A-ha!: Embedded Liberalism (Pt. 1)

A "COVID-19 Solution" That Is Really Institutional Reform, Domestic and International

“If American democracy ceases to move forward as a living force, seeking day and night by peaceful means to better the lot of our citizens, fascism will grow in strength in our land.” - Franklin Delano Roosevelt (1938).

Hello, friends,

One of my favorite newsletters last year was the one in which I call for automatic stabilizers, understood as government support programs that automatically kick in based on a certain context: unemployment rate; poverty rate; or, hey, what about R0, the transmission rate of a disease, or any other metric that captures important potential disruptions to the status quo.

Automatic stabilizers are extremely popular amongst mainstream economists, including Claudia Sahm, whose idea I wrote about in the aforementioned newsletter, #15: The Sahm Rule on March 22, 2020. Jason Furman, in a recent issue of Foreign Affairs, who was the Chair of the Council of Economic Advisers in the Obama administration, discusses the need for automatic stabilizers:

“The Biden administration and Congress should link the level of federal contributions [regarding state aide] directed to state Medicaid programs to state unemployment rates. This would allow aid to automatically rise in hard times and fall in good.

…Making such steps permanent would help with the current recession and reduce the severity of future recessions, as well: in good times aid measures would automatically go away, but in bad times, they would return without the need to wait for Congress to act. This is especially important in the U.S., which, by virtue of having smaller and less progressive fiscal system than other advanced economies, has tended to have relatively small automatic increases to federal spending and more limited tax reductions in response to recessions.

…it will be important to improve automatic stabilizers tied to economic conditions.”

I would add that automatic stabilizers should also be tied to disease outbreaks-epidemics, pandemics; and also energy prices. If we are going to tackle climate change, energy prices are going to become deeply important and people will respond and support policies that we need to implement but only if they don’t feel burdened by them. Fiscal climate/energy stabilizers that subsidize energy costs when they increase for the poor and middle classes would help suave the necessary transition to a post-fossil fuel world.

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This got me thinking about institutional reform, broadly understood. And I’d like to introduce the term “embedded liberalism” because we need a new global contract and political economy. And we have a term that already captures what is needed: embedded liberalism.

This is another edition of, A-ha

A-ha! - Embedded Liberalism (Part I)

~Aha! is a column which I discuss terms that illuminate the way through~

Embedded Liberalism was coined by John Ruggie in the 1980s to describe the post-1945 liberal international order, coming off the two most destruction wars in human history. Also, there was a pandemic, remember, between the wars that might have killed more than 50 million people and that sickened a third of the world’s population. The compromise was that idea that in order for “free market” economics to spread, domestic political interventions, including funding for schools, welfare states, public pensions, and so forth, had to be allowed.

Markets need regulating. Markets need a structure. Markets need a properly functioning government and a valuable, stable currency. Considerations other than absolutely free capital movements should be primary: public health; literacy; fully functioning states capable of tax collection, are just a few considerations that should be valued instead of free capital movement.

Ruggie (2007, 23) calls these “values of community that socially sustainable markets themselves require in order to survive and thrive.” Writing in 2007, Ruggie was anticipating that this bargain was being forgotten. And then just months later we have a financial crisis, one in which, in America alone, “nearly $11 trillion in household wealth vanished, with retirement accounts and life savings swept away,” according to the Financial Crisis Inquiry Commission Report (2011, xv). And one major factor that contributed to the Great Recession was de-regulation. Shadow banking was allowed to grow and grow beginning in the 1980s, through every subsequent administration, including Bill Clinton (D) and George W. Bush (R).

This “great forgetting” as another author (Luzkow 2015) puts it, we have lived and are living through, has profound implications, both as I type this and in the near and mid- to long-term future.

It is palpable right now that the world has shared interests and a shared destiny. Vaccine nationalism is tragic and will all but guarantee a worse decade than need be: economically poor countries will become poorer; they will be last in line for all of their people to receive vaccines; and, it did not have to be this way. And vaccine nationalism will “prolong the pandemic” and the philanthropy model isn’t sufficient.

“Only international cooperation on the basis of shared interests can mobilize the global manufacturing, trade, and delivery response that will end this public health crisis and help build a more resilient system for the future,” argues Thomas J. Bollyky and Chad P. Bown.

Post-war embedded liberalism coincided with “one of the longest and most equitable periods of economic expansion in human history, from the 1950s into the 1990s,” writes Ruggie. He points to a statistical analysis from Salvatore Pitruzzello that compares the post-war system to the British-led laisse faire one. The assumpttions that carried forward the first stage of embedded liberalism were threefold: (1) Shared Social Purpose, (2) State Capacity and Priorities, and (3) New and Reformed Global Institutions. I will leave describing State Capacity and Priorities and New and Reformed Global Institutions for part II since they are best illustrated bringing in another lens or way of thinking that I think deserves its own newsletter. So, I will end part I here with Shared Social Purpose.

On Shared Social Purpose
That we live in a world that requires that shared social purpose be built into our institutions should now be obvious. Ruggie argues that this understanding of a shared social purpose was built into the early post-war institutions, particularly the Bretton Woods economic agreements that sat in the middle between hyperglobalization and hard sovereignty. Covid-19 shows we need international and global organizations that factor in our shared environment. Viruses cannot be contained in a globalized world. And where they originate is often arbitrary and badly understood for years or decades afterwards. It was only recently that an answer emerged regarding the likely origins of what is badly named the Spanish Flu originated: Haskell County, Kansas, according to John M. Barry (2004).

“In a variety of visualizations, we see our bodies extending beyond their usual bounds: graphics of our coughs, sneezes, and even breath show how far beyond our own skin our bodies reach; the six-foot rule of social distancing a daily acknowledgement that our bodies not only leak and ooze, but that they absorb the conditions of others.” - Sunaura Taylor (Astra Taylor 2021, 2%).

If capitalism is truly the only game in town, as social scientist Branko Milanovic understands the landscape, best laid out in his latest book Capitalism, Alone: the Future of the System That Rules the World (2019), then capitalism must be shaped, pushed, and designed to reflect the fact that the future of a sustainable, sane, liveable planet demands that shared social values are the foundation for which a “people’s capitalism” can thrive. Without this understanding, people will choose more extreme alternative ways of organizing if cutthroat, winner-take-all capitalism remains a game that is rigged.

According to a review in the upcoming November 2021 edition of The Atlantic written by William Deresiewicz of the posthumously published book from David Graeber on the history of the last 30,000 years called The Dawn of Everything: A New History of Humanity (2021), human history is not one in which inaminate forces determined human civilization, but one in which human beings have continually made choices based on values, feelings, imagination, weather, climate, lifestyles, and so forth. “If something did go terribly wrong in human history, then perhaps it began to go wrong prceisely when people started losing that freedom to imagine and enact other forms of social existence,” writes Graeber (and his co-author Wengrow).

This is liberating.
We can choose a better world.
We always could. We frequently do.
And we always can. Or, we can choose otherwise.
But its choices all the way down.

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In part two of the latest edition of A-ha! I want to discuss the remaining two pillars of embedded liberalism: State Capacity and New and Reformed Global Institutions.

Thanks,
Patrick M. Foran