Embedded Liberalism and the Inviolability of the Market: Assessing Interventionist Solutions to the European Sovereign Debt Crisis through the Prism of the 1970s

The European sovereign debt crisis has given rise to a raft of analyses that reference the work of Karl Polanyi to account for the crisis and propose remedies for overcoming it. Positing that the supply-side and deflationary policies underlying the European single market and Monetary Union rendered such a crisis inevitable, such analyses argue that the austerity policies imposed on peripheral countries to resolve it proved politically unsustainable, generating a populist backlash that has overtaken the peripheral and core countries alike. In turn, to resolve the crisis these analyses propose returning to an “embedded liberal” paradigm which would maintain the primacy of free markets while reasserting democratic control over them.

While sharing these analyses’ diagnosis of the causes of the crisis, this paper takes issue with the prescriptions they set out. It argues that such prescriptions follow from an incomplete reading of Polanyi which conflates embedded liberalism with the social embeddedness of markets. Stipulating that Polanyi defined the latter in terms of markets fulfilling society’s provisional needs rather than maximizing profits, the paper posits that, because they continue to fundamentally defer to the profit motive, embedded liberal solutions to the European debt crisis remain unachievable under advanced industrial and post-industrial capitalism. Specifically referencing the cases of 1970s France and Germany, it shows how postwar embedded liberalism became unsustainable due to the incompatibility of profit maximization and social protection in the era of globalization and argues that such an outcome would also be likely under a new EU-level embedded liberalism.