a high degree of respect today arnong international relations scholars and policy-makers. These goals are commonly viewed as an important ingredient of "liberal democracy." Yet, the practical importance of the liberal component of liberal democracy, when viewed against the backdrop of post-war history, has not been in accord with the tenets of the classical liberal order. Rather, it is more akin to the "embedded liberalism" of the Bretton Woods era, which was composed of a liberal international order in trade and investment with Keynesian-welfare economics on the domestic side. Greatly influenced by the trials of the Great Depression and the Second World War, the architects of the Bretton Woods system favored the use of capital controls by national governments as a tool for preserving national macro-economic policy control, and as a means for defending stable exchange rates and the liberal international trade order. The commitment to protective economic security, which was embedded in this model and provided through a mixture of aggregate demand management, redistributive taxation, and regulation, served the cause of democracy well in combating the threats from fascism and communism. At the same time, multilateralism in trade and investment on the external side contributed to the domestic growth and prosperity upon which policies of income redistribution could be built and maintained.

The collapse of the Bretton Woods system of fixed exchange rates in the early 1970s, the rise in oil prices, chronic inflation and slumping global economic conditions, led to a fundamental reappraisal of this policy mix as well as the whole edifice of the political economy of the welfare state. Not least, the redistributive logic of the welfare state came under attack from the forces of globalization of finance, bringing home the realization that with capital mobility and flexible exchange rates, a national government's autonomy in undertaking counter-cyclical macro policy is limited, as France experienced under the socialist govermnent in the early 1980s (McCarthy, 1990). The resurgence of neo-liberalism in the 1980s and 90s, with its emphasis on free capital mobility and a more orthodox fiscal and monetary policy, and the literature related to public choice and constitutional political economy raised serious questions about the cost-benefit calculus of consent for redistribution in a democratic society, as well as the economic costs and the propensity for rent seeking behavior.

The institutional solution that is now emerging contains two clearly identifiable trends: first a thrust toward the expansion of the marketplace to areas that were previously under the control of the state, such as the provision of infrastructure services, as well as critical social services such as health and education. Secondly, there is a growing sense and recognition that questions of justice and poverty alleviation are of universal concern and central to the debate on the evolution of the world economy and the sustainability of the global democratic order. The first trend is grounded in the economic logic of efficiency and the better distribution of risk that the private provision of social services seeks to deliver.<sup>4</sup> The latter derives its legitimacy from the international redistributive justice doctrine, and a related concern for the social dimensions of the globalization process.<sup>5</sup> 6 Thus, the centrality of poverty reduction in the contemporary 4 See Dailami and Klein (1998) 5 See Bohman (1999), Beitz (1999a, 1999b), Thomas (2000), Sen (1999), Kapstein (1999) and CEPR (1998)

**6** At present, there are approximately 3 billion people living under $2 a day, widt about 1.3 billion living on less than $1 a day. This point is well-explored **in** 7h Q 4alty _of_ **_CGmnv,_** edited by Vinod Thomas.

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