Social Identities in the Economy: Economic Sociology
- Karl Polanyi and Mark Granovetter
Embedding of markets
a) It is common to separate the economy from society, to assume that the economy is quite autonomous and self-sufficient. However, non-economic relationships are required for the reproduction of economic relations; i.e., social embedding of the economy.
While the economy refers to many social institutions, such as the market system, organisations, the state, households and the informal sector, we shall examine markets here. According to economic sociologists, to understand and explain markets means investigating social networks, how people are connected to make possible social interaction.
b) Markets are socially constructed, and not inevitable. They are possible under certain specific institutional conditions:
i) markets depend on the existence of property rights – people
don’t buy and sell things but rather the rights over those things. Property
rights are socially constructed, and evolve over time to encompass things (such
as genetic data and bio-medicine), which did not exist a decade ago. To secure
private property rights requires negotiation, struggle and resistance as in the
former
ii) sufficient number of buyers and sellers are required. This is not guaranteed, otherwise we would not have advertising. The labour market was constructed as people were deprived of and forced off communal and subsistence living (and in some cases given some minimum level of welfare benefits). Governments construct particular markets, such as the weapon markets, and allow the development of other markets, such as private education and medicine.
iii) a standard medium of exchange facilitates market exchanges. ‘Fiat’ money (such as paper money and metal coins) is a social construction because its value depends only on collective beliefs. At certain moments of post-soviet financial history, dollars, Euros and Deutschemarks were preferred to roubles.
iv) reliable information is required for markets to function, otherwise economic agents are unwilling to risk purchase or sale. Government agencies, professional associations and trade bodies regulate markets to ensure a certain level of quality and safety.
However, the market cannot create these four pre-conditions. Markets are embedded in non-market social relations. Markets do not automatically create property rights, provide accurate information, offer a medium of exchange or generate sufficient buyers and sellers. Frequently, the government plays some kind of role (e.g., labour laws, money circulation, legal standards and prescribing land use and privatisation).
c) Informal social relations are also used to solve market problems. Literature on minority ethnic businesses (e.g., Central Asian traders, Korean businesses and Jewish commerce) suggest that economic actors overcome problems of incomplete information and opportunism by dealing with actors of the same ethnicity. Such ethnic networking through family and communal ties facilitates trust and reliability. Actors will not risk losing their reputation and honour by breaking social rules.
In short, markets are embedded in formal and informal institutions, which are non-market relationships. They vary according to societies’ own specificities.
Social networks
a) Social networks help to shape (or embed) market relationships. Examples include ‘blat’, industrial barter system (soviet and post-soviet barters), mafia ties, minority ethnic business communities, professional ties and informal acquaintances.
Market transactions involve obligations, trust, mutual understandings and reciprocities. How institutions and agents act depends on the kinds of networks they are embed in. Social networks are based on trust, shared norms, common understanding of social rules and agreed sanctions (i.e., non-contractual elements). These properties facilitate and regulate economic exchange.
b) Social networks act as channels of information enabling agents to gather information about vacancies, market opportunities, innovation and so on.
Markets seem to be structured by personal connections (social networks of obligations and responsibilities), so that social identity does matter;
e.g., employment – employers hiring family and friends
credit – family finance, loans to colleagues and employees
sales – personal recommendations and ‘word of mouth’
c) There are two types of networks:
i) arm’s length – self-interested, short-term, formalised and quite specific; and
ii) embedded ties – close, repeated transactions, negotiated and highly tacit.
Embedded ties enable higher productivity, performance and competitiveness through three benefits:
i) higher trust – reduces cheating and dishonesty (lower opportunism);
ii) better information – facilitates richer, reliable and detailed information and knowledge; and
iii) effective problem-solving – given the uncertain and unknown future, individuals must co-operate to solve problems when surprises, accidents and unforeseen events occur.
d) However, too much embeddedness can become a problem:
i) too dependent on a particular set of relationships for business so become vulnerable to their financial difficulties, so need to search for new markets;
ii) relationships may be uneven and asymmetrical – not democratic esp., buyer-supplier relationships; and
iii) entrapped in closed networks so cut off from new sources of information and opportunities.
Final remarks
Seemingly markets are structured by personal and social relationships, where market actors care about personal and social characteristics of other actors. It is not only ‘price’ that matters but also their identity.
However, money can dis-embed people from particular social ties and personal characteristics, in effect liberating individuals from particular contexts. In market exchange, money acts as a form of abstract value, and not the possessor. Regardless of the agent’s identity (criminal, black, gay and working class), money remains indifferent across many social contexts.
In short, money helps to de-personalise economic transactions, so that money exchange becomes impersonal and individuals enjoy a sense of freedom from social traditional ties and obligations, and can use their money in different social context.