Embedded liberalism

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The term embedded liberalism is credited to John Ruggie^[1], an American political scientist. He uses this term to characterize the post-World War II international economic system amongst the western capitalist states: the system promoted and institutionalized liberalism (i.e. GATT) but at the same time, allowed individual states to practice autonomy in domestic economic affairs. This system was the product of a historical evolution.

In Victorian times, currency level stability was given precedence over price stability and reducing unemployment; this benefitted free traders . With democratization in the United Kingdom and the economic depression of the inter-war period, the opposite was true: governments tried to have full autonomy in addressing problems in their domestic economies and sacrificed international trade (i.e. Smoot-Hawley tariff). Neither policy served to benefit the working class.

After World War II, states of the capitalist West struck variations of "a grand social bargain" whereby "all sectors [of individual states] agreed to open markets" and to "contain and share the social adjustment costs that open markets inevitably produce. That was the essence of the embedded liberalism compromise: economic liberalization was embedded in social community"^[2]

Governments and international regimes played key roles in sustaining this compromise. At the national level, the state created unemployment programs and moderated the volatility of the market; at the international level, institutions such as the IMF acted as the lender of last resort, while the GATT set rules of international trade.

Ruggie himself notes that embedded liberalism cannot accurately characterize the modern world. Embedded liberalism presupposes national economies conducting external transactions that governments could mediate through tariffs, exchange rates and capital controls. Today, many western countries have abolished tariffs on an array of products, most developed country exchange rates float, and capital is allowed to move freely.

This theoretical analysis has been further undermined by other authors including Robert Keohane, who argued that the 1971 "closure of the gold window" spelled the end of American economic hegemony, and the death of embedded liberalism [citation needed].

[edit] References

1. ^ Ruggie, John Gerard. 1982. "International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order." International Organization 36(2). Also found in Stephen Krasner ed. International Regimes.
2. ^ Ruggie, John Gerard. 2003. "Taking Embedded Liberalism Global." In Taming Globalization, edited by David Held, pp. 93-129.