The Principles of Embedded Liberalism: Social Legitimacy and Global Capitalism

Rawi  Abdelal; John  G. Ruggie

Chapter | New Perspectives on Regulation | 2009

The Principles of Embedded Liberalism: Social Legitimacy and Global Capitalism

by Rawi Abdelal and John G. Ruggie

Abstract

In this essay we revisit the principles of “embedded liberalism” and argue for their relevance to the contemporary global economy. The most essential principle is the need for markets to enjoy social legitimacy, because their political sustainability ultimately depends on it. From this principle we analyze three current sets of practices and institutions in which ongoing crises of legitimacy demonstrate the need for a renewal of embedded liberalism and a revitalization of global governance. They are as follows: the activities of transnational corporations, particularly with regard to core standards in labor and human rights; the organization of the international financial architecture; and the formal rules and informal norms of international organizations.

Keywords: Economic Systems; Ethics; International Finance; Globalization; Multinational Firms and Management; Corporate Governance; Governing Rules, Regulations, and Reforms; Labor;

Format: Print

Citation:

Abdelal, Rawi, and John G. Ruggie. "The Principles of Embedded Liberalism: Social Legitimacy and Global Capitalism." In New Perspectives on Regulation, edited by David Moss and John Cisternino, 151–162. Cambridge, MA: Tobin Project, 2009.

Proposed in 2012, Nord Stream 2 was a pipeline project that aimed to bring natural gas directly from Russia to Europe beneath the Baltic Sea. Gazprom, an energy company with deep ties to the Russian state, hoped to manage the project in association with a consortium of European companies. The pipeline appeared to be a rational investment for these companies, many of whom had working relationships with Gazprom. However, some European voices argued that the project went against the European Union’s security and foreign policy goals. Nord Stream 2 would allow Gazprom to bypass Ukraine as a gas transit country, threatening Ukraine’s economy and energy security. The European Union attempted to influence the project through new, supranational regulations meant to uphold transparency and competition in European gas markets. The beginning of the Ukraine crisis in 2014 significantly upped the stakes for Nord Stream 2, as some began to question Europe’s ability to meaningfully take action in the face of kinetic provocation. It was unclear whether pro- or anti-Nord Stream 2 actors would emerge successful, in a battle of wills that would have resonating consequences for Russia’s economy, the European Union’s legitimacy, and the emerging multipolar world order at large.

Supplement | HBS Case Collection | March 2019

Profits, Politics, and Pipelines: Europe, Russia, and the Challenge of Nord Stream 2 (B)

Rawi Abdelal, Galit Goldstein, Cressida Arkwright and Khilola Zakhidova

Nord Stream 2, a pipeline project that aimed to bring natural gas directly from Russia to Europe beneath the Baltic Sea, was a critical project for Gazprom, an energy company with deep ties to the Russian state. Proposed in 2012, contention around Nord Stream 2 intensified into the end of the Obama era and the beginning of Donald Trump’s presidency. As European-Russian relations grew more complex in the wake of the 2014 Ukraine crisis, assassination attempts and apparent state-sponsored online information operations activities, Nord Stream 2’s opponents asserted that the pipeline represented Russia’s increasing influence over European affairs. However, the project maintained support both in the private sector and in key European Union member states. At a critical juncture in Nord Stream 2’s development, the EU’s legal capacity to exert influence over the energy sector came into question, while the Trump administration threatened to sanction European companies involved with the pipeline. Questions swirled around Nord Stream 2 going into 2019: had the pipeline illuminated cracks in the transatlantic relationship and the European Union as an institution? Was Nord Stream 2 a rational investment, or a political project? Would Nord Stream 2 ultimately be completed as planned?

Keywords: NaturalGas; Gas Pipelines; Nord Stream 2; Nord Stream; Russia; United States; EuropeanUnion; Europe; Germany; Poland; Ukraine; geopolitics; Strategic Analysis; strategic behavior; Public Diplomacy; government and business; Government andPolitics; energy; Energy Entrepreneurship; Energy Industry; Energy Management; energy policy; energy markets; energy transmission; Analysis; Business Ventures; Trade; Energy; Energy Sources; Non-Renewable Energy; Geography; Geographic Location; Geographic Scope; Global Range; Geopolitical Units; Country; Globalization; Cross-Cultural and Cross-Border Issues; Global Strategy; Globalized Economies and Regions; Globalized Firms and Management; Globalized Markets and Industries; Government and Politics; Government Legislation; International Relations; National Security; Growth and Development Strategy; Problems and Challenges; Relationships; Alliances; Business and Government Relations; Business and Shareholder Relations; Risk and Uncertainty; Strategy; Business Strategy; Competition; Society; Public Opinion; War; Energy Industry; Utilities Industry; Asia; Russia; Europe; Germany; Poland; North and Central America; North America; United States;

Citation:

Abdelal, Rawi, Galit Goldstein, Cressida Arkwright, and Khilola Zakhidova. "Profits, Politics, and Pipelines: Europe, Russia, and the Challenge of Nord Stream 2 (B)." Harvard Business School Supplement 719-062, March 2019. View Details

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Italy’s March 2018 elections led to a populist government which included the right-wing League and the anti-establishment 5 Star Movement. To respect their electoral promises, the two parties came up with a budget plan which provided for a public deficit at 2.4%, a figure higher than what the previous administration had promised the EU Commission. On October 23, 2018, the EU Commission rejected such plan asking Italy to revise downwards the public deficit. The same day, Italian bond yields spoke to 4-year highs, up to 3.7% as investors questioned Italy’s capacity to repay its public long-term debt, the second highest in the EU. Would the Italian government be able to implement its plan?

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The Principles of Embedded Liberalism: Social Legitimacy and Global Capitalism

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