Embedded liberalism

Embedded liberalism or the Keynesian era was a period of class compromise in Western countries in which support for interventionist social welfare policies, such as an expanded social safety net and broad support for labor rights, replaced laissez-faire liberalism as the hegemonic ideology of liberal capitalism. The shift was a result of several factors, including the massive social and industrial impact of the Second World War, the increasing bargaining power of the working class, and a boost in the general prestige of communism due to the central role partisans and Soviet forces had played in defeating fascism. 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 would not have been possible without the shift in class relations since the early 20th century. The age of embedded liberalism lasted roughly from the end of World War II until the mid-1970s, although it had ideological and political origins in earlier class compromises from Bismarck's "State Socialism" to FDR's New Deal. The compromise of embedded liberalism entered a period of crisis in the 1970s, after which it was largely replaced by neoliberalism.

Keynesian economic policies resulted in an increase in real wages, employment rates, and pension funds, as well as wide-ranging nationalization of industries like transportation and health care. Some countries approached full employment, massively strengthening the bargaining position of workers and sharpening the contradictions of the capitalist economic system. The implementation of transnational economic policies such as the Bretton Woods system was crucial to the success of embedded liberalism on an international scale.

The political basis of embedded liberalism was often a broad coalition of intellectuals and the middle class with a highly organized and motivated working class in support of progressive reform. In addition, many leftists have argued that the threat of communist influence from the Eastern Bloc in the internal affairs of capitalist states forced Western capitalists to acquiesce 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, in countries such as the United States, all but the most right-wing business groups, public commentators, and liberal intellectuals employed the new social consensus as a propaganda weapon, urging the workers to be thankful for reaping the benefits of non-communistic liberal democracy. The seeming efficacy of the New Deal consensus in resisting communism at home also led the US to impose similar policies in countries like Germany and Japan.

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. When this crisis struck, business interests in countries like the United States and the United Kingdom had already begun to strengthen their political solidarity during the late 1960s and to fund the development of what would become neoliberal ideology. Once these new weapons were put to use in the late 1970s, the already unstable left-liberal compromise of Western labor parties faltered and broke. In addition, the radicalism of the working class had diminished as social democratic and socialist parties weakened their commitment to anti-capitalist policy objectives in favor of class collaborationism. Due to this combination of factors, a political overthrow of the consensus took place in the US and UK and spread throughout the world with immediate consequences. 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". Neoliberal policies remain globally dominant to the present day.

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 and the postwar consensus. Right-wing liberals, such as Austrian economist Friedrich Hayek, criticized the consensus as an endorsement of totalitarian and statist thought, a critique which neoliberal ideologues would rephrase into an opposition to "big government" or "bureaucracy" with great success.

Effects

One of the most enduring effects of the late consensus era was the erosion of socialist and communist radicalism, especially after a decades-long barrage of anti-communist propaganda and subversion throughout the capitalist world. McCarthyism and anti-communism contributed to a broader atmosphere that denatured the class character of the American labor movement into "a fight without ideologies, without red flags, without May Day parades." For many Western workers, socialism became a distant, almost mystical future:

I think we should not duck around corners and pretend we do not want socialization of industry. It is a long term objective in the Labor movement, exactly in the same way that there is a long term objective in the Christian movement. The people who espouse Christianity have been struggling for over 2,000 years and have not arrived at it.

Further reading

• Harvey, David (2005). Template:Citation/make link. Oxford University Press, USA. Template:Citation/identifier. 

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

• Lichtenstein, Nelson (2002). Template:Citation/make link. Template:Citation/make link (1 ed.). Princeton University Press. 

Lichtenstein, Nelson (2002). "Chapter 4: Erosion of the Union Idea". State of the Union (1 ed.). Princeton University Press.