This article made comparison between ‘embedded liberalism' and ‘neoliberalism'. The article also traced the basis for the shift from ‘embedded liberalism' to the emergence of ‘neoliberalism'. In order for the government to intervene in economic policies matters; democracy was the driving force for the spread of embedded liberalism. Macroeconomics was introduced by the government of advanced economies to address three critical areas of the economic policies, namely: inflation, market output, and unemployment.
The other aspect of this period was to win the cold war and to empower the United States as the global hegemon. The departure from embedded liberalism to neoliberalism in 1971 was due to domestic economic pressure of the US. President Nixon’s administration ended the ‘convertibility of the dollar into gold' policy regime. The government had to float the dollar in the international market allowing market forces to determine the value of the dollar currency.
The administration of Reagan and Thatcher institutionalised ‘neoliberalism' as an alternative to ‘embedded liberalism'. The adoption of ‘neoliberalism' led both administrations to implement monetary policies which led to stripping labour from further threatening the economies of the United States and the United Kingdom with inflation. The overall implications were increased profits for capitalists or entrepreneurs as against employees of the labour market. The analysis revealed that there was an increased unemployment rate due to high-interest rates and deliberate policies to encourage recession in order to forestall inflation.
Nathaniel Stevenson Odusola
A comparative Analysis of the post-war era of managed markets and the ‘embedded liberalism’ with the subsequent era of neoliberalism since the 1970s? Why did the era of heavily managed markets ‘embedded liberalism’ give way to neoliberalism?
INTRODUCTION
This article compared and contrasted between ‘embedded liberalism' and ‘neoliberalism'. The article also revealed the basis for the departure from ‘embedded liberalism' to ‘neoliberalism'. Historically, the era of ‘embedded liberalism' was between the end of World War II and 1970s. The idea then was for liberal democracy to intervene in economic regulation.
The role of government was to ensure sustainable economic growth, by adopting the ‘Keynesian macroeconomic concept' that sought to embrace the intervention of government in the economy through direct and indirect policies. The government of advanced economies created the safety net, otherwise known as social welfare programmes. Macroeconomics was introduced by J. M. Keynes (a British economic theorist) to address three critical areas of the economy, namely: inflation, market output, and unemployment (Eatwell and Milgate 2011: 2). At the period when the government focused on stabilizing the global economy as well as addressing market expansion opportunities. John Ruggie developed the concept of 'embedded liberalism', a constructivist that examined the impact of ‘norms and shared value in international relation' (Moon and Toohey 2018: 1).
The other aspect of this period was to overcome the cold war and to empower the United States as the global hegemon. President Nixon’s administration in the US ended the ‘convertibility of the dollar into gold' policy regime. The departure from embedded liberalism to neoliberalism in 1971 was due to domestic economic pressure on the US. The government had to float the dollar in the international market, thereby allowing market forces to determine the value of the dollar currency (Weatherford 1988: 619).
The era of Reagan and Thatcher’s administration, in the US and UK respectively, institutionalised ‘neoliberalism' as an alternative to ‘embedded liberalism'. The adoption of ‘neoliberalism' led both administrations to implement monetary policies which led to stripping labour from further threatening the economies of the United States and the United Kingdom with inflation. The overall implications were increased profits for capitalists or entrepreneurs as against employees of the labour market. The analysis revealed that there was an increased unemployment rate due to high-interest rates and deliberate policies to encourage recession in order to forestall inflation (Jones 2012: 256).
The global economy had since expanded from the domestic market to international arena through the adoption of neoliberal ideas. The essence of which was to promote capitalism to the fullest. Hence, this had engendered collaborations among nations through ‘bilateral and multilateral relationships’.
COMPARISON BETWEEN EMBEDDED LIBERALISM AND NEOLIBERALISM
Embedded Liberalism:
Under the regime of ‘embedded liberalism,' there was sufficient control of capital flow and liberal trade arrangement that had a global economic impact. The concept of ‘embedded liberalism' was built on the Bretton Woods approach to global economic growth. Embedded liberalism reflects the combination of social democracy with capitalism. The approach to global economic analysis was very rapid after World War II to the 1970s (Helleiner 2006: 944). Furthermore, the International Monetary Fund ‘IMF' was created to address ‘short term balances of payments', setbacks. While the role of the World Bank was to provide loans for states developmental projects.
In the era of embedded liberalism, government economic policies were formulated to encourage the spread of liberal ideas as the option to counter communism. This trend, however, became unsustainable; thus ‘neoliberalism' was adopted by capitalists' nations like that which encouraged competition.
The Keynesian macroeconomic theory helped domestic economies generate high employment rate and developed safety net. In order words, the creation of Keynesian macroeconomic policies focused on domestic economic growth which in turn enabled states economic prosperity. Coupled the combination of the regulation of international capital flow and currency systems that helped steered global economic growth.
The Keynesian macroeconomic theory also helped developed monetary policies that sought to control inflation. Monetary policies were adopted to assist government control interest rates, to stabilize price and increase currency value. 'During the postWorld War II era', there was also the adoption of fiscal policies that helped shape the global economy. Fiscal policy otherwise described as ‘second arm' of macroeconomics; is the approach by government to address expenditure and taxation for overall economic growth (Serletis 2007: 14).
'The General Agreement on Tariffs and Trade (GATT)' was adopted by nations to promote international free market regimes. The target of GATT was to promote international economic growth alongside capitalism. It is important to mention at this juncture that ‘Bretton Woods' approach to global economic growth was adopted. The nations involved in the birthing of Bretton Wood approach to economic growth were the ‘US and the UK in 1944'. The Bretton Wood economics policies established capital restrictions to forestall excessive movement capital and merged the dollar to gold policies for international economic growth.
The impact of post-World War II saw the emergence of ‘social democratic policies' that helped shaped developed economies. The ‘golden age' reflected the strength of Keynesian macroeconomic policies. The effect of the macroeconomic policies was high employment rates, low inflation and high market output. However, the growth ended in the 1970s. The reasons for the halt in global economic growth is traceable to Marxism analysis that the coordinated labour and capital economy leads to high rate of employment driven by policies of the government that are formulated to intervene to achieve economic balance. Also, ‘animal spirit' that drove investment confidence of entrepreneurs and consumer aggregate demand (Arestis, Filho and Terra 2018: 2).
Furthermore, the consequence of World War II and the Cold War encouraged competition between capitalism and communism. There were direct efforts by capitalists' states to see to the success of capitalism. There was also the drive for the expansion of the theory to other state economies that needed economic growth. Thus, efforts were made by capitalists’ economies to discourage the spread of communism.
The features of the post-World War II include the drive to internationalize capitalism. The drive for macroeconomic policies that were to enhance global economic prosperity through a high employment rate and the creation of a social safety net. Macroeconomics promoted domestic economic policies that further encouraged the spread of capitalism.
Neoliberalism :
In addition, the desire by capitalists to acquire more influence that could steer government policies in favour of business growth led to the adoption of ‘neoliberal' economic policies. Above all was the desire of the government to reduce inflation by curtailing labour influence on economic policies which hitherto encouraged more wages for workers.
To reduce inflation, the government used the central bank monetary policy of highinterest rate. The result of which led to high unemployment, slow economic growth, and low wages. The emergence of the neoliberal concept also encouraged capitalists to lobby for tax reduction and market competition. The defect of neoliberalism is that ‘inequality' has risen. In the US, for instance, the wealthy have become wealthier due to access to more assets and liquidity to increase production (Jacobs and Myers 2014:754).
Furthermore, neoliberalism encouraged ‘Financialisation'. The concept of Financialisation encourages the free flow of capital from one sovereign market to others. There are less restriction and more deregulation of the financial market. The financial market drove the US direct support for neoliberalism and international economic market competition (Rodrik 2018:25). The weakness or defects of neoliberalism is the rise of inequality, economic growth stagnation; financialisation, which resulted in the global financial crisis ‘GFC' in 2008 as well as the Euro crisis. Analysts have argued that going forward, the US remains the global hegemon, due to the role of the dollar and the attraction of investments to the US economy.
Anthropologists have traced the concept of neoliberalism to two areas of discourse. Firstly, policy design and implementation. Secondly, ideological perceptions of nations states, or capitalists. The role of the IMF at encouraging ‘structural adjustment programmes' in weak economies also helped facilitate ‘globalisation' from the 1980s to 1990s. It enabled neoliberalism to spread rapidly and gain firm root in capitalist oriented economies.
China dominated the neoliberal era. Analysts have criticised neoliberalism as a concept that steers policies of the government towards ‘inequality, unjust terms, budget deficit, deregulation, privatisation, commercialisation, and environmental degradation, as well as unrestricted access to wealth accumulation'. Thus the need to revisit the old order of government in economic matters has been adjudged an option to follow in recent times.
The criticism against neoliberalism extends to capitalists that have been able to use the era for profit maximisation. The drive of neoliberalism is that it encourage capitalists and workers alike to pursue rational choice. The desire of the US to overcome the spread of communism by the Soviet Union made the adoption of neoliberal economic ideas acceptable to nations. Neoliberalism is said to encourage market globalisation (Aerni 2018: 21).
The neoliberal concept is adjudged to encourage greed rather than encourage the equitable distribution of wealth. The creation of the World Trade Organisation ‘WTO' in 1995 and the adoption of multilateral as well as bilateral agreements by nations further encouraged globalisation (Skogstad 2015: 150). Analysts have also argued that there is the drive for an economical, human capital market which undermines human rights and equality. Neoliberalism created inequality; winners and losers, and a distrust for the economy. Globalisation, a product of neoliberalism caused the imbalance in trade between China and the United States. China took advantage of the global economy due to the low wages distribution in the country.
The global financial crisis reflected that neoliberalism is defective. As part of criticism against neoliberalism, analysts have argued that the concept seeks to abort state welfare programs. The idea that humans are tools for capitalism rather than promoting humanity for development. The introduction of financialisation into the global economy. There are various ways to the study of economic liberalism. First economic regulations; secondly, a subject matter of academic discourse; thirdly, a well-known economic, institutional framework (Deckard and Shapiro 2019: 3). Also, during the neoliberal era, there was a shift of trade balance from the advanced nations to emerging economies such as the BRIC nations. The challenge neoliberalism, however, is climate change. In order for nations to arrive at free, fair and stable trade arrangements, they must seek to resolve climate change and conducive workers' wages. The arrangement could be against or in favour of nations calling for protectionism (Ehrlich 2010: 1030).
REASONS FOR THE SHIFT FROM EMBEDDED LIBERALISM TO NEOLIBERALISM
The champion of capitalism and global liberal economics, the United States encountered challenges. The challenges became more evident during the Vietnam War as the US could not finance the war. The US budget and the demand by international trade partners reduced the confidence in the US dollar, thus was the demand for gold as against the US dollar. Also, neoliberal ideas led to the deregulation of financial markets and whittled down government restrictions on the free market. The Nixon administration in the US altered the ‘exchange rate' by isolating gold from the dollar in 1971. The dollar was eventually floated to be determined by market forces ‘in 1973' (Steil 2007: 4). This development implied that market forces became the determining factor for the value placed on the dollar.
The era of Reagan and Thatcher administration institutionalised ‘neoliberalism' as an alternative to ‘embedded liberalism'. The adoption of ‘neoliberalism' led both administrations to implement monetary policies which led to stripping labour from further threatening the economies of the United States and the United Kingdom with inflation. The overall implications were increased profits for capitalists or entrepreneurs as against employees of the labour market. The analysis revealed that there was an increased unemployment rate due to high-interest rates and deliberate policies to encourage recession in order to forestall inflation (Jones 2012: 256).
The 1970s also experienced stagflation. Stagflation is the combination of inflation and steady reduction in gross domestic product ‘GDP'. Analysts hav e argued that stagflation is as a result of profit reduction, a steady increase in employment income and reduction in GDP. This argument is valid, as this was the case in the 1970s (Schipchandler 1982: 32).
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