The Rise of Embedded Nationalism

Ruggie’s (1982) “embedded liberalism” provided the framework for understanding the nature of the domestic social contract underlying the post-World War II international economic arrangement for the last three-and-a-half decades. As a alternate to the “disembedded liberalism” (Polanyi 1944) model of the gold standard era, this model described and prescribed the importance of domestic political economic stability over maintenance of the liberal international economic order. In the decades since Ruggie’s article, the potential threat to the stability of embedded liberalism scholars anticipated was a return to disembbeded liberalism, the model of hyperglobalization at the cost of domestic political economic stability.

One way to interpret the triumph of Donald Trump is that the long-standing social bargain within the U.S. underlying Pax Americana—and thus the whole post-war international order—has unraveled. The bargain is moving toward hyper-priotization of domestic political economy over a liberal international economy. This interpretation is consistent with the broad observation about the characteristics of voters who voted for Trump (losers from globalization, broadly defined to include those that confront a high level of economic uncertainty if not low income) and Trump’s nationalistic economic policies, now taking the first step in the form of withdrawing from the Trans Pacific Partnership.

Two interrelated components are necessary for maintaining a stable domestic-international bargain. One, the international benefits of a liberal world economy—the gains from trade—has to be domestically distributed. Economists have always recognized that the gains are at the aggregate level. Those who gain from economic globalization (”winners“) need to compensate those who are hurt from it (”losers“) and mitigate the latters’ cost of adjusting to the new economic reality. Two, the domestic population needs to intuitively and/or rationally understand the nature of the domestic-international bargain and continually support to reinforce and sustain the international arrangement.

I have some ideas on why these two components unraveled over time:

A Paradox of Stability: When an international order works—works really well, as it did in the post-war era—it becomes taken for granted. People and states simply come to think “this is how it is” and fail to realize the institutions and the effort underlying it. That’s actually the indication of the most institutionalized institutions, at least according to sociologists. However, when the taken-for-grantedness leads to desires for dismantling the institution in question, it becomes a problem. (This is akin to the vaccination issue—”Oh, I don’t have to vaccinate against pertussis, because pertussis is not a problem anymore!“ A related aspect of this is that people/leaders also come to disregard the strategic interaction underlying the stability of the existing order. Other countries have been keeping their trade open because the U.S. has been. If the U.S. becomes more protectionist, other countries will not keep their trade open. The U.S. doesn’t just import; it also exports. Disjuncture from the Historical Moment: Much of the post-war international order was shaped by the experience states endured during the interwar years, in particular the Great Depression. As the length of time between the historical moment and the current period increases, the lessons fade—people/leaders who experienced it die and new ones never learn it. (What about the Great Recession? See #1 above.) Disembedded Liberalism: #1 and #2 led to an increasing emphasis on the liberal economic order over domestic political economic stability. The gap in real income growth in the U.S. over the last four decades is the best evidence of this. Certainly not all wealth resulted from a liberal international economy alone—technological progress played an important role—but the gains were not distributed in ways to ensure long-term domestic stability. Complexity of Globalization: I use the term “globalization” as a shorthand for lowering of costs of transportation and communication, thereby increasing the density of interaction among people. These changes are mainly facilitated by technological innovations that lower the costs. As a result of this, the global system becomes more complex in two ways. First, causal chains in large-scale outcomes become harder to trace. When causation has to be inferred rather than perceived, people reject both the process of inference (science) and the assertions of causality. This opens up the possibility of phenomena like “alternative facts” to arise. Second, differences across individuals, groups, and countries—which have always existed—become revealed and more likely to generate conflicts. Simultaneous with this increased exposure to diversity, the same technology that increases that exposure facilitates individuals and groups to communicate and organize with those that are likeminded (e.g., cable news channels). In short, globalization strengthens intra-group cohesion while increasing inter-group conflicts.

So what happens now? The next four years will be an interesting test of Keohane’s (1984) thesis that international institutions can in fact successfully persist and maintain order after hegemonic decline. Of course, with the current regime in the U.S., we are witnessing less of a decline and more of a willful rejection in alleged service of domestic political economic priorities. The absurdly misinformed protectionist policies by the administration will certainly end up causing a great deal of economic harm to the very groups it is claiming to be helping.