The term world-economy in our title must have already given a hint to the careful reader of our purpose in writing this paper: We intend to bridge institutional economics with world-systems analysis in order to enhance the global applicability of the former. World-economy is a term used by Fernand Braudel and Immanuel Wallerstein and means a space defined by the existence of a single division of labor (coexistent with multiple States) whereas world economy would indicate the arithmetic summation of national economies each of which would possess a division of labor and a State of its own (Wallerstein 1979, 6). World-economy is useful for treating the unity by recourse to its common dynamics constitutive of economic inequalities and power asymmetries. If in the wake of so-called "globalization" there is now a pervasive discourse on global governance as the nascent institutional setup of the global economy, we might as well as treat this new concept in relation with the systemic unity and asymmetries to which it corresponds. Nevertheless, the two approaches remain wide apart in spite of a common heritage they share. For example, in the syllabus of a postdoctoral seminar, Wallerstein identified Karl Polanyi along with Joseph Schumpeter as among the few "immediate and forgotten predecessors of world-systems analysis" (1994). His colleague Terence K. Hopkins was a young participant in Polanyi's interdisciplinary research team at Colombia University on economic anthropology. Giovanni Arrighi, who gave a new impetus to world-systems studies with his Long Twentieth Century (1994), relied heavily upon his reinterpretations of Polanyi's idea of "double movement" and Schumpeter's idea of "symbiosis" as "political exchange" so much so as to qualify as a disguised institutionalist. In short, world-systems analysts have benefited greatly from the institutionalist tradition. In turn, institutional economists have so far not reciprocated. We hope to take a step in this direction in order to advance further the critique of economic liberalism to which both schools of thought remains deeply committed.
If there is one essence of economic liberalism from the philosophers Of Scottish Enlightenment to the contemporary neoliberals it can best be summarized as "Spontaneity yields efficiency." The argument goes that self-regulating economic processes lead to a spontaneous order in the form of an efficient market economy, whereas political institutions constitute "the State" as a cumbersome structure, which distorts spontaneous efficiency. Hence, the State must be strictly separated from the economic processes so that efficiency can be ensured through the operation of the self-regulating market. In this regard, The Great Transformation of Polanyi ( 1957) offers an effective antidote by arguing that separation of economic processes and political institutions implies the destruction of social cohesion. Hence, any viable social system must maintain the embeddedness of economic processes and political institutions. Separation of the market and the State entails the destruction of embeddedness, which, in turn, paves the way for the collapse of the social system as a whole.
In this paper, we elaborate Polanyi's concept of embeddedness so as to construct an institutionalist framework to understand the contemporary world-economy. We contend that embeddedness can be deployed to analyze the so-called "global governance model" (GGM) as the most recent liberal recipe. The Washington Consensus had led many countries to minimize the role of the State in economic affairs during the 1980s up until the worldwide financial crises of the 1990s. The advocates of orthodoxy have nevertheless continued to put the blame on the State: If the State were able to work in accordance with the spontaneous and efficient logic of the market, neoliberalism could still succeed. In the meantime, "commanding heights" of the world-economy proved to be a late-comer in realizing that "institutions matter." The World Bank (WB), United Nations Development Programme (UNDP), and the Organization for Economic Cooperation and Development (OECD) have contributed significantly to the construction of GGM (WB 1989, 1992, 1994, 1997; Kaufmann et al. 2005; UNDP 1997a, 1997b, 2001, 2003; OECD 1996, 2001a, 2001b, 2002). Contemporary liberals have thus discovered that good institutions are conducive to economic performance, and good governance is needed at all levels of the global economy. This entails the institutional transformation of the State in addition to its minimization. As the most recent link in the liberal chain of thought, it dictates that agencies of a loosely defined civil society and independent regulatory institutions be involved within the new institutional construct of the State. The State must be converted into a spontaneous and efficient institution after the mirror-image of the market process.
In the pages that follow, we examine the embeddedness of the market and the State as the...