic framework for thinking about how this might be achieved.
This schematic framework provides the background for an evaluation of the approaches taken or implied by existing economic schools of thought to the relationship between nature and the economy. Alternative ways of instituting the economic process and seeking to embed it in models of both capitalist and socialist society are evaluated. The paper then outlines a model of participatory planning as a possible way of realising Polanyi’s objective of consciously instituting and embedding the economy in society and nature.
The Free Market Approach
The approach that is furthest away from that of Polanyi sees any adverse effect that economic activity has on nature as arising from the absence of a complete set of property rights and markets for the elements of nature that enter the production process. The solution is then seen as assigning ownership rights and establishing markets where they are lacking. This concept of the full commodification and marketisation of nature has been associated above all with Coase, who argued that when property rights to nature are clearly defined concerned parties would bargain over the use of environmental resources, thus resolving environmental problems within the self-regulating market system. Resources would be used efficiently in the sense that their use would correspond to the preferences of their owners and potential users as mediated by the market. Taking this argument to its logical end would, of course, imply the assignment of property rights for such goods as genetic codes, seeds, the atmosphere, the oceans and even space. 
Current examples of the application of the Coasian framework are the proposed creation of “marketable permits” in relation to natural resource use. The marketable permits technique takes the view that new markets can be created to control the use of natural resources, whether as inputs or as sinks for waste outputs. Economic agents are given the property right to consume environmental resources and are allowed to sell any rights they own. Thus, a market is created in the right to consume resources as inputs or to pollute. With an a priori determined level of resource use (as in the case of fisheries) or emissions (as in the case of environmental pollution), permits are left to find their own price. Thus, the approach is to further disembed nature by instituting property rights where they have not so far existed and incorporating then in the self-regulating market.
The Coasian framework is subject to a set of obvious drawbacks even in its own terms, that is, leaving aside the problems inherent in any market system. First, there is the question of the principle on the basis of which property rights should be assigned. One possibility is an equal per capita distribution across the global population. Another is an auction system designed to allocate rights to those who value them most, as measured by ability and willingness to pay. Second, transactions costs might be very costly. Indeed, as the Coasian approach is based on an individualistic methodology there are likely to be problems of “collective action” that preclude a market-based solution that is “efficient” as defined within that framework. Third, in relation to the proposed marketable permits schemes, there is the additional problem of the determination of the permissible overall level of natural resource use or emissions. Finally, as in all neoclassical models, the individualist methodology raises the problem of distribution. The rich tend to place a higher value on environmental and ecological issues close to them than do the poor, thus leading to social and geographical dumping.
Neoclassical Environmental Economics
In the absence of a complete set of property rights and markets in environmental goods and services, neoclassical environmental economics locates the cause of the degradation of nature in the existence of externalities. The overuse of natural resources and the disposal of waste above the ecosystem’s assimilative capacity are seen to arise because of “market failure”. Individuals do not bear the full cost of their actions, which results in the “tragedy of the commons”. Within the neoclassical framework, if a full set of property rights and markets cannot be created, market failure can be corrected by regulation, either through “command and control” intervention based on standards and quotas, or through “incentive-based” tax and subsidy mechanisms.  The first approach provides firms with less flexibility than the second and in theory incentive-based mechanisms may ensure optimality at a lower cost than command-and-control mechanisms. However, it is acknowledged that ease of implementation may at times require the use of standards and quotas. Finally, it is recognised that implementing such mechanisms requires the existence of a social guardian/government and the assumption that the costs of any “government failure” are less than those arising from the “market failure” in question.
The neoclassical interventionist solution is contingent on measuring the value assigned by individuals to environmental goods and services in money terms. The aim is to weigh the costs and benefits of avoiding ecological damages. Where there are markets for environmental goods, the costs and benefits are calculated using market prices. Where there are no or incomplete markets, a body of techniques has been developed to simulate markets by estimating monetary valuations based on individual preferences. It should be noted that the preferences of future generations for natural resource use can only be taken into account insofar as they are reflected in the preferences of current generations.  Once the actual and future costs and benefits associated with economic activities that impact on the environment have been calculated, an optimality calculation is then undertaken, usually in the form of “costbenefit” and “cost-effectiveness” analysis, with an a priori chosen discounting factor.
In mainstream environmental economics the economic system is seen as being composed of separate and autonomous individuals seeking to satisfy preferences which are exogenously determined and ethically unchallengeable but acting in a context of social institutions designed to discover individual preferences and aggregate them. The approach has been subject to criticism from a variety of perspectives. First, different initial distributions of endowments (ownership) and income generate different environmental prices. When the distribution is changed, this has an effect on the pattern of demand and prices which affects the whole valuation vector, including of course environmental goods and services. Second, the analysis remains separate from other domains of social life in the sense that the social, cultural and political status of the individual is reduced to that of a consumer/worker/resource owner.
Thus, capitalist solutions, whether free market or neoclassical interventionist, far from responding to Polanyi’s conceptualisation of the desired relationship between the economy and nature, seek to complete the institution of the very process of commodification and marketisation which led to his critique of the self-regulating market and the disembedded economy in the first place.
Ecological economics differs from neoclassical environmental economics in three respects.  First, it adopts a co-evolutionary approach, recognising that economic activity has an impact on the ecosystem yet also depends on it. Human activity both shapes nature and is in turn shaped by it. Different ways of organising production and consumption affect nature differently so that the way in which nature reacts back on economic activity also differs. Thus, more than one path-dependent evolutionary process is possible with very different consequences for sustainability.
Second, ecological economics draws on the laws of thermodynamics and the concept of entropy for insights into the types of interaction that exist between the economic and ecological systems. Key among these insights is that the interaction cannot be adequately characterised by seeking to reduce nature to a set of commodities which can then have a monetary value placed upon them. Rather, the flow of high level to low level energy, the use of renewable and non-renewable resources, and the use of nature as a sink for waste, need to be monitored each separately and in physical terms.
Third, it is recognised that many environmental and ecological problems are so acute that action is needed now, before there is time for further scientific research to reduce significantly the uncertainty associated with them. Indeed, the ecosystems involved are so complex that there is always likely to be uncertainty in relation to any proposed course of action. Ecological economics therefore argues that such decisions, if they are to carry legitimacy, must be taken through a procedurally democratic process based on deliberative institutions in which all those with an interest in the outcome participate. Such a decision-making process would make use of existing, usually contested, scientific knowledge but the uncertainties associated with different courses of action would be weighed in terms of the values of those involved.
Ecological economics represents an important step forward in conceptualising how the economy might be re-embedded in both society and nature. It argues that ecological decisions cannot be properly addressed by treating nature as a fictitious commodity and that such decisions must be made by society, not left to the self-regulating market or to experts seeking to correct for market failures when externalities not captured by market prices exist. It envisages society making these decisions through a deliberative democratic process involving all affected groups. Although ecological economics has focused exclusively on ecological issues (land), the approach it has arrived at is equally capable of being applied to the other fictitious commodities, labour and money. In all three cases, the operation of self-regulating market forces needs to be replaced by conscious social control.
However, although ecological economics is an advance, it assumes, explicitly or implicitly, that the procedural democracy it recommends would take place within the framework of the instituted capitalist market economy. It recognises the importance of the distribution of power and resource ownership, which neoclassical environmental economics does not, but in general ecological economics does not address the question of whether the much greater equality likely to be necessary for the effective operation of a procedural democracy that confers real legitimacy is compatible with capitalism.  Furthermore, there is a very real issue over whether a twenty first century countermovement, this time at the global level to regulate the activities of the multinational corporations, is compatible with the continued functioning of the global capitalist market. As we have seen, in Polanyi’s view it is not. This then leads to a consideration of possible socialist alternatives to capitalism as ways of re-embedding the economy in society and nature.
The Soviet experience in relation to environmental degradation is no better, possibly worse, than that of the advanced capitalist countries. The Soviet model of central planning sought to allocate society’s resources directly to production for use in the satisfaction of human needs, with money playing a passive role. The economic process was instituted sui generis. Since the self-regulating market ceased to operate, the fictitious commodity character of labour, land and money no longer existed. However, the economy was not re-embedded in either society or nature. This illustrates the difficulties that exist in thinking about how such re-embedding can be achieved. In the Soviet model, far from society controlling the economy and its interaction with nature, the political instance was dominant, with the ruling nomenklatura controlling the state, the economy and a fragmented, atomised and alienated society.
However, although no longer fictitious commodities, the situation of labour and land was not the same. The political instance was dominant and the ruling group depended for its legitimacy on the revolutionary origins of the regime and its claim to represent the working class. This imposed limitations on the extent to which workers could be exploited and oppressed. The abolition of unemployment brought real gains in security and in the two decades to the mid-1980s there were also real improvements in social welfare and living standards. No such limitations existed on the exploitation and degradation of nature. Indeed, it could be argued that the productivist interpretation of Marxism that prevailed gave licence to the neglect of nature and even to a frontier society mentality seeking to conquer nature. Furthermore, the absence of political democracy meant that an independent environmental movement, acting as an advocate and pressure group for nature, could not develop to any significant extent.
In addition to the socio-political characteristics of the regime there were also more technical economic problems associated with the Soviet model of central planning. Even in the presence of political democracy, much knowledge relevant for efficient production cannot be transmitted to a central planning agency. So-called tacit knowledge, knowledge acquired through experience or learning by doing, can only be effectively used by the individuals or groups who possess it. It follows that the efficient use of society’s productive resources can to a large extent only be achieved through decentralised decision making. This is also true with respect to many environmental and ecological issues. While some key issues concerning the ecosystem have to be addressed at the global level, many issues arise in relation to local ecosystems and require local knowledge if they are to be effectively dealt with.
Theoretical models of centralised planning, or at least centralised algorithms for coordinating production decisions, have been developed using modern computing and information technology.  They assume that in the absence of exploitative and oppressive regimes problems of alienation and motivation can be overcome. In principle, environmental and ecological considerations could form part of the information on the basis of which decisions are made. However, these models are either vulnerable to the problems associated with attempts to transmit tacit knowledge to a centre or they treat people as workers and consumers but not citizens. It is difficult, therefore, to see how they could provide the institutional framework for re-embedding the economy in nature, which requires a deliberative democratic process in which people participate as citizens, not just as workers and consumers, and make use of their tacit knowledge.
The response of many socialists to the experience of the Soviet model and the perceived theoretical difficulties associated with centralised computer-based models has been to espouse some form of market socialism. There is now a wide spectrum of such models. At one pole are those that accept the general neoclassical framework and analyse the same issues using the same techniques, the only difference being that private ownership is replaced by some form of state or worker cooperative ownership. At the other pole are models that situate the operation of the market in a set of institutions that encourage the exchange of information and seek to exercise some social control over the allocation of capital. 
Market socialist models in general do not explicitly discuss environmental and ecological concerns. The neoclassical market socialist models make no attempt to discuss the extent to which they are able to re-embed the economy in society, let alone in nature. However, the approach of neoclassical environmental economics is as applicable to neoclassical market socialist models as it is to the neoclassical analysis of capitalism and so, of course, are the drawbacks associated with this approach. In neoclassical market socialism the self-regulating market remains the principal coordinator of economic activity and labour, land and money remain fictitious commodities.
The situation is less clear cut in the case of those market socialist models that situate the market institutionally. Elson, for example, refers to the socialisation of the market, transcending its private character but not abolishing it, rather than to market socialism. She proposes a set of interlocking institutions that alter the way in which the market process operates by making public the prices at which exchange takes place, facilitating the exchange of information about investment, and encouraging dialogue between producers and consumers over what is socially needed. Schweikart proposes an investment fund that is raised from taxation and allocated to regions on a per capita basis. Enterprises in the regions then bid for a share of the regional investment fund on the basis primarily of expected profitability but taking account also of other relevant criteria.
These institutionally based models are certainly an improvement on the neoclassical models. Although once again environmental and ecological concerns are not a central focus of the models, the rich institutional setting seems to allow for the embedding of such concerns in the decision-making process. However, the operation of market forces, the self-regulating market, remains a major determinant of the allocation of investment and in the end enterprises continue to act atomistically, with their interdependent decisions being co-ordinated ex post by the invisible hand rather than ex ante through a process of participatory planning. Furthermore, the efficiency allegedly associated with the market process is obtained, if at all, by creating losers as well as winners and so is likely to be incompatible with the values of equality and solidarity associated with the socialist vision. Finally, labour and land retain some of the character of fictitious commodities. Thus, even the most promising market socialist models seem unable to re-embed the economy in either society or nature. 
Participatory planning is an approach that replaces the self-regulating market by a process of negotiation, thus avoiding the drawbacks of both centralised planning and market socialism.  It envisages a self-governing society in which, rather than the state or the self-regulating market or some combination of the two coercing society, the diverse voluntary associations that make up civil society control both the state and the economy. Self-government may be defined as a situation in which those affected by a decision participate in making the decision in proportion to the extent to which they are affected. The institutional form that this takes is social ownership, ownership by those who are affected. Thus, there will be different social owners, from local to global, depending on how widespread the consequences of the decision are, in line with the principle of subsidiarity.
The model is based on a distinction between market exchange and market forces. Market exchange involves the buying and selling of the output of existing productive capacity. The operation of market forces is the process through which the structure of productive capacity in a market economy is changed by investment and disinvestment. This involves the buying, hiring or borrowing of the fictitious commodities labour, land and money, as well, of course, of real commodities in the form of capital goods. The driving force behind this process is the decisions made by the owners of capital in pursuit of the highest expected rate of profit. However, these decisions are made atomistically even though their outcome depends to a significant extent on the simultaneously made decisions of other capital owners. These interdependent decisions are coordinated after they have been implemented, in response to the pattern of profit and loss that results from their aggregate effect, as new decisions are made on the basis of what are now expected to be the most profitable areas for investment. This is the self-regulating market at work. The distinction between market exchange and market forces is essentially the same as Polanyi’s distinction between the market and the market system, with markets for products clearly distinguished from markets for factors of production.
In the model of participatory planning, market exchange is retained but market forces are replaced by a process of negotiated coordination between the social owners at the relevant level - industry or sector, local, regional, national, international, global. Whereas the self-regulating market results in an outcome no one willed, oblivious of the human, social, environmental and ecological consequences of its operation, negotiated coordination enables those who are likely to be affected by the outcome to engage in a deliberative process of democratic decision making, which takes account not only of the need to use society’s productive resources efficiently but also of the social and natural consequences of alternative courses of action. Thus, participatory planning through negotiated coordination based on social ownership is a form of reinstituting economic activity by transcending the separation of the economy from the rest of society. It provides an institutional framework for the social relations necessary to re-embed the economy in both society and nature.
Let us look at how this process might work at three different levels—macro/strategic, industry or sector, and firm. We can think of the macro/strategic level as being global, national or local, with those affected at each level taking a view of the sort of society they want to move towards, the balance between material and spiritual in the quality of life they aspire to, and the relationship they seek with nature. These decisions clearly have implications for the scale, type and location of productive activity, for energy and transport policy, and for the relationship between urban and rural areas. Through a multi-tiered network of democratic institutions people would participate in making, implementing, monitoring and revising the decisions that shape their lives.
The model envisages this process as having three dimensions or stages. First, voluntary associations formed around particular functions, interests or causes - the bedrock of self-government - would negotiate and cooperate with each other in the process of running the various aspects of social life close to people’s daily existence - firms, and public utilities or agencies dealing with energy, transport, housing, health, care of young and old, education, culture and leisure. Second, these voluntary associations would come together at each level to draw up strategic plans based on negotiations over the priority to be given to their particular concerns. Third, representative assemblies at each level, elected on the basis of universal suffrage, would be the ultimate decision making bodies with respect to human rights, the choice of strategic plan in the event of disagreement at the second stage, the (re)distribution of resources, the legislative and regulatory framework, and policies to promote environmental and ecological sustainability. Each dimension is necessary if the dangers of state bureaucracy, elective dictatorship and local autarky are to be avoided.
At the industry or sectoral level what is envisaged is an industry-wide negotiated coordination body responsible for investment decisions. It would be made up of the social owners of the industry - the firms involved, the workers in the industry, major suppliers and users, the communities in which the industry is located, the relevant planning commission, environmental and equal opportunities groups, and any other group with a legitimate interest in the industry’s activities. The social owners would negotiate a pattern of investment and disinvestment, coordinated in advance, that took into account information on the performance of the firms in the industry, expected future trends, and their own interests and values. Thus, resources would be reallocated as social needs and possibilities changed, but on the basis of the conscious choices of those affected rather than as a result of the operation of spontaneous market forces. Self-government through negotiated coordination would replace the self-regulating market.
Finally, at the firm level a different set of social owners would negotiate over general policy and strategic issues and would monitor the self-managing workforce. These social owners, those affected by the activities of the firm, would include its workers, supplying firms and customers, other firms in the industry, the industry level negotiated coordination body, the community(ies) in which the firm is located, and again environmental and equal opportunities groups and any other groups with a legitimate interest. Firms would engage in market exchange, selling their output at a price that covered long-run costs, which would include bought in intermediate inputs and the cost of primary inputs. The latter - rental on the use of natural resources, wage rates, and rate of return on assets employed - would be determined in accordance with the social priorities arrived at through the process of macro/strategic decision making at the societal level outlined above, not by the operation of self-regulating markets. Thus, labour, land and money would cease to be fictitious commodities, society would control economic activity, and the economy would be re-embedded in both society and nature.
The paper started by reviewing Polanyi’s concepts of instituted economic process and embeddedness and the relationship between them. It then proposed a schematic framework for thinking about the way in which, by transcending the self-regulating market and decommodifying the fictitious commodities – labour, land and money, economic activity might be reinstituted and (re)embedded in both society and nature. This provided the background for an analysis of the different ways in which schools of economic thought and economic systems and models have addressed the impact of economic activity on nature. The capitalist free market and mainstream interventionist approaches to environmental and ecological issues are based on the diametrically opposed project of completing or simulating the full commodification and marketisation of nature. Ecological economics recognises the need for inclusive deliberative institutions if policy decisions that have to be made in conditions of inherently uncertain and contested knowledge are to be accepted as legitimate. However, it presupposes the continued existence of the capitalist market and fails to address the institutional structure necessary for the process of deliberative democracy to be real rather than formal and co-optive.
Socialist economic systems and models have so far also failed to rise to Polanyi’s implicit challenge. The centralised solution, even in its democratic form, is unable to take account of the tacit element in knowledge and the role of people as self-reflexive citizens, capable of learning and modifying their positions in the course of deliberatively democratic discursive processes. Market socialist models, although their authors are for the most part aware of the need for social regulation, nevertheless retain an atomised institutional ownership structure in which separately taken decisions are coordinated ex post. Thus, in so far as environmental and ecological issues are taken into account, this occurs either through the commodification and marketisation of nature, or through the establishment of institutions which work against the logic of self-regulating market forces, so exhibiting in acute form the underlying and irreducible contradiction of interventionist capitalism or socialism.
The paper ended by arguing that a system of participatory democratic planning, based on negotiated coordination, provides the most developed and promising framework for reinstituting economic activity and embedding the economy in society, which it is argued is a necessary condition for embedding the economy in nature. It is not enough to continuously rework the insights of Polanyi into the problems caused by the self-regulating market. It is also necessary to develop models of the concrete ways in which the re-embedding of the economy in society and nature can be realised. The model of a self-governing society based on participatory planning is a start but further work is needed to incorporate environmental and ecological concerns explicitly.