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Embedding Fordism The term ‘embedded liberalism' was coined by Dr. John Gerard Ruggie in 1982, in his article titled, “International Regimes, Transactions, and Change: Embedded Liberalism in the Post-war Economic Order.” As a concept it is easier to understand if you first separate its two parts. First, ‘embedded' refers to Dr. Polanyi's use of the term in his book, The Great Transformation . In Polanyi's book he argues that prior to capitalism the ‘market' had always been embedded in society. This is because prior to Capitalism the market existed as a means of distribution and reciprocity, the terms of which were dictated by the rules of the particular society, e.g. social caste or hierarchy. With the advent of capitalism though ‘fictitious commodities' were created and implemented into the market specifically in the form of land, money, and labor. These are fictitious in that they were not created to be sold and are in constant supply yet their value fluctuates relative to market demand. As opposed to non-fictitious goods whose value is determined by supply and demand. Land, money, and labor are things that cannot be created or destroyed by in large, they just are, they are not the creation of wealth merely a transfer, because they were not originally created to be sold. Land was originally created by nature by the movement of tectonic plates and volcanic eruptions. Labor is simply human activity that has now been redefined to a quantifiable unit so it can be commoditized. Money was created as an IOU form of means of exchange to simplify trade. Obviously, then land is beyond the control of man to create or destroy without a prohibitively high cost, Labor cannot be added or subtracted without death or birth requiring time to mature, and once established money takes on a life of its own in that it retains its value no matter how much or little of it there is as long as confidence remains in its value, the contemporary American Dollar is an example of this faith in value. In all of these cases it ultimately is the state's duty to ensure that these limited and inflexible ‘fictitious commodities' are properly distributed. Therefore, even in capitalism the market must remain embedded in order to ensure that land, money, and labor or distributed to a minimum level to keep the society functioning. This leads us into the next part of ‘embedded liberalism'. Liberalism, in this concept refers to ‘market liberalism'. This is exactly what it means, the liberalization of the market; specifically the removal of state intervention in the market. This is based on the belief that states are incapable of making informed decisions that will positively affect the market so they should just not intervene at all. This also encompasses the idea that the market should be disembedded from society, because it is believed that a self-regulating market is much more productive then a market run by social and political forces. An example of ‘market liberalism' is contemporary globalization. It is an international push to liberalize all domestic and international markets. Specifically mandating the removal of all trade tariffs, the privatization of all state run services including utilities, and weakening the labor laws to encourage greater ‘wage flexibility'. This was also where the International Division of Labor was established as a legitimate practice. All of these mandates are aimed at the ideal creation of one global self-regulating disembedded market. This example leads right into a summation of ‘embedded liberalism'. Globalization itself is an embedded system. It is dependent on the regulation of ‘fictitious commodities' by state run bodies, in this case organizations. The organizations I am of course referring to are the United Nations (UN), World Bank, World Trade Organization (WTO) and International Monetary Fund (IMF). While in principal these are all multinational organizations, they all share the common feature of, veto power by the United States . Except in the WTO the United States does not have veto power, however having the greatest consumption potential, it enjoys a de facto veto. In the World Bank and IMF, the United States enjoys exclusive veto power. While the United States does not enjoy exclusive veto power in the UN, its exclusive power in the IMF and World Bank give its UN veto additional weight. The UN can be seen as the global regulator of the ‘fictitious commodity' of Land, as it is the primary arbiter and forum for territorial disputes and being largely dominated by the United States, could be seen as a state run institution. The IMF, WTO, and World Bank are the arbiters of money and labor as they dictate to their members how to run their economies and domestic labor laws. Dr. John Ruggie who coined the term ‘embedded liberalism' explained it in the context of post World War 2 reconstruction. Having just won the most destructive and deadly war in the worlds history the United States had depleted a great deal of its own natural resources. In order for the United States to avoid a post war economic slump it would need to find markets to continue to consume its excess surplus. Both of these problems, raw material shortage and productive surplus could be solved by free trade. Prior to World War 2 the world's most valuable raw material resources were under the control of European colonial empires. The United States now needed access to these resources to maintain its production level. At the same time by breaking down colonial trade barriers the United States would be opening new markets for their productive surplus. This explains the liberalism element. The embedded element comes from experience of the Great Depression of the 1930's. After World War 2, it was recognized that President Roosevelt's New Deal had been very influential in shaking the US from the grip of the depression. So while it was acknowledged that there would be a need for a liberal world order to achieve full employment, it was also recognized that a state must maintain the ability to form domestic policy on its own terms to ensure domestic stability. This was a justifiable concern for post war reconstruction, as economic instability in Germany was sited as one contributing cause of World War 2. At the same time it was also noted that liberalism can have adverse effects on the domestic economy due to balance of payments problems. In response a ‘double screen' was created to cushion domestic economies from balance of payments problems. First, governments could borrow from the IMF to correct for short term balance of payment shortages. Secondly, stable exchange rates would be created by setting and the maintenance of standard values for currencies based on Gold. The IMF would also help by allowing the borrowing of funds to fix ‘fundamental disequilibrium' problems. This was such an embedded part of the system that the IMF could not oppose state action regarding exchange rates if it was less then 10%. Another organization of ‘embedded liberalism' was also created at this time GATT. GATT is the General Agreement on Tariffs and Trade, its stated purpose was to lower trade barriers to create an open free market between its members. However, there was a large embedded element to this organization. It allowed numerous loopholes that allowed a state to protect the domestic industries that it had previously protected it just did not allow for new tariffs. Before GATT, there was an attempt to create the International Trade Organization (ITO), although the United States congress rejected it as to infringing on domestic policy, because it could make policy demands to member nations. GATT, IMF and domestic policy freedom, while enjoying free trade are of course an accurate embodiment of ‘embedded liberalism'. Fordism on the other hand is quite different in its intentions. The concept of ‘Fordism' is based on the methods of its name sake, Henry Ford. Henry Ford was a pioneer of scientific management and the first to utilize the moving assembly line. Fordism is less embedded then prior systems, but still somewhat embedded. Prior to Fordism the production process was controlled by labor through specialized trade unions of highly skilled workers. Fordism sought to break down these unions and replace them with management control. They believed that wages should be determined by rises in productivity, i.e. a market force. So while it appeared initially that Ford was paying his workers much higher then the industry average at $5 a day, as soon as he had secured command of the process of production he lowered wages again. Fordism did have specific need for state intervention. Fordism believed the role of the state should be to regulate the market just enough to maintain sufficient demand for current levels of production. Fordism also required the government to provide a minimal level of social support for societal stability and to undermine radical labor movements, opposed to ‘open shop policy'. The social safety net came in the form of rights to organize unions, collective bargaining, unemployment, welfare, and social security benefits. Most of the safety net was put in place during or following the new deal. These programs provided much greater societal stability by defusing the life or death issue wages could become and as they did especially during the Great Depression. Although, it is important to note that while Fordism needed this state support it was not necessarily appreciated and state support for labor ebbed and flowed with its need for maximum output, i.e. times of war. Benjamin Barber said it well in Jihad v. McWorld , “Franklin Delano Roosevelt's New Deal did as much to save capitalism from self-annihilation as it did to save the American people from capitalism's social ruthlessness” Ultimately, Fordism and Globalization both are forms of ‘embedded liberalism'. However, proponents of both would probably deny it or argue that they were moving away from it. In actuality all they are really doing is changing the name of what they call the state or redefining what constitutes state intervention. Both systems were also made possible through the massive accumulation of profit and seek to further profits. This has lead to a system where they can be unconcerned about the presence of a social safety net because they have no need for one of their own. In the case of globalization, capital can just move to a new part of the globe where social safety nets do not exist nor will there likely ever be. Globalization is also interesting case in that it had to embed itself all over the world at a very high cost to the United States government. This seems especially strange when you consider that according to the 2002 CIA world fact book the United States exports only accounted for 15% of its GDP in 2002, totaling approximately 650 Billion Dollars. When considered in the context of a 400 Billion Dollar military budget and War on Terror having cost more then 100 Billion Dollars already, both of which could be linked to protecting the world for capitalism the numbers do not add up to a justification of the expenditure. Of course, the military budget and War on Terror are not considered state intervention in the economy. When you consider the costs of domestic public goods like working standards, and infrastructure, to the economy as a whole it is hard to justify why ‘embedded liberalism' is such a bad thing when it actually costs relatively compared to the contemporary means of production. Ironically, when systems fail, so do profits and savings, e.g. the Great Depression, .com bubble, Peso crash of 1994, California 2000 Power Crisis, etc. and then the marginal increase gained through liberalization is lost anyhow. If ‘embedded liberalism' is an evil it is a necessary one. |