Embedded liberalism

Embedded liberalism or the Keynesian era was a period of class compromise in Western countries in which an economic and ideological emphasis on an expanded social safety net and broad support for labor rights replaced laissez-faire liberalism as the hegemonic ideology. The shift was a result of several factors, including the massive social and industrial impact of the Second World War, the rise in the bargaining position of the working class since the 1920s, and the high prestige of communism aided by the role of communist partisans and Soviet forces in defeating fascism in Europe. The term embedded liberalism was coined by academics Karl Polanyi and John Ruggie to refer narrowly to a set of macroeconomic and political positions; however, the phenomenon had clear origins in the shifting class relations of the early 20th century. The era lasted roughly from the end of World War II until the mid-1970s, although it had origins in American and European policies ranging from Bismarck's "State Socialism" to FDR's New Deal. It largely ended with the neoliberal turn beginning in the 1980s.

Keynesian economic policies resulted in an increase in real wages, employment rates, pension funds, and the nationalization of industries such from transporation to health care. Some countries approached full employment, massively strengthening the bargaining position of workers and sharpening the contradictions of the capitalist economic system. The success of embedded liberalism in many Western states was partly thanks to a broad coalition of intellectuals and the middle class with a highly organized and motivated working class into parties which supported progressive reform. The implementation of transnational economic policies such as the Bretton Woods system were crucial to the success of embedded liberalism on an international scale.

In addition, many leftists have argued that the threat of communist influence from the Eastern Bloc in their internal affairs forced the hand of Western capitalists in acquiescing to the new consensus, citing countries like Sweden, whose embedded liberalism bordered on implementing worker ownership of industry in the 1970s, and Finland, which implemented a collaborationist foreign policy — both states sharing close borders with the Soviet Union. Indeed, all but the most right-wing business groups, public commentators, and liberal intellectuals in countries like the US emphasized the benefits of the social consensus when attacking socialist and communist ideas, attributing the improved position of workers to the efficacy of bourgeois democracy and political pluralism which rendered radical action unnecessary, and the anti-communist efficacy of the New Deal consensus caused the United States to impose similar policies in other capitalist states from Germany to Japan.

The postwar compromise in the economic base influenced all elements of the superstructure of Western societies and was analyzed variously as an ideological, political, or social phenomenon, or more narrowly as a shift in the progression of economic science. Hence the era is known by liberal academics by various names, including the Golden Age of Capitalism or the postwar consensus. Right-wing liberals, such as Austrian economist Friedrich Hayek, criticized the consensus as what he viewed as a form of totalitarian and statist thought, a critique which would be rephrased under the language of "big government" or "bureaucracy" by neoliberal ideologues decades later.

Embedded liberalism proved untenable for a variety of factors. The most basic contradiction of developed capitalism, the continuous fight between capital and labor over limited surplus value, requires that an economic crisis must result in the victory of one or the other class. Once business interests in countries like the United States and the United Kingdom had strengthened their political solidarity and began to explicitly fund think tanks which would lay the foundation of neoliberalism, the left-liberal compromise of Western labor parties faltered and broke. Real wages for Western workers have stagnated or even fallen since the late 1970s, and social spending has been aggressively reduced even in states such as Sweden, Finland, and France. Internationally, the shift in domestic labor policy was accompanied by a shift away from import substitution and developmentalism toward an emphasis on privatization, liberalization, and "structural adjustment".

Further reading

• Harvey, David (2005). A Brief History of Neoliberalism. Oxford University Press, USA. ISBN 0-19-928327-3.