Embedded liberalism
When Ruggie coined the phrase embedded liberalism, he was building on earlier work by Karl Polanyi, who had introduced the concept of markets becoming disembedded from society during the 19th century.
Polanyi went on to propose that the reembedding of markets would be a central task for the architects of the post war world order and this was largely enacted as a result of the Bretton Woods Conference.
[8] Polanyi explicitly refutes Adam Smith's statement that natural man has a "propensity to barter, truck and exchange",[9] arguing that anthropology and economic history shows that until the 19th century markets had only a marginal role in the economy, with by far the most important methods governing the distribution of resources being reciprocal gift giving, centralised redistribution and autarky (self-sufficient households).
[12] According to Polanyi, a key event of 1834 which allowed the formation of free markets to take place in Great Britain (the worlds foremost economy at the time) was the abolition of outdoor relief which followed the seizure of political power by the middle classes in 1832.
In Britain, although tens of thousands starved to death or were forced into workhouses and prostitution, social unrest was relatively low as on the whole even the working class were quick to benefit from the increasing prosperity.
[16] By the 1880s, various labour market protections had been enacted, causing Herbert Spencer, at the time perhaps the world's most prominent advocate of economic liberalism, to raise the alarm at the rising power of socialism.
[17][18][19] During the late 19th and early 20th century, in the field of politics, labour relations and trade free market supporters suffered further set backs with intellectual and the moral attacks from an informal networks of progressive reformers.
This included groups like the Fabians; individuals such as Keir Hardie and Pope Leo XIII with his social encyclical Rerum novarum; and national leaders like Otto von Bismarck and David Lloyd George, who both introduced early precursors of the welfare state.
[12][21][22] Mainstream scholars such as John Ruggie tend to see embedded liberalism as a compromise between the desire to retain as many as possible of the advantages from the previous era's free market system while also allowing states to have the autonomy to pursue interventionist and welfare based domestic policies.
As such, it was widely agreed that states would be free to enact capital controls, which would help them simultaneously maintain both fixed exchange rates and, if desired, expansionary domestic policies.
[27] Marxist scholars tend to broadly agree with the mainstream view, though they emphasise embedded liberalism as a compromise between class interests, rather than between different desirable yet partially incompatible objectives.
David Harvey argues that at the end of World War II the primary objective was to develop an economic plan that would not lead to a repeat of the Great Depression during the 1930s.
[29] He also states that this new system came to be referred to as embedded liberalism in order to "signal how market processes and entrepreneurial and corporate activities were surrounded by a web of social and political constraints and a regulatory environment that sometimes restrained but in other instances led the way in economic and industrial strategy".
[30] In 1960, Daniel Bell published The End of Ideology, where he celebrated what he anticipated to be an enduring change, with extreme free market thinking permanently relegated to the fringe.
Also referred to by economic historians as the Washington Consensus era, its emergence was marked by the rise to power of Margaret Thatcher in Great Britain and Ronald Reagan in the United States.
In a 1997 paper, Ruggie himself discussed how some of the protection gained for workers with the embedded liberal compromise still lived on, though he warned it was being eroded by the advance of market forces.
[37][38][39][40] As part of the 2008–2009 Keynesian resurgence, it briefly appeared that there might be a prospect of a return to embedded liberalism—there had been an upsurge in global collaboration by the world's policy makers, with several heads of state calling for a "New Bretton Woods".
[44] In 2011, professor Kevin Gallagher suggested that rather than being largely governed by a single ideology as had been the case for the previous eras, the newly emerging global order is influenced by "varieties of liberalism".
