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20170618 Great Transformations



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The main idea of this book is that massive transformations of institutions of society on the scale exemplified by embedding liberalism in 1930s and then disembedding it in 1980s does not occur purely on materialist basis or class realignments, but rather they are driven by ideas. These ideas usually take time to develop, then to be incorporated into thinking of significant amount of population, and only after that these ideas start moving political forces and become converted from abstraction to specific actions delegitimizing old and establishing new institutions.



1 Karl Polanyi and Institutional Change

This starts with reference to Polanyi’s ideas about end of self-regulating markets in early XX century and double movement: free market losers would use state protection and in process produce institutional change in the society. This pretty much covers all statist movements from Keynesianism to Nazism and Communism. This follows by discussion of the nature of institutional change overall and role of ideas in its implementation. Author provides plan of the book: it is build on the analysis of 3 main actors: state, labor, and capital. This analysis conducted first on theoretical level and then tracing actual development by using two examples: Sweden and USA.

2 A Theory of Institutional Change

This starts with brief review of literature about ideas and their influence. Author describes two schools of thought about it: Historical Institutionalism and Rationalist Institutionalism. After that he presents his theory of relationship between ideas, interests, and uncertainty deriving from it 5 hypotheses:

  1. In time of economic crises ideas (not institutions) reduce uncertainty.
  2. Following uncertainty reduction, ideas make collective action and coalition building possible.
  3. In the struggle over existing institutions, ideas are weapons.
  4. After delegitimation of existing institutions, new ideas act as institutional blueprints
  5. The ideas that follow institutional construction make institutional stability possible.


This part is pretty much review of 5 historical cases when ideas practically modified or substituted existing institutions with the new ones.

3 Building American Embedded Liberalism

The first case is advance of American liberalism in 1930 and its elimination or severe limitation of previously dominant free market capitalism. Author looks at Hoover vs. Roosevelt policy noticing that they where nearly identical with the main difference of Hoover’s being limited by existing institutions, while Roosevelt’s breaking away from these institution. Author demonstrates how it was done: breaking down institution of free pricing and substitution it with government controlled pricing, massive government interference into business / labor relationship, and massively increasing government spending. This followed by construction of new institutions: Social security, pro-union Wagner Act, Financial regulations, and much more. The final part of the chapter is about period after war when some of the new institutions were curtailed due to their negative impact on economy and society, but overall new institutions survived and stabilized into the new environment of Embedded Liberalism.

4 Building Swedish Embedded Liberalism

Here author conducts similar analysis of Swedish development when driving force was Social democracy significantly to the left of American New Deal administration, but somewhat paradoxically more business friendly than it. The result was Swedish form of Embedded liberalism with quite a bit more control of government over people, but with massive support of middle class due to social spending.

5 Disembedding Liberalism: Ideas to Break a Bargain

This case looks at the first at the beginning of breakdown of Embedded liberalism in USA first with the Johnson administration attempt to have both guns and butter, and then as result of increasing stagnation and inflation caused by overregulation and direct government interference into economy. Author reviews ideas that impacted and undermined embedded liberalism, preparing it’s disembedding: Monetarism, Rational Expectations, Supply-Side, and Public Choice Theories. The stagflation of 1970s clearly demonstrated deficiencies of existing institution and opened way for advancement of these new theories into popular conscious.

6 Disembedding Liberalism in the United States

Here author going into the search of causes of Liberalism’s Disembedding mainly in movement of business into political sphere in its attempt to remove or at least minimize government intervention that made it incapable effectively compete with business of countries just recently recovered after WWII. It follows by detailed description of how business intervened into politics and successful delegitimized big government and its political representation (Democratic party). The chapter ends by discussion of Clinton’s administration movement away from big government idea under pressure of changed ideological environment in the country and republican legislature.

7 Disembedding Liberalism in Sweden

This chapter describes similar events in Sweden where big government led to economic hardship and disembedding of liberalism, albeit to the much smaller degree than it happened in America.



8 Conclusions

In conclusion author revisits his 5 hypotheses, compares his ideological explanation of transformations with materialistic and institutional explanations, and looks at the possibility of future transformation.


I am generally supporter of idea that the words and ideas comes the first and transformation of society is logical result of implementation of ideas. However I think that before any idea becomes viable as source of future transformation, the old institutions should prove to the public that they do not work any more and that whatever calamity comes, they would not be able provide tools to overcome it. Somewhat contrary to the author I do not think that it happens because some individuals just come up with some ideas undermining existing societal setup in our case Monetarism or Rational Expectation or anything else. I think that the first comes increasing frustration with old institutions that results in their inability to live up to the promise of the future beneficial results. Whether it is inability to provide enough food instead of promised abundance in communist countries, or high misery index of combined inflation and unemployment instead of uninterrupted progress closely controlled by wise bureaucrats in USA as promised by New Deal, in all cases the failure to fulfill expectations creates general mood of frustration and inapplicability to the new environment. Only when the first step mainly completed and support for the old institutions mainly based on little more then inertia, the new set of ideas could become popular and even dominant, creating opening for the second step that would complete transformation: elimination of old and creation of new institutions.


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