Major Themes in Industrialised Societies: Social Embeddedness

 

We shall examine the concept of social embeddedness, and how Polanyi and Granovetter address the issue of the social in economic relationships.

 

Embeddedness

- Robert Holton and Don Slater & Fran Tonkiss

a) By embeddedness we mean that economic relationships are shaped by and depend on social relations. Participation in markets and organisations depend on havig a network of friends, having political power, professional interactions amongst co-workers, citizenship in a country. There are three forms of embedding: formal and legal, informal and social, and cultural and moral.

b) For capitalist markets to exist, there must be several formal embedded relationships or institutions (or rather economic process has to be instituted):

- governments must develop and enforce private property rights;

- currency issued by a government mint or central bank;

- government agencies set standards for information about commodities that market participants need; and

- the legal system to offer contract law so that transactions are legally binding agreements;

- legal system offer the bankruptcy law – a way for inefficient an unprofitable companies to be ‘killed off’.

The important role played by governments in meeting market preconditions ensures a strong link between politics and the economy, even when public involvement it government regulation is minimal.

c) Informal social relations also embed economic institutions such as markets and organisations in many cases because they ensure trust and avoid opportunistic and dishonest practices and trading:

- family businesses – family members occupy key positions in the business; though this can also be dysfunctional and inefficient (incompetent sons in charge of the business); also for global business, professional managers are employed – the rise of the corporate firms.

- economic ethnic enclaves – close-knit community of common ethnic membership ensure trust and reputation are maintained, and cheating and stealing are quickly known and punished; though enclaves limit sales to the geographical space, but gives the traders monopoly power inside the enclave.

- friendship networks – employing, trading and cooperating with friends can overcome pervasive mistrust and quickly settle disputes, this can be particularly important in doing business overseas or in new markets; though again, interacting cannot be limited to just to friends and acquaintances otherwise we would restrict what we could produce and consume.

d) Economic relationships are embedded in culture and morality, since consumption, production and distribution depends on cultural meanings and sense of responsibilities and obligations to others.

- consumption of goods requires particular cultural meanings so that consumers want to buy them; e.g., sports car with a powerful engine;

- production of goods depends on understanding what is acceptable level of exploitation of workers; what level of social inconvenience and suffering is tolerable, or what would ensure workers’ well-being? – fair wage for a fair day’s work; and

- distribution of goods draws on what goods are tradable and commodifiable, at what price they can be sold, how much degree of economic inequality os acceptable, what is legitimate tradable commodities? e.g., education and health.

Clearly, economic institutions are embedded in political, social, cultural and moral structures. These structures define and shape the economic relationships and practices in production, consumption and distribution of goods.

 

Karl Polanyi and embeddedness

a) Polanyi argues that the marker is an outcome of a historical process driven by a social class rather than a natural institution which spontaneously arises from abiding characteristics of human nature.

b) Polanyi’s contribution is that political and social impulse to tame markets had grown wherever markets had grown. With economic rationality freed from social oversight, demoralisation and environmental degradation would be inevitable. Polanyi argues:

Robbed of the protective covering of cultural institutions, human beings would perish from the effects of social exposure; they would die as the victims of acute dislocation through vice, perversion, crime and starvation. Nature would be reduced to its elements, neighbourhoods and landscapes defiled, rivers polluted, military safety jeopardised, the power to produce food and raw materials destroyed. (from The Great Transformation)

Polanyi points out the corrosive effects on human character of putting economic rationality in charge, and explained how human happiness was being diminished.

c) Embeddedness can be used in two senses:

i) to document how economic behaviour can also be seem to be social, in particular the focus on networks and their ability to establish trust; and

ii) to critique and evaluate economic rationality, the effects of economic behaviour on non-economic parts of our lives, to problematise economic goals, capabilities and functions. In effect, the aim is to examine the limitation and unintended consequences of market and economic rationality, and find ways to ensure better human existence.

 

Mark Granovetter and embeddedness

a) According to Granovetter, both under-socialised (economic) and over-socialised (sociological) accounts of social action ignore the fact that actors; behaviour is embedded in on-going social relations. If such behaviour is not embedded, then labour markets cannot function. Networks allow is to establish the embedded nature of action, By focusing on networks, we move away from the conception of individuals as slavish followers of society’s norms. Granovetter shows that people use social networks to get into jobs, and contrary to what might be expected, weak ties are more effective for getting people into work as they provide reliable information, reduce search costs and minimise transaction costs.

b) For Granovetter, friendships, obligations, reciprocity and trust were entirely devoted to the service of economic rationality, namely to getting labour markets to function, and getting people into jobs. Here, Granovetter gives a structural functional account of embeddedness, in contrast to the problematic conception in Polanyi, in which the economic and the social are in tension.

c) A proper sociology of economic behaviour would be interested in friendship, obligations and trust for their own sake, and would ask what the effect in those elements might be if they were used as a means to an economic end? What is the moral effect of creating a hybrid social form in which friendship and acquaintance are put to an economic end? Is it possible that weak ties prove more effective because people feel more confident that the moral effects of using weak ties to facilitate exchange can be minimised?