THE WORLD IS ON THE VERGE OF ANOTHER RADICAL TRANSFORMATION
“The nineteenth-century civilization has collapsed” — this is the first sentence of Károly Polányi’s work The Great Transformation, one of the most significant social science writings of the 20th century. The original title — The Great Transformation. The Political and Economic Origins of Our Time (London, 1946) — however, refers not only to transformation but also to the riddle of the birth of the West. Redeeming this promise he helps us understand the influences that have guided our world for centuries and offers a convincing answer to the question of why Europe has determined the fate of the world. According to Polányi, the historical trajectory of the West was basically determined by the four unique institutions of European civilization — the system of balance of power, the international gold standard, the self-regulatory market, and the liberal state. Anyone who is really attentive could even read from the work written between 1939 and 1943 why the communist model, which had long seemed promising, had drifted off the main path of development.
Of course, the functioning of the institutions was regularly disrupted, which in the 20th century led to world crises, world wars and, as a result, fundamental political rearrangements. Overall, however, the Western economic, social, and political system proved to be the most dynamic model of development. Those who joined it did well, but those who delayed or rejected the model fell behind. Ultimately, this also forced the regime changes of the 1990s. But, as it turns out, it is not enough to take over some economic and political institutions to catch up with the success model. Polányi also warns us that the logic of the functioning of society had to be fundamentally changed, transforming the political institutions, the values of society and the motivation of citizens. And while regime changers are still struggling with the growing difficulties of transformation, the world has found itself right in the middle of another, even greater one. This is indicated by the fact that analyzes of today often begin with a sentence reminiscent of Polanyi’s work: the 20th century civilization has collapsed.
Socrates attempted to analyze the first great transformation, encouraging his friend Adeimantos in Plato’s State to “Come, let us imagine a state from the very beginning,” and then led the way from providing food to providing housing and other necessities until more sophisticated needs emerged. Socrates recognized that “every type of production in a larger mass is carried out more beautifully and easily if the worker (…) always does the same kind of work.” However, as soon as we became addicted to more sophisticated consumption, we had to accept the growing state and market-driven exchange. Society, therefore, must necessarily be “filled with a population that is no longer even in the state for the sake of real necessities of life”.
The problem of how we divide our time between self-care and the service of others is analyzed by modern science using the so-called task-switching cost. We are constantly considering how we are doing better: if we are creating what we need ourselves, or if we are getting it through exchange? If we seem to be able to produce a cheaper and better quality product ourselves, then we choose it, but if we can get the things we need more easily through exchange, we will opt for that. Under general conditions, researchers have analyzed the possible outcomes of the process and demonstrated that as soon as people discover that meeting their refining needs with self-sufficiency due to rising task switching costs, they choose a society based on exchange. The expansion of demand has made it impossible for a family to be able to produce the mass of products it needs for itself, so man has been forced to meet his needs through trade.
Mathematical analysis confirmed the trend drawn by Socrates and proven in reality: larger and more hierarchical communities emerged, and trade connected more and more distant producers and communities. As one experienced the convenience offered by increasingly sophisticated products and then became accustomed to them, he became more and more insatiable. The almost insatiable desires of modern man are measured by the stock-keeping unit (SKU) indicator, which quantifies the diversity of the product world and has shown an explosive expansion of the supply of goods in the last century. At first glance, the dynamics of this process are determined by human intelligence — the creativity of inventors. But as soon as the cost of the exchange — finding the exchange partners, the agreement, the execution of the exchange, the transactions, became an indispensable part of our lives, it became a decisive factor as well. With the gradual reduction of transportation costs, more and more distant communities have become connected and more and more complex societies emerged.
As a result of technical / technological revolutions, this decline has led to social and economic revolutions and fundamentally transformed communities. This became clear in the 19th century, when rail and steam shipping on the one hand, and telegraph and telephone on the other, significantly reduced the cost and time of transactions. This has decisively expanded the range of potential partners, and at the same time increased the size of businesses that can be operated efficiently. The role of transaction costs was first recognized by the later Nobel Prize-winning British economist Ronald Coase in the late 1930s, laying the groundwork for the economics of transaction costs. Based on Coarse’s model, we were able to answer the seemingly trivial question of why one creates a company, or any organization, and why one changes its structure and governance when transaction costs decrease.
In the 19th century, however, another factor emerged; the organization into a nation-state which had a decisive effect on the structure of societies. The structure of our world over the last two centuries has been shaped by the combined effect of declining transaction costs and strengthening national identity. This changing economic and social dynamics is convincingly exemplified by a study of the Austro-Hungarian Monarchy, in which researchers found that while declining transaction costs supported the economic integration of markets and thus the empire, national identity tended to reinforce the trend of segregation. While declining transport costs have gradually made the cereals market more organic over time, separate national markets have emerged as a result of the growing influence of national identities. Within the Austro-Hungarian Monarchy, communities with the same ethnic, cultural and linguistic background traded with each other at lower prices than with regions of other nationalities. Thus, while the supply chains that organized economic relations extended to the entire empire, at the same time they closed within the nation. Thus, during the great transformation, not only nation-states but also national economies were formed as a result of the reduction of transaction costs and the community-organizing power of national identity. A certain level of technical and economic development has, of course, offered a “national” economic policy: support for enterprises with the aim of transforming the natural, intellectual and labor resources owned by the nation into end products with which they successfully integrated into the world economy.
As a result of the nation-centered development of supply chains, countries have developed the same industries that operate in parallel with others. Until the second third of the 20th century, sovereign countries were integrated into the international economy as independent national economies. In the meantime, however, the great transformation continued. Local and regional supply chains, which until then connected sovereign economies and corporations, have gradually networked the entire world.
We like to tie turning points to dates. The turning point in organizing into a global network was dated in 1989 — when the World Wide Web was created and the Berlin Wall collapsed — by the renowned researcher on the subject, Parag Khanna, in his book Connectivity. The World Wide Web has resulted in an almost infinite variety of relationships, while reducing their cost and time to almost zero; the fall of the Berlin Wall foreshadowed a peaceful world in which everyone can move safely and freely on our planet. Under such conditions, communication in the general sense given by Claude Lévi-Strauss as “the exchange of things, information and spouses”, has gradually become total and global. Live anywhere on the planet, take part in world events in real time at all times; whether you are aware of it or not, you affect everyone else and everyone else affects you. This means that we have reached the threshold of another great transformation.
While sovereign economies used to shape supply chains according to their own interests locally that is, in recent decades they have become increasingly connected to supply chains that are becoming global. In essence, companies faced essentially the same threat and opportunity. Global competition and the opaque product mix have forced the creation of ever-increasing production and service units focusing on an increasingly narrow section of the value chain. Thus, value chains that were previously organized within companies and then within national economies were not simply organized into a global supply chain, but gradually became independent, so to speak, sovereign entities. Former sovereign nations and corporations have been forced to join global supply chains and platforms because they have been able to connect with each other through them.
This transition has fundamentally changed the nature of our world. The supply chains that interweave the Earth and connect it into an inseparable system have shaped our world into a global ecosystem. An ecosystem was originally an inseparable ensemble of interdependent organisms and their populations living together in a given natural environment. It was the coronavirus epidemic that shocked the world with the reality of the global ecosystem: it became tangible that the disruption of any tiny link in the global supply chain would necessarily cause disruption in other remote parts of the world. During the epidemic, we realized that in the workplace, in everyday life, we are in direct and unavoidable contact with the citizens of other continents and foreign countries. However, the organization of the global network of supply chains into an ecosystem, even more comprehensive than described by Polányi, presents us with another major transformation.
Our world is now becoming a true global village. In our former little village, everyone knew everyone, and whatever you did, you said, everyone immediately became aware of it and adjusted their opinion of you accordingly. For a long time in the village, gossip regulated everyone for free and helped keep the evil of the village — if the dogs didn’t know someone, they barked. Then we got used to the state passing laws, checking us, judging us, punishing violations, while the system is funded by citizens’ taxes. In the global village that is now evolving before our own eyes: technology allows all our actions to become “public treasure” from the moment of our birth and to be indelibly embedded in our global reputation. Of course, this comes at a price, as the system is based on institutions that also pose real dangers: such as blockchain-like recording of financial operations, global administration of promises and agreements. Technology offers the opportunity for each person to rate the behavior of others, have full access to opinions about themselves, and create a global system for regulating behavior based on the principle of the token economy.
In today’s great transformation, we have crossed the threshold of the new world in several areas, while in other areas — governance of the global system, regulation of cooperation, building trust — the tipping points beyond which the world is fundamentally changing are still emerging. Throughout history, all major transformations to date have fundamentally upset societies: tribal communities have experienced the development of the state’s power structure as a horror, and the emergence of a market-based economy and liberal democracy has brought about a radical break with previous customs. Today, we are facing an even bigger transformation with less time available than before — the question is what reactions this radical change will provoke in the individual and our society.
