This is an excerpt from a paper we are working on:
The “free market,” although conceived of, in its classical formation, as the most effective way to organize a society of free, equal, autonomous, rational, and utility-seeking individuals, is inherently at odds with democratic governance and citizenship:
“… market fundamentalists usually invoke an image of a system by which noncompulsive individual rationality is mystically coordinated (the ‘invisible hand’) to produce both freedom and efficiency, and all without any need for political power or government coercion.” Somers 2008, 74
The global great depression was the wake up call, for many, that markets actually fail to organize society efficiently and effectively and that the unregulated market places ordinary citizens, and society in general, at the mercy of market instability.
The United States, following the great depression (through the New Deal policies influence by Keynesian economics), and Western democracies, after World War II (through the Bretton Woods agreement, also influence by Keynesian economics), moved toward an economic system of embedded liberalism – focusing on full employment, a social safety net to protect against market failures, compromise between labor and capital, and a general focus on, what T. H. Marshall referred to as social (economic) citizenship. However, following the stagnation of the global economy in the 1970s, led by the Washington Consensus, Ronald Reagan, and Margaret Thatcher, domestic and global economic policies moved toward a more market fundamentalist orientation – commonly referred to as neoliberalism.
I use the word orientation to reflect the contradictions between the “small government” rhetoric of Reagan and the increased government spending and corporate welfare policies during Reagan’s tenure in office. The rhetoric of neoliberal market fundamentalism, harkened back to the neoclassical conception of the free market as the most efficient and effective way to organize a free society to increase freedom and prosperity.
“When state policies move in the direction of disembedding through placing greater reliance on market self-regulation, ordinary people are forced to bear higher costs. Workers and their families are made more vulnerable to unemployment, farmers are exposed to greater competition from imports, and both groups are required to get by with reduced entitlements to assistance.” Fred Block in Polanyi 2001, xxvii
Both the neoclassical and the neoliberal conception of political economy is that; for markets to succeed and provide prosperity and freedom to society, they must be free from all interference – including the government and union organizations. Any intrusion into the operation of the self-regulating market would prevent equilibrium leading to less optimal allocation of scarce resources and inhibiting the freedom of autonomous and enterprising individuals.
As Michael Mann, David Harvey, and Joseph Stiglitz demonstrate, the promises of increased democracy, individual liberty, prosperity, peace, and equality provided by the rhetoric of neoliberalism (as well as classical and neoclassical economists) and political figures, has failed to yield its promised results.
More significantly, the neoliberal policies have yielded the opposite results. Neoliberalism led, not only to high levels of deregulation, but also to the rhetorical attack on and rolling back of the social safety net so important to social citizenship and the ability of the state to protect its citizens from market failures. Globally this led to the neoliberalization of the IMF and World back and the structural adjustments of the third world economies, they were designed to assist, which undermined their autonomy in self-governance and destabilized their economies – contributing to the increased gap in the global economy.
Further, neoliberal policies have increased inequality (domestic and global), redistribution of wealth to the most wealthy individuals and global actors; and have decreased democratic national-governance, opportunities for employment, and protections from market instability and failure – essential a rhetorical reversal of the post-war social rights movement.
The movement from pre-depression disembedded liberalism to post-depression embedded liberalism and back to neoliberal market fundamentalism would probably not have surprise Polanyi as, this double-movement as he called it, was endemic to market economies and a further sign that the market has never been an institution separate from political institutions, social practices, and cultural constructs.
If Polanyi and Somers are correct, and markets and politics are inherently intertwined, then it would be prudent for national governments and international governing institutions to work toward democratizing markets by subordinating them to political, social, and cultural institutions. According to Somers, this can be achieved by balancing market powers the civil and state institutions. So we should next focus on how to strengthen the institutions of civil society.
 According to Stiglitz (2003), the IMF was actually created for the stabilization of post-war Europe but has, since the 1980s, the roles of the IMF and the world bank have been intertwined.