Embedded Liberalism - Embedded Liberalism: 1945 - 1970s

1970s

Mainstream scholars such as 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. Anticipating the trilemma that would later be formulated as the Impossible trinity, Lord Keynes and White argued that freedom of movement for capital conflicted both with nation state's freedom to pursue economic policies based on their domestic circumstances, and also with the semi fixed exchange rate system that was widely agreed to be important to maximise international trade in goods and services. 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. During the 1950s and 60s, embedded liberalism and Keynesian economics were so popular that conservative politicians found they had to largely adopt them if they were to have a chance of getting elected. This was especially the case in Britain and was called the Post-war consensus, with a similar though somewhat less Keynesian consensus existing elsewhere, including in the US. In 1960 Daniel Bell published a book, 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. He was wrong.

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 but 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. Harvey states:

Harvey notes that under this new system free trade was regulated "under a system of fixed exchange rates anchored by the US dollar's convertibility into gold at a fixed price. Fixed exchange rates were incompatible with free flows of capital. (See also: Bretton Woods system) In addition, there was a worldwide acceptance that "the state should focus on full employment, economic growth, and the welfare of its citizens and that state power should be freely deployed, alongside of or, if necessary, intervening in or even substituting for market processes to achieve these ends." 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."

Harvey argues that while embedded liberalism led to the surge of economic prosperity which came to define the 1950s and 1960s, the system began to crack beginning in the late sixties. The 1970s were defined by an increased accumulation of capital, unemployment, inflation (or stagflation as it was dubbed), and a variety of fiscal crises. He notes that "the embedded liberalism that had delivered high rates of growth to at least the advanced capitalist countries after 1945 was clearly exhausted and no longer working." A number of theories concerning new systems began to develop, which led to extensive debate between those who advocated "social democracy and central planning on the one hand" and those "concerned with liberating corporate and business power and re-establishing market freedoms on the other. Harvey notes that by 1980, the latter group had emerged as the leader, advocating and creating a global economic system that would become known as neoliberalism.