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A NEOLIBERAL RACE TO THE BOTTOM?

A CASE STUDY ON KARL POLANYI AND THE INTRODUCTION OF GM PRODUCTS IN EUROPE

Alex Cone for Dr. Arthur Dyevre Spring 2008

Criticisms of the European Union, as a political and economic project, are not lacking, whether in academics or politics. Harsher critiques range from concerns about a stealthy movement towards constitutional federalism, to an unhealthy democratic deficit, to the EU being a neoliberal economic project eroding continental Europe's traditional social-welfare capitalist models. Certainly the issues mentioned, along with others not listed here, could be seen as interrelated and might correctly be addressed as such. However, the agenda for this paper is to take to task only the argument that any EU neoliberal tendencies will result in a market driven race to the bottom. Popular economic and sociopolitical theories are explored in relation to a specific case study on the introduction and trade of Genetically Modified Organisms (GMOs) in Europe to show weaknesses in this popular criticism. Specifically “The Great Transformation”, the masterwork of the economic historian Karl Polanyi, is translated into the context of the entry of GMOs into the European Common Market and resulting negative reactions (Polanyi 1944). The EU, as a common market, is inarguably a force that has gradually changed some economic contexts in Europe. However, it does not logically follow that Europe will completely shed itself of any and all market protections. The nature of this paper calls for a roadmap. The argument proceeds in the following manner. First, I present the popular view that is the subject of dispute. Next, Karl Polanyi's thesis in “The Great Transformation” guides me to a point of departure for the argument. I explore his context as well as our own to give further credence to the application of his thinking in the current case study. Then, a preliminary view of something called the precautionary principle is presented and subsequently related to Polanyi's thesis. I move forward with a basic history of GMOs in Europe and their context with reference to the theoretical argument. Finally, each idea is combined resulting in the stance that Europe as a whole will continue to protect itself in the face of folly in the common marketplace. A recently published book entitled “Worlds of Capitalism” compiles several essays from international experts in several fields relating to the broader topic of exploring the future for the various forms of extant capitalism (Miller 2005). In that book, Claus Offe, a professor at the Institute of Social Sciences at Humboldt University in Berlin, offers his thoughts on the likelihood of survival of the

European model of 'social' capitalism in the context of European integration. First it must be stated what is meant by the European model of social capitalism. More than anything else, this denomination refers to continental Europe's preference for social welfare institutions and policies to protect citizens from the follies of purely self-regulating markets. These include strong trade unions as well as strict laws requiring employers to treat employees as more than simply commodities to be traded on the free market. Offe cites that these effective systems, regardless of their similarities, were built on a case-bycase basis in a national context, certainly not under the pretenses of European political and economic integration (Offe in Miller 2005). Offe uses this position to make the point that current social structures in Europe differ just enough that in order to integrate, someone will have to give. Thus the pressures for further integration paired with increasing market globalization will force Europe to shed these traditional protective market policies altogether, or otherwise transfer them to the European policy making level.1 Offe believes that European policy makers want the latter of these two scenarios, but that desire might not be met in reality (ibid). Market-making “negative integration”, or in other words, removing barriers to trade by technocratic regulation, is something that Offe and many other EU academics subscribe to as being the path of least resistance for further European integration (ibid, 155).2 The popular concern about welfare-crushing harmonization through back-door economic maneuvering by the EU elite then gains some credibility. Moreover the pressure applied by those striving to maintain a stable monetary union will create even more strain on current national social policies in the future (ibid). After all, vastly divergent positive economic potentiality in one EMU Member State due to more competitive economic practices can place significant market pressures on another, less structurally sound economy. This is not sustainable or desirable in a monetary union. Adding to his argument, Offe says that the EU-level attempt to foster social policy harmonization through a mechanism like the Open Method of Coordination is futile (ibid, 173-174). Between the relative ease of negative integration, the structural
1 This would be based on the assumption that 'freer' market forces in other areas of the world will force Europe into submitting itself to market self-regulation in order to be at all competitive. 2 Another popular European scholar who stands by this theory is Simon Hix.

factors that tug at various nations to become more competitive within the overall market, and futile attempts at social policy harmonization, it is hard to see why any argument against Offe's should be trusted. Naturally, forwarding some version of Offe's argument as well as their own less eloquent ones, many parties of the left assert that neoliberal tendencies in the EU are proving detrimental for welfare protection in Europe. If the facility of negative integration is to be assumed, it is hard to disagree with those on the far left who would say that a competitive Europe begs for a harmonized Europe and a harmonized Europe must erode some of its traditional protections. In many ways those on the left, like Offe have a good point. The EU, through actions like creating a single market, maintaining a high court with supremacy and direct effect, and establishing the European Central Bank (ECB), has eaten away at several European social protections. Possibly more than the rest, the ECB has taken monetary sovereignty from members of the EMU and indirectly some fiscal sovereignty. Lost fiscal sovereignty, taken through enforcement of the Growth and Stability Pact, sometimes translates into less national government spending for social programs like pensions and unemployment. Lastly, the ECB itself, whose guiding light is the maintenance of price stability, conducts a monetary policy that keeps many Europeans unemployed during rough times. Again, in all of this it is hard to see how and where one can make the argument that Europe is not on some sort of race to the bottom. Karl Polanyi's prized work, “The Great Transformation”, provides us the foundation to begin this seemingly impossible argument. From there, we use a current theoretical discussion on sociopolitical risk aversion and a case study on the introduction and trade of GMOs in EU to address Mr. Offe and any others who support the idea that EU is not only paving the way, but providing an engine for Europe to hit the bottom. Polanyi wrote in the midst of World War II, and for that must be put into context. Europe was not yet an extant reality and in fact was destructively divided. Still, the end of the war and the war itself provided the motivation first for politicians and then citizens to get behind the idea of a united continent. Europe, first just six nations, would then progress on a path towards renewed economic growth and output while at the same time creating elaborate and laudable national social protection

mechanisms for its peoples. The first publishing date for “The Great Transformation” was in 1944, just as the war made a turn in the favor of the allies and significantly before Europe established its new brand of social capitalism. These things are important to realize for two reasons. One, Karl Polanyi did not write in the wake of European integration. Two, the traumas and atrocities of such a war were a strong proof for his idea that the hundred years of relative peace proceeding the two great wars had allowed seemingly stable economies to pressure Europe's leaders and citizenry into unrest (Polanyi 1944, 20). Other statements could be made on the historical context of Polanyi's work, however for the purposes of this argument, these two provide a large enough preface to begin a transfer from Polanyi's context to ours today. What is implied by Polanyi not knowing a united Europe at the time of publishing? At a minimum, we know that he was not in the business of making any argument like the one that will be made here using his logical progressions. To reiterate, the basis of the current argument that Europe will not reach any sort of neoliberalist bottom-point is not Polanyi's. This is important to understand here because Polanyi's thesis will be put to the test by one instance where society is not subordinate to economy or certain economic pressures. Also, Polanyi's experience was limited in the sense that he did not have the type of material we have today, namely, Europe as a socially conscious political and economic entity. In other words, the types of social protections that have been forged in Europe over the last half century did not exist during the writing of the text. Perhaps this shows the timelessness of Polanyi's theory, that is if they can be applied correctly to the criticism currently raised. Regardless of any original intention on the author's part, the framework that he described in his book can be used to address any racing that Europe is doing towards the bottom. One thing Polanyi knew of was neoliberalist aspirations. “The father of neoliberalism”, Friedrich Hayek, was one of Mr. Polanyi's peers (Block introduction in Polanyi 1944, xx). So if there is one thing that Polanyi knew, it was that the goal of neoliberalism was to allow the market to be selfregulating. This means that in affect, societies become subordinate to the movements and whims of the overall market. Stated differently this theory allows for the market to be the sole corrector of any

market and or societal negative outcome. This does not sound much like the Europe of today, but we should not let the argument rest there. After-all, the stated critique is that Europe is racing towards this bottom, which implies that it is not yet there. If negative integration, a crafty EU elite, and general market pressures as a result of EU institutions are all true occurrences, this seemingly would be the logical end to argument put forward by this paper. This is where Polanyi's thesis comes into play. Generally, he wanted to invert the order of the neoliberalist stance that puts society in a subordinate position in the face of the self-regulating market. Polanyi claimed that in the end, self-regulating market pressures will give way to societal uprisings (Polanyi 1944). This is not meant to be taken in the way of Marx, who suggested different reasons for uprisings that would be much more drastic than the ones that Polanyi envisioned. More than anything, Polanyi saw that societies would place enough value in certain areas and would in effect harness the market from making its logical next step. If societies are truly built on social contracts, once that contract is broken, by whatever type of human or market pressure, societies demand change. In his own words he understood that “the idea of a self adjusting market implied a stark utopia...inevitably society took measures to protect itself” (ibid, 3). The next logical question would be what does it take to set society off against market forces. Too strong of a belief in 'spontaneous progress' is the main area of contention between Polanyi and his neoliberal peers (ibid, 39). While societies do change, there are few reasons to believe that all change will in the end be good for society. This implies a sort of theory that says one is guilty until being proven innocent. In Polanyi's words, “if the immediate effect of change is deleterious, then, until proof of the contrary, the final effect is deleterious” (ibid, 40). Using these exact words, plus their context in the writing, it is not necessary in all circumstances to take a guilty-until-proven-innocent stance. Only in cases where the immediate change feels harmful, does his rule apply. Sociopolitical common sense supports this theory of Polanyi. If there is a strongly felt negative market effect on a large piece of any citizenry, the resulting attitudes would naturally be so bleak. Rising unemployment is an impeccable indicator of this idea. As more workers go unemployed, the political backlash normally does not

indicate that those who are unemployed see the light at the end of the tunnel. The question of how much 'spontaneous change' it takes to set off substantial negative feelings is not entirely known. What is assumed by Polanyi is that if in the past “society protected itself against the perils inherent in a selfregulating market system” society will continue to do so in the present and future (ibid, 80). The answer must be given as to how society goes about protecting itself from negatively felt effects of a self-regulating market system. Polanyi's historical reach is much further than is necessary to answer the question in the circumstances of the case that will be presented in just a few lines. If we are talking about the EU then we know that we are talking about democracy, even if it is manifest in several different forms throughout Europe. Democratic opportunities then provide the necessary outlet for a population that is hurt, or thinks that it will be hurt, to correct that hurt (ibid). The case study on GMOs is certainly an example of this. Many in Europe feel that they will be destructively hurt by the introduction of GMOs into their market. Democratic avenues then allow Europeans to voice their opposition, which they have certainly done in the case of GMOs. A Eurobarometer survey of Europewide opinions reveals that not too many people are happy with the idea of GMOs being introduced onto their food market (Eurobarometer 2006). We begin to see Polanyi's view that societies are not subordinate to economic forces. The precautionary principle is something that has been adopted under the guise of risk management in the EU.3 The principle itself is most easily seen as preemptive regulatory action that seeks to question and even inhibit the introduction of some products onto a market. In other words, instead of a regulatory body being reactive, or responding only to specific problems and crises, it takes a better-safe-than-sorry sort of stance. Whether this type of principle arose out of adverse reactions to innovations in biotechnology is not entirely sure. What is directly observable is European use of this principle to block recent advances in biotechnology, specifically in the GM product field. David Vogel, writing an article on “The New Politics of Risk Regulation in Europe” states that Europe, as compared
3 Several scholars writing on risk management strategies in the EU use this term. One of these is David Vogel. His work on The New Politics of Risk Regulation in Europe is covered here. Another scholar not covered here, but also writing on the Precautionary Principle is Lawrence A. Kogan.

to the US, is becoming stricter in its regulation of standards (2005, 5). This is especially true in the disallowance of most GM products into Europe's market. Again the emergence of this principle in Europe cannot be explained easily; however, it is an idea that can be pieced together with others for the purposes of this argument. The specific GMO case should now be relayed in more detail. Then a few academic approaches are discussed for further clarification of the rise of risk averse politics in the EU as well as how Polanyi's theory relates to all of this. Genetically Modified Organisms really arrived on markets in the 1990's. Although the history of modifying food stuffs goes back much further, the 1990's play the most pivotal role as they signify the major introduction of GMOs to the world market. Seemingly from the start, Europeans were hesitant if not outright against GMOs being sold in their grocery stores. A complete moratorium was placed on GMOs in the EU in 1999. The moratorium lasted until 2004. During those years few new GM products were released or even tested for release in the EU's marketplace. Even after the moratorium was lifted, several of the EU member states issued bans on certain types of GM products and used technical loopholes to keep several GMOs out of their states which are legal in other countries in the EU. The European Commission has not been a strong actor in all of this, and the only arguably major change that has occurred in reference to GMOs was a result of a WTO ruling requiring Europe to lift the moratorium. Right now, some GM products have been introduced into European markets, but the public reaction to the products in general has not become much more favorable (Eurobarometer 2006). Moving away from the specific substance of the GMO dispute in Europe, it is quite important to recognize the trade implications involved in this case. Current EU models for approval of GM products into Europe last for about 2.5 years on average (European Commission 2007, 2). This is compared to an average approval period of 15 months in places highly involved in GMO cultivation like the US, Argentina, and Brazil (ibid, 2). This discrepancy in authorization periods may have a significant effect on EU trade not only in food products, but also in feed products (ibid, 9). This means that animals fed with GMO raised crops might not be allowed to be sold in European markets. Added

to this trade problem is the issue that some EU member states allow certain GMOs into their home markets. In the EU this means those GM products could find their way into other member states where that specific GMO is not approved for sale. This fragmented system has not yet been cleaned up at the EU level. Aaron Ostrovsky, writing on “Europe's Options for Regulating Biotechnology through Regulatory Anarchy”, says that Europe has been stumped like never before in creating a regulatory system for this contentious product area, and as a result has a knotty approval system in place (2007). All of this signals that Europe is not only likely to fall behind the rest of the world in this style of biotechnology, but also that because of reduced trade in these products, food costs in Europe will rise. Trade conflicts between the EU and the US, two dominant world traders, are also unlikely to give positive world trade results (Matulionyte 2004, 6). A truly self-regulating marketplace, one like the neoliberal camps normally forward, does not accommodate this scenario. Maria Paola Ferretti, in an article based on a GMO case study, proposes that “generally people are for or against a particular application of biotechnology, rather than pro or contra the authorization of a specific product” (2006, 20). Europeans are no exception to this theory. Negative public opinion in this area may be a result of people's general lack of trust in their government (Vogel 2001, 2). In other words, if Europeans do not place much faith in the institutions that are responsible for ensuring a safe marketplace, they would be more likely to be adverse to the introduction of a highly debated area of biotechnology in total. Added to this, the GMO debate in Europe “has been highly politicized, and contentious, with both public and non-governmental organizations enjoying considerable access and influence” (ibid, 5). For example, both “Friends of the Earth” and “Greenpeace Europe” have committed themselves to large campaigns designed to frighten Europeans about the introduction of GMOs into European food.4 One academic even played off of a popular tactic used to excite risk averse feelings in Europe. His book is entitled, “Of Frankenfoods and Golden Rice.”5 This book
4 See both NGO websites at http://www.greenpeace.org/eu-unit/campaigns/say-no-to-genetic-engineering http://www.foeeurope.org/GMOs/Index.htm. 5 The book cited here, “Of Frankenfoods and Golden Rice”, was published by Wisconsin Academy of Sciences, Arts, and Letters in 2001 by Frederick H. Buttel and Robert M. Goodman. Elze Matulionyte's article also referenced on this page is entitled “Transatlantic GMO Dispute in the WTO: Will Europe further abstain from Frankenstein Foods?”.

acknowledges both sides of the GM food debate as there are those who fear the introduction of GM products in the EU as well as a smaller segment of the population which sees possible health benefits of GMOs sent as development aid. In the end, most Europeans tend to be vocally adverse to GMOs as a whole for the reasons listed here and likely many others (Eurobarometer 2006). Here we arrive again at the argument of this paper. That argument is whether or not there should be concern that the EU is a neoliberal project spiraling quickly towards the bottom. The answer of this paper is no. Yet there are some caveats to that simple answer. Now we move back to Polanyi's thesis and couple it with what we have learned about the GMO debate in Europe. The answer is therefore a product of the ideas presented on economics and sociopolitical reactions and brings us to a conclusion about GMO culture in the EU and its implications for popular voices that say Europe is nothing more than a neoliberal economic project, and therefore on its way to some sort of market-ruled bottom. Karl Polanyi might not agree with the employ of his ideas in this specific case study. After all, the precautionary principle and Europe's general aversion to unknown biotechnological risks are preemptive actions and therefore not specifically reactions. Preemptive actions are something on which Polanyi's work was not entirely focused. Instead, the majority of Polanyi's work focused on what societies do after they have endured some type of increasing economically driven hardship for a period of time. However, in a way, the precautionary principle, or risk-averse governmental actions, might also be seen as a reaction. More clearly, an event in the past stirring negative feelings might have led Europeans to become more precautionary in their approach to GMO applications. Again, Vogel gives a sociopolitical answer along these lines. It was during the 1990's, the time period when GMOs were on the rise, that Europe harmonized itself with respect to the employ of the precautionary principle (Vogel 2001, 8). In his opinion, this move towards more risk-averse government behavior in the field of public health came as a result of the 1986 Chernobyl accident as well as food safety scares (ibid, 9).6 Chernobyl in this case represented what human technological innovations are capable of
6 Vogel states clearly that from the beginning of the new Europe there were several influential states that we risk averse

producing and the food safety scares are seen as examples of human tinkering with food stuffs and regulatory incompetence.7 It was also around this time when the Single European Act treaty, as well as Maastricht were coming into effect. These two treaties both put more social and environmental issues under European competence. Vogel thinks this was unlikely a coincidence (ibid, 9). These two treaties would allow the EU to become more involved in creating regulations that, looking back, tended to be more precautionary than would have been possible without the presence of these two treaties. Overall, it is quite clear to see that a precautionary Europe came as the result of, or reaction to, crises that had the potential to harm society. This is a way that this scenario can be better linked with Polanyi's thesis of reactive societies that are not subordinate to the whim of the market. Now that it is possible to better use Polanyi's thesis in conjunction with the case study, the final argument can be put forward to the reader. Those who are fearful that neoliberals control the EU and therefore Europe as a whole is on a path to self-regulating destruction can rest at ease. If Polanyi is right, and societies are not in fact subordinate to the self-regulating marketplace, there is little to fear besides slow drifts into different economic circumstances. In this case, societies' negative reaction to GMOs is being felt all over Europe. Again, the neoliberalist viewpoint would say that the market should determine what society should do or accept. Here, it is evident that, economically and trade speaking, Europe is putting themselves at a disadvantage with respect to GMOs. Not only is GMO trade large enough that the lack of entry in the EU is likely to drive up food prices, in the end Europe has also put itself at a disadvantage with respect to biotechnological innovation in the GMO field. This hardly follows the tenants of the Lisbon Strategy. More than anything this shows that the will of society is inevitably heard when a perception of harm becomes too close for comfort. It is time to come back to the idea of a quickly eroding social Europe, or the race to the bottom. The final logical step asks how is a general European reaction to the introduction of a type of food

when it came to public health and safety. Germany, the Netherlands, and Denmark were among those states. On the other side there were Italy, France, and the UK who, until the 1990's did not adopt the precautionary principle that was at the root of their more northern neighbors' regulatory stance on public health and safety. 7 The specific case that Vogel refers to is beef hormone injection.

concretely related to concerns about a diminishing or completely diminished social Europe.8 This question is rightly aimed. Certainly, social Europe is most popularly seen in terms of its strong labor negotiations, relatively short legal working hours, and generous pension schemes. GMOs then do not fall directly into these popularly recognized categories, after all the real scare with GMOs is one related to public health and therefore affects all Europeans, not just those on the bottom of the social ladder who are normally thought of when speaking about social Europe. However, the belief that social Europe is only derived from ideas about labor and people who find themselves earning low wages is short-sighted and arguably wrong. Social protections and welfare systems find their basis in protection against “vulnerability” (Goodin 1988, 16). Again, when speaking about public health in the case of GMOs, the societal concern is the vulnerability of the entirety of Europe in the event of wide-spread introduction of GMOs into the single market. The case of a negative European, or societal, reaction to a largely traded segment of food stuffs is the same flavor of reasoning that originally led Europeans to create today's popularly recognized societal mechanisms, planned for the vulnerable sectors of society, that were not to be subordinate to self-regulating market forces. Explained differently, biotechnological innovation, something out of the control of the everyday European, could be responsible for a crisis in Europe. Whether the likelihood of that crisis is real or not, the basis for creating mechanisms to protect the vulnerable is all the same. This is also the logical procession of thought given in the precautionary principle. In the end, those who argue that the EU is a neoliberal machine, plunging social Europe towards the bottom, are not just talking about lost labor protections and the like. Their argument, if based on a true evaluation of neoliberal principles, encompasses social protections against market forces that go further than meaning simple labor protection whether they like it or not. This argument is built on theories, opinions, and a single case study. Because of this, there is reason to believe that GMOs represent a special case, outside of the realm of true social Europe, and even more, that Polanyi's theory is rubbish. While these contentions have merit, there is also no way to emphatically assert that Europe is on the fast track to the bottom, if attention is to be paid to ideas like
8 Question raised by an advisor in the early stages of the formulation of this argument.

the precautionary principle and its role in the GMO case study. The intention here was to put forth an argument that academically challenges popular voices making claims about the economic and social future of Europe. More than anything else, this argument represents the highly plausible idea that even if Europe is on its way to self-regulating neoliberalism it is certainly not racing there. As long as the EU and its member states remain democratic, the concerned voices of its populations will be heard to some degree. The citizens of Europe will not be made subordinate to the whim of the self-regulating market. References Eurobarometer 64.3. 2006. Europeans and Biotechnology in 2005: Patterns and Trends. Brussels: European Commission. European Commission. Directorate General for Agriculture and Rural Development. Economic Impact of Unapproved GMOs on EU Feed Imports and Livestock Production. Brussels: European Commission. Ferretti, Maria Paola. 2006. “Participation, Democratic Deficit, and Good Regulation: A Case Study of Participatory Strategies in the European Regulation of GMO Products.” Bremen: Zentrum Für Europäische Rechtspolitk an der Universität Bremen. Goodin, Robert E. 1988. Reasons for Welfare. New Jersey: Princeton University Press. Matulionyte, Elze. 2004. “Transatlantic GMO Dispute in the WTO: Will Europe further abstain from Frankenstein Foods.” Baslerschriften zur europäischen integration Nr. 71, Europainstitut der Universität Basel. Miller, Max, ed. 2005. Worlds of Capitalism: Institutions, governance and economic change in the era of globalization. London: Routledge. Ostrovsky, Aaron A. 2007. “Up Against a Wall: Europe's Options for Regulating Biotechnology through Regulatory Anarchy.” European Law Journal 13 (1): 110-134. Polanyi, Karl. 1944. The Great Transformation: the Political and Economic Origins of Our Time. Boston: Beacon Press. Vogel, David. 2001. “The New Politics of Risk Regulation in Europe.” London: London School of Economics and Political Science.