The Routledge International Handbook of Economic Sociology (Routledge International Handbooks) [1 ed.] 0367419939, 9780367419936
This handbook presents a systematic and comprehensive overview of economic sociology, an exemplary interdisciplinary fie
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The Routledge International Handbook of Economic Sociology
This handbook presents a systematic and comprehensive overview of economic sociology, an exemplary interdisciplinary field which draws on theoretical frameworks and empirical findings from both economics and sociology to present a unique lens on the interdependence of the economy and society. The handbook is arranged in four parts which together present the current state-of-the-art of economic sociology as well as pointing toward future directions for research. The first part outlines the theoretical foundations of economic sociology and its relations to other fields, particularly with regard to other alternative approaches to economics, and looks at conceptions and definitions of economic sociology vary. The second part provides an overview of the historical development of economic sociology from classical political economy to the present day. The third part explores the main problematics of economic sociology, analyzing the economy in relation to particular social institutions, the state, ideology, culture and art, religion, gender, race/ethnicity, and more. The fourth part focuses on the principal branches including sociology of the market, industrial organization and work, uncertainty, distribution and inequality, money and finance, and the environment. The stellar international cast of contributors is drawn from both economics and sociology, therefore presenting a holistic view of the field and contributing to a rejuvenation of economic sociology within economics. It is an indispensable reference work for researchers and students across a broad range of sociological and economic disciplines. Milan Zafirovski, PhD, is Professor in the Department of Sociology at the University of North Texas, USA. His research interests are interdisciplinary encompassing sociology and economics and focusing on economic sociology and sociological economics.
Routledge International Handbooks
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The Routledge International Handbook of Economic Sociology Edited by Milan Zafirovski
Cover image credit: © Getty Images First published 2023 by Routledge 4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2023 selection and editorial matter, Milan Zafirovski; individual chapters, the contributors The right of Milan Zafirovski to be identified as the author of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library ISBN: 978-0-367-41993-6 (hbk) ISBN: 978-1-032-48655-0 (pbk) ISBN: 978-0-367-81715-2 (ebk) DOI: 10.4324/9780367817152 Typeset in Bembo by codeMantra
Contents
List of illustrations List of contributors 1 Introduction to the Routledge International Handbook of Economic Sociology
ix xi
1
M I L A N Z A F I ROV S K I
PART I
Theoretical foundations and relations of economic sociology
55
2 The conception and definition of economic sociology
57
A L B E RT O M A RT I N E L L I
3 Economic sociology and sociological theory
76
C H R I S T I A N PA P I L L O U D
4 Economic sociology and institutional economics
96
GEOFF R EY M. HODGSON
5 Marxism or economic sociology
109
DAV I D FA S E N F E S T
6 Sociological economics: its elements in economics and its convergence with economic sociology
127
M I L A N Z A F I ROV S K I
PART II
Historical overview of economic sociology
171
7 Elements of economic sociology in classical political economy
173
R AC H A E L B E H R A N D V I RG I L H . S T O R R
vi Contents
8 Classical economic sociology
188
PHI LI PPE ST EIN ER
9 Neoclassical economic approaches to economic sociology
205
A L E X A N D E R W. C R A I G A N D N AT H A N P. G O O D M A N
10 Elements of economic sociology that reframe the dominant neoclassical economic paradigm
221
P E T E R D. B R A N D O N
PART III
Main problematics of economic sociology
231
11 The economy, social status, and solidarity
233
DAV I D W E A K L I E M
12 Social rationality and economic sociology
247
S I E G WA RT L I N D E N B E RG
13 Economy and polity
271
H A R LA N D PR ECH EL
14 Sociological and economic approaches to law and the economy. Friends or foes?
291
M A X IMILI A NO M A R ZETTI
15 Economics of convention – a transdisciplinary approach as core part of new French economic sociology
307
R A IN ER DI A Z -BON E
16 Economic sociology as comparative macrosociology: exemplified by the moral economy of debt
326
SA BIN E F R ER ICHS
17 The daily-life and moral economy
343
FILIPPO BA R BER A
18 The creative economy: production, consumption, and temporality
358
H E N R I K F Ü R S T A N D PAT R I K A S P E R S
19 Emotions and the economy
373
N INA BA N DELJ A N D JIN NA J. K I M
20 Economy and social capital, markets and social networks YA N J I E B I A N A N D L E I Z H A N G
392
Contents vii
21 Uncertainty in economics and sociology
407
R EZA AZARIAN
PART IV
Special branches and problems of economic sociology
423
22 Sociology of production, work, and industrial relations
425
CH R ISTOPH DEU TSCH M A N N
23 The sociology of economic enterprise, management, entrepreneurship, and innovation: public sector, private sector, and non-governmental organizations
442
J E R A L D H AG E
24 Fiscal sociology
461
A L E X IS SPI R E
25 Sociology of financial markets, monetary policy, and central banking
475
F R É D É R I C L E B A RO N
26 Sociology of consumption, leisure, and lifestyle: what is a theory of consumption a theory of ?
490
J Ö RG RÖ S S E L , PAT R I C K S C H E N K A N D S E B A S T I A N W E I N G A RT N E R
27 Economic growth, sociological traditions, and the restoration of social ecology in economic sociology
508
E DWA R D M . C R E N S H AW
28 The economics and economic sociology of collective action on global warming
525
DAV I D K N O K E
29 Global economy, culture, and unequal ecological exchange in late modernity: the role of fractal institutional processes in addressing imbalances
542
THOM A S J. BU R NS, BETH SCH A EF E R CA N IGLI A A N D CA R R I E M. L E SLI E
30 The sociology of sustainable development: a focus on communities 564 DA L E Y E AT T S , C H R I S T Y C O O K S E Y A N D L E I G H M E S S E N G E R
31 The future in the economy
583
M A RT I N S E E L I G E R A N D T I M U R E RG E N
Index
601
Illustrations
Figures 11.1 12.1 12.2 30.1
Beliefs about how people get ahead in the United States, 1973–2018 Dynamic interdependencies between different kinds of co-regulation Different consequences of mild-solidarity failure A model displaying components important to SCD
243 250 256 565
Tables 14.1 Differences and similarities between the EAL and ESL. Colour note: Greyer colours suggest identity or similarity (the greyer, the more similar), whereas white indicates differences 15.1 Quality conventions 15.2 Four possible worlds 15.3 Conventions of competence 15.4 Forms of valuation 15.5 The state, the market and statistics 26.1 Overview of the three approaches to consumption
300 310 314 316 316 317 504
Contributors
Patrik Aspers is Chair of sociology at the University of St. Gallen, Switzerland. He has previously worked in Sweden and Germany, and is the author of numerous books and articles. Aspers’ research focuses on sociological theory and economic sociology. He is currently working on uncertainty and marketplaces. Reza Azarian is a Senior Lecturer and Researcher, working at the Department of Sociology, Uppsala University, Sweden. His interest areas are economic sociology, symbolic interactionism, and social networks. He is the author of General Sociology of Harrison C. White: Chaos and Order in Networks (2005). He has also published a number of articles, including Analytical Sociology and Symbolic Interactionism: Bridging the Intra-disciplinary Divide (2021), Relational Habitat: A Conceptual Contribution to Economic Sociology (2020), Joint Actions, Stories and Symbolic Structures: A Contribution to Herbert Blumer’s Conceptual Framework (2017), and Uncertainty as a Common Ground for a Dialogue between Economics and Sociology (2016). Nina Bandelj is Chancellor’s Professor in the Department of Sociology and Associate Vice Provost for Faculty Development at the University of California, Irvine. An economic sociologist, Bandelj studies how social relations, culture, power, and emotions influence economic processes, including investment, debt, inequality, globalization, postsocialist transformations, and ideas about economy. She has published articles, books chapters, and six books on these topics, most recently, Money Talks: Explaining How Money Really Works (with Frederick F. Wherry and Viviana Zelizer). Bandelj serves as one of the editors of Socio-Economic Review, Treasurer of the Society for the Advancement of Socio-Economics, and Vice-President of the American Sociological Association. Filippo Barbera is Professor of Economic Sociology at the CPS Department of the University of Turin and Fellow at the Collegio Carlo Alberto (Torino). His research interests are social innovation, foundational economy, and development of marginal areas. His recent publications include Alternative Food Networks: An Interdisciplinary Assessment (2018) and The Foundational Economy and Citizenship (2021). Rachael Behr completed her PhD in Economics at George Mason University and joined the faculty at Xavier University in Fall 2022. Yanjie Bian is Professor of Sociology at the University of Minnesota, USA, and Director of the Institute for Empirical Social Science Research at Xi’an Jiaotong University, China. Author and editor of 20 books and 200 articles on social networks and
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social capital, social stratification and mobility, and Chinese society, he has received recognition from Elsevier as one of the Most-Cited Chinese Researchers in Social Science (2014–2021) and was the recipient of the Distinguished Scholarly Contribution Award from the International Association for Chinese Management Research (2020). His current projects are epidemic-specific social capital and job-search networks in China, and his most recent book is Guanxi: How China Works (2019). Peter Brandon currently works at the State University of New York. Brandon’s interests lie in the relationship between social institutions and the economy, especially as this relationship relates to economic inequality, poverty, and the welfare state. He also has interests in game theory and modeling intra- and inter-generational reciprocal exchanges and inter vivos transfers. Alongside his economic sociology research, he has studied the determinants of child and family well-being, the circumstances and dynamics of inter-generational households, and low-income families’ participation in social safety net programs. Thomas J. Burns is Professor of Sociology at the University of Oklahoma and is active in the Environmental Studies, Religious Studies, and International Relations programs there. His research focuses on the interface between the natural environment and social institutions from a comparative and historical perspective, particularly as they pertain to issues of human flourishing, sustainability, and ethics. His book with Beth Schaefer Caniglia, Environmental Sociology: The Ecology of Late Modernity, won the Gerald L. Young Book Award granted by the Society for Human Ecology. Beth Schaefer Caniglia serves as Senior Scientist Advisor in the fields of resilience and environmental justice for General Dynamics Information Technology, providing expert consultation to the U.S. Environmental Protection Agency. She holds the post of Editor-in-Chief of The Solutions Journal. Dr. Caniglia is a globally recognized expert in the area of regenerative urban development. She is author or editor of five books, including Regenerative Urban Development, Climate Change and the Common Good (2019), Environmental Sociology: The Ecology of Late Modernity with Thomas J. Burns (2016), and Resilience, Environmental Justice & the City (2017). Christy Cooksey, PhD, is an Adjunct Instructor at Texas Wesleyan University, Fort Worth. Her areas of research interest include Sustainable Community Development, Globalization, and Crime. Her dissertation, The impacts of urban sustainability on economic prosperity: Sustainability in the spotlight, is a quantitative analysis of the effects of environmental protectionism and social equity on economic prosperity at the city level. Alexander W. Craig is a Visiting Assistant Professor of Economics and Business at Beloit College. He earned his PhD in Economics from George Mason University, where he was a PhD Fellow with the Mercatus Center and a Graduate Fellow with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics. Edward M. Crenshaw, 1958–2021 – ‘A lifelong academic and charismatic intellectual, he acquired a master’s degree in Sociology from The University of Oklahoma and later a PhD from the University of North Carolina at Chapel Hill. A longtime fixture of the Ohio State University Sociology department, passed away on December 25, 2021.’ From https://www.dispatch.com/obituaries/b0057431
Contributors xiii
Christoph Deutschmann, born in 1946, is Professor Emeritus and former Chair of Sociology at the University of Tübingen, Germany. He has worked as a Research Fellow at the Institute for Social Research in Frankfurt/M at Tohoku University in Sendai, Japan, and at the Science Center for Social Research in Berlin. His research interests and publications are in the fields of economic sociology, the sociology of work, and social theory. His most important recent publication is Disembedded Markets. Economic Theology and Global Capitalism (2019). Rainer Diaz-Bone studied social sciences and applied social research at the Ruhr-University Bochum (Germany). Afterwards, he was an Assistant at the Hochschule für Musik, Theater und Medien Hannover (Germany) and at the Freie University of Berlin (Germany). His dissertation was awarded the Dissertation prize by the German Sociological Association. Since 2008 he is a Professor of Sociology with a focus on qualitative and quantitative methods at the University of Lucerne (Switzerland). His main areas of research are methodical and theoretical foundations of social sciences, economic sociology, and cultural sociology, as well as new French neopragmatic and neostructuralist sociology. He has served as President of the Swiss Sociological Association (SSA) from 2018 until 2021. Timur Ergen is a Senior Researcher at the Max Planck Institute for the Study of Societies (Cologne) and a JFK-Fellow at the Minda de Gunzburg Center for European Studies at Harvard University (Cambridge, MA). Timur Ergen’s empirical research focuses on energy transitions, economic competition, innovation and technology policy, as well as on the history of the post-industrial economy. He is a Co-Organizer of the SASE Research Network J “Digital Economy” and a member of the SASE Executive Council. David Fasenfest is an Associate Professor of Sociology and Urban Affairs, College of Liberal Arts and Sciences, Wayne State University, the editor of the journal Critical Sociology and edits the two book series Studies in Critical Social Science and New Scholarship in Political Economy. His research focuses on inequality, urban development, and Marxism. He is the author of “Emergency Management in Michigan: A Misguided Policy Initiative” (2018) in Ashley Nickels and Jason Rivera (eds.), Community Development and Public Administration Theory: Empowerment through the Enhancement of Democratic Principles; “Monsieur Le Capital and Madame La Terre on the Brink” (2017) in Molly Scott Cato and Peter North (eds.), Towards Just and Sustainable Economies: Comparing Social and Solidarity Economy in the North and South; “The Cooperative City: Building Economic Democracy” (2015), in Michael Peter Smith and Lucas Owen Kirkpatrick (eds.), Reinventing Detroit. Most recently, he is the editor of Marx Matters (2022). Sabine Frerichs is Professor of Economic Sociology and Head of the Institute for Sociology and Social Research at the Vienna University of Economics and Business, Austria. She holds a PhD degree in Sociology from the University of Bamberg, Germany, and was Assistant Professor at the Law Faculty of the University of Helsinki, Finland, where she led a project on “European Bonds: The Moral Economy of Debt”. In her research, she is concerned with intersections of law, economy, and society in Europe and beyond, theory development in socioeconomics and the economic sociology of law, and understandings of the social in the behavioral and cognitive sciences.
xiv Contributors
Henrik Fürst is a Postdoctoral Researcher in Sociology at Uppsala University and a Guest Researcher in Sociology at the University of Amsterdam. In his ongoing research, he studies the conditions for cultural production, especially career continuation and discontinuation in the creative industries. Nathan P. Goodman is a Postdoctoral Fellow in the Department of Economics at New York University, where he is affiliated with the Program on the Foundations of the Market Economy. He earned his PhD in Economics from George Mason University, where he was a PhD Fellow with the Mercatus Center and a Graduate Fellow with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics. Jerald Hage is the Director of the Center for Innovation at the University of Maryland and has published 18 books and over 150 papers. His last book, Knowledge Evolution and Societal Transformations, just appeared in paperback edition, and attempts to synthesize the bulk of social science theory, indicating the new adaptive problems created and some proposed solutions. Currently, he is working on an evaluation method for demonstrating how to study systematic coordinated organizational networks (SCIONs) with a case study of NicaSalud created after Hurricane Mitch destroyed the primitive health care system in northern Nicaragua. In addition, he is seeking to publish paper (with Wilbur Hadden) that demonstrates how SCIONs can solve the problem of social inequality in the advanced industrialized countries and represents a new coordination mode for society in addition to market and state coordination. Geoffrey M. Hodgson is Emeritus Professor in Management at Loughborough University London, UK. His principal research is on the nature, role, and evolution of social institutions. He is the author of several books, including, more recently, Liberal Solidarity (2021), Is There a Future for Heterodox Economics? (2019), Is Socialism Feasible? (2019), Wrong Turnings (2018), and Conceptualizing Capitalism (2015). He has published widely in leading academic journals, and he is the Editor-in-Chief of the Journal of Institutional Economics. His website is www.geoffreymhodgson.uk. Jinna J. Kim is a Doctoral Candidate in Sociology at the University of California, Irvine. Her research interests include economic sociology, culture, inequality, consumption, education, young adults, and identity. Her dissertation examines how young adults think about money matters, including social mobility, financial literacy, and ethical or sustainable consumption. She is a Mellon Mayes Undergraduate Fellow. David Knoke earned a PhD from the University of Michigan in 1972. He is a Professor of Sociology at the University of Minnesota, where he teaches and does research on diverse social networks, including political, economic, healthcare, intra- and interorganizational, and terrorist and counterterror networks. His most recent books are Social Network Analysis, Third Edition (2020 with Song Yang), and Multimodal Political Networks (2021 with Mario Diani, James Hollway, and Dimitris Christopoulos). Frédéric Lebaron is Professor of Sociology at the Ecole normale supérieure Paris-Saclay and member of the université Paris-Saclay, where he directs the department of teaching and research in human and social sciences (DER SHS). He also teaches at Sciences-Po Saint-Germain-en-Laye, Sciences Po Aix, and Sorbonne Université (Master in Contemporary Sociology, within the framework of the agreement with ENS Paris-Saclay). He is a member of IDHES-ENS Paris-Saclay and a Researcher
Contributors xv
associated with the Printemps laboratory (UMR CNRS-UVSQ 8085) and with CURAPP-ESS. Frédéric Lebaron was President of the French Sociological Association between 2015 and 2017. He recently published Savoir et agir: Chroniques de conjoncture (2007–2020). Carrie M. Leslie is a Doctoral Candidate in the Sociology Department at the University of Oklahoma. Her research focuses on Environmental Sociology, Peace and Justice, Gender, Race, and Class particularly as they interact with questions of Environmental Justice. She has published on various aspects of Environmental Sociology, including questions around Regenerative Development, Human Ecology, the Environment, and Public Health and Differential Mortality. She holds multiple master’s degrees, including in Anthropology and Peace Studies. Siegwart Lindenberg is Professor of Cognitive Sociology at the Departments of Sociology and the Interuniversity Center for Social Science Theory and Methodology (ICS), University of Groningen, and the Tilburg Institute for Behavioral Economics Research (TIBER), Tilburg University, both in the Netherlands. His research interests lie (a) in the development, test, and application of theories of social rationality (especially goal-framing) that deal with the influence of the social environment on norms, cooperative behavior, and self-regulation; and (b) in the application of these theories to the explanation of pro- and antisocial behavior, economic transactions, and the governance of sustainable joint production in organizations. Alberto Martinelli is Professor Emeritus of Political Science and Sociology and former Dean of the Faculty of Social and Political Sciences, University of Milan. He is Past-President of International Social Science Council and International Sociological Association; President of AEM Foundation (a2aGroup); Vice-President of Science for Peace of the Umberto Veronesi Foundation; and Grand Officer of the Order of Merit of the Italian Republic. Present research interests focus on transformations to sustainable development, the European Union, American society, nationalism and populism, states, markets, communities and global governance, and the social integration of immigrants. His main recent publications (in English) include European Society (with A. Cavalli) (2020); When Populism meets Nationalism (2018); Transatlantic Divide: Comparing American and European Society (2008); and Global Modernization. Rethinking the Project of Modernity (2005) (Italian edition 2010, Russian edition, 2006, Chinese edition 2011). Maximiliano Marzetti is a Professor of Law (enseignant-chercheur) and the Head of the Law Track at IÉSEG School of Management in France. He is also a Visiting Faculty at many European and Latin American universities. He obtained a law degree from the Catholic University of Argentina, an LLM in intellectual property from Turin University, an MSc/LLM in Law & Economics from Hamburg and Bologna Universities, and a PhD from Erasmus Rotterdam University. His research interests include Law & Economics, Law & Management, Intellectual Property, and Data Protection. Before joining academia, he practiced law in Argentina. He is fluent in English, Spanish, Italian, French, and Portuguese. Leigh Messenger is a PhD student in Environmental Science at the University of North Texas focusing on connections between health and the environment along with sustainability and human security. She earned her Master of Environmental
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Management with a focus on environmental economics and policy from the Nicholas School of the Environment at Duke University along with a certificate in International Development Policy from the Center for International Development at the Sanford School of Public Policy. Christian Papilloud is Professor of Sociological Theory at Martin Luther University in Halle (Germany). He has published several books and articles related to sociological theory and the history of French and German sociology as well as to affiliated fields like sociology of the economy and of money from the viewpoint of the theory of relation. Harland Prechel is Professor of Sociology and Energy Institute Fellow at Texas A&M University. He conducts research on economic, political, and organizational sociology and class with a focus on corporate-state relations, corporate power, and corporate change. There are two trajectories of his current research: the effects of corporations’ organizational and political-legal arrangements on (1) financial malfeasance and (2) environmental pollution and climate change. His recent book is entitled Normalized Financial Wrongdoing: How Re-regulating Markets Created Risks and Fostered Inequality (2021). Jörg Rössel is Professor of Sociology at the University of Zurich. He studied sociology, history, economics, philosophy, and statistics at the Free University of Berlin. His main research interests include Economic Sociology, Sociological Theory, Migration, and Integration. His recent publications are: Patrick Schenk, Jörg Rössel, Sebastian Weingartner: “It’s all about distinction: The lifestyle embeddedness of fair trade consumption. Sustainability” (2021); Patrick Schenk, Sebastian Weingartner, Jörg Rössel: “The cogs and wheels of authenticity. How descriptive and evaluative beliefs explain the unequal appreciation of authentic products” (2021); Georg Datler, Jörg Rössel und Julia Schroedter: “What is Europe? The Meaning of Europe in Different Social Contexts” (2021). Patrick Schenk, PhD, is Postdoctoral Researcher at the Department of Sociology at the University of Lucerne, Switzerland. He studied Sociology, Economics, and Philosophy at the University of Zurich, Switzerland. His main research interests are economic sociology, cultural sociology, sociology of morality, and sociology of technology. His recent publications include: Schenk, Patrick (2021): “Karpik in the Bottle: Can Judgment Devices Explain the Demand for Fine Wine? Kölner Zeitschrift für Soziologie und Sozialpsychologie”; Schenk, Patrick, Jörg Rössel, and Sebastian Weingartner (2021): “It’s all about Distinction. The Lifestyle Embeddedness of Fair Trade Consumption. Sustainability”; Schenk, Patrick (2020): “Wenn der Supermarkt nicht genügt. Einkaufsorte und soziale Distinktion im Feld des fairen Handels [When the supermarket is not enough. Shopping destinations and social distinction in the field of fair trade]”. Martin Seeliger is Head of the research group on “Institutional Change and Labor” and Co-Director of the Institute for Labour and the Economy at the University of Bremen. He is interested in European integration, the politics of international trade unionism, and cultural studies. He is also one of the founding editors of the Journal of Political Sociology.
Contributors xvii
Alexis Spire is Research Director at the National Center for Scientific Research (CNRS), currently associated with the École des Hautes Études en Sciences Sociales. His PhD examined the role of street-level bureaucrats in immigration policy (Étrangers à la carte, Grasset, 2005). He then worked on the evolution of social inequalities in Europe (Social Class in Europe: New Inequalities in the Old World, 2020). For several years, his research interests have included inequalities in the implementation of tax law (Résistance à l’impôt, attachement à l’État, Seuil, 2018). Philippe Steiner, trained both in economics and sociology, is Emeritus Professor of Sociology at Sorbonne University (Paris, France) and former fellow of the Institut Universitaire de France. He published extensively in economic sociology and the history of social sciences. His publications include Durkheim and the Birth of Economic Sociology (Princeton University Press, 2011), Marchés contestés (Toulouse, Presses du Mirail, 2014, with Marie Trespeuch), Donner… Une histoire de l’altruisme (Paris, Presses Universitaires de France, 2016), Calculation and Morality in the Abolition of Slavery in France (with C. Oudin-Bastide, Oxford university Press, 2019). Recently he has published on the economic sociology of matching (Comment ça matche. Une sociologie de l’appariement, Paris, Presses de Sciences Po, 2022, with Melchior Simioni,) and on the economic sociology of festivities (Faire la fête. Une sociologie de la joie, Paris, Presses Universitaires de France, 2023). Virgil H. Henry Storr is an Associate Professor of Economics at George Mason University. David Weakliem was a Professor of Sociology at the University of Connecticut until his retirement in 2021. He is Editor-in-Chief of Comparative Sociology and President of the Research Committee on Comparative Sociology (RC20) of the International Sociological Association. Sebastian Weingartner, PhD, is Postdoctoral Researcher at the Department of Sociology at the University of Zurich, Switzerland. He studied sociology, political science, social science research methods, and psychology at the University of Mannheim, Germany. His main research interests are social inequality, cultural consumption, digitization, cultural policy, and sociological theories of action. His recent publications include: Sebastian Weingartner, Patrick Schenk, Jörg Rössel (2021): The cogs and wheels of authenticity. How descriptive and evaluative beliefs explain the unequal appreciation of authentic products; Sociological Perspectives. Sebastian Weingartner (2021): Digital omnivores? How digital media reinforce social inequalities in cultural consumption. Dale Yeatts, PhD, is a Professor of Sociology at the University of North Texas, Denton. He has published over 50 refereed journal articles and three books. His areas of focus include environmental sociology, medical sociology, and complex organizations. His most recent funded work includes a focus on the social and economic environments and their impacts on the health of persons who are recently discharged from the hospital. Milan Zafirovski, PhD, is Professor in the Department of Sociology at the University of North Texas, USA. His research interests are interdisciplinary encompassing
xviii Contributors
sociology and economics and focusing on economic sociology and sociological economics. He is the editor of A Modern Guide to Economic Sociology (published in 2020) and International Handbook of Economic Sociology (forthcoming). Lei Zhang is Assistant Professor of Sociology at the University of Colorado Colorado Springs, USA. Dr. Zhang’s areas of specialization focus on quantitative investigations of social networks and social capital effects on social stratification and mobility, subjective well-being, and housing issues. His current work explores how social capital and meritocracy jointly defined the chance of upward mobility through keju in the early Ming dynasty using the historical archive of the China Biographical Database.
1 Introduction to the Routledge International Handbook of Economic Sociology Milan Zafirovski
The present volume constitutes an International Handbook of Economic Sociology as a long-established, dynamic and indeed growing field within sociology, as well as to some degree in economics, especially its sociologically minded currents. The handbook considers economic sociology an inter- or trans-disciplinary field in the sense of being a subdiscipline formally of sociology and substantively of economics and even nominally during recent times. For example, the semi-official classification system1 of modern economics fields and topics incorporates ‘Economic Sociology’—and relatedly ‘Sociology of Economics’ as part of sociology of knowledge and science, hence, to be distinguished from sociology of the economy as the essence and meaning of economic sociology—just as does contemporary sociology. Consistent with this consideration, the volume comprises timely contributions from both contemporary economic sociologists and sociologically minded economists with theoretical and research interests and writings in this and closely linked subdisciplines, including socio- or social economics, institutional economics and political economy. In general, a certain theoretical or empirical correspondence and reciprocal affinity appear to exist between economic sociology formally within sociology and its substantive variations or approximations in sociologically minded segments of economics, as respective separate but interconnected and overlapping sister or allied social-science disciplines theorizing and investigating the economy as either explicitly or by implication in connection with society. The latter holds true unless ‘pure’ economists claim or pretend that their discipline is instead a branch of natural science like physics, mechanics or mathematics, which seems a logical non sequitur and an empirical fallacy so long as the economy, including the market, is an inherent and inseparable element of society or a subsystem of the social system, as an essential premise and finding of economic sociology, as well as sociologically minded economics. Of course, such a correspondence and affinity are virtually complete and indeed axiomatic between the conception and designation of economic sociology within sociological theory and research and its idea or term in theoretical and empirical economics, as in the current semi-official classification system of the latter and even before. Sociology since its birth comprises a substantive conception of economic sociology, as Comte already demonstrates by its program of a sociological ‘inquiry into the social economy’, although its formal designation comes later, as with Durkheim, Weber and other late classical sociologists. Moreover, economics occasionally proposes or adopts the idea of ‘economic sociology’ which as a term a ‘pure’ neoclassical economist ( Jevons) probably invents and another (Schumpeter) fully embraces, consistently elaborates, systematically rediscovers its elements in a myriad of other economists and reformulates, with the
DOI: 10.4324/9780367817152-1
2 Milan Zafirovski
recent result of its substantive and nominal incorporation in modern economics through a semi-official classification. In this respect, economic sociology both in substantive and formal terms, as a concept and term alike, develops and exists in sociology as well as economics, even though it tends to be more manifest and probably salient in the first discipline, with some variations within the second, for example, Schumpeter, as its most consistent and prominent exponent influenced by Weber’s sociological analyses of the economy. To that extent, the correspondence and affinity become a proxy substantive identity or functional equivalence—as between Durkheim-Weber’s versions of economic sociology and that of Schumpeter—with some formal variations in method or terminology just expressing those between sociology and economics as distinct and separate, even if sister social-science disciplines. In fact, it is the shared substantive conception or formal designation of economic sociology that primarily makes sociology and economics the two sister disciplines or among allied social sciences as a whole, more than does any other commonality between the two, including the ‘economic approach’ to social action or ‘rational choice theory’ as essentially a different and even contradicting theoretical and methodological endeavor.2 Apart from the preceding, the correspondence and affinity are substantial and profound between economic sociology within sociology and its substantive equivalents, analogues or proxies, even without containing explicitly the term, in sociologically minded or socially oriented empirical and theoretical economics. Thus, economic sociology essentially corresponds to and shows a strong affinity with social economics or social economy, including political economy in the modern modified sense, original institutional economics, in part behavioral economics, among others. Moreover, economic sociology substantively, even if not formally in respect of terminology, equates with sociological or socioeconomics as its substantive equivalent and synonym within economics, with some variations, while connecting to these other concepts as its analogues or proxies in the latter. In particular, the institutionalist conception of economic sociology in sociology and economics—as in Durkheim’s rendition premised on sociological institutionalism consistent with defining sociology as the ‘science of institutions’ and Schumpeter’s definition of economic sociology in terms of analyzing ‘social institutions’—corresponds to institutional economics, especially its original version, albeit with certain differences,3 though less to its ‘new’ version, aside from some variations.
Multiple discoveries in economic sociology As a special manifest and salient expression of such a correspondence and affinity, a tendency develops and persists toward multiple independent, including simultaneous, discoveries and rediscoveries in economic sociology by both sociology and economics, especially its sociologically oriented currents such as social economics, political economy in the broader sense and institutional economics. In short, both sociologists and sociologically minded economists tend to make parallel discoveries and rediscoveries in economic sociology, expressing the correspondence/affinity between the latter and its implications in economics. This tendency forms a special expression and facet of the pattern of multiple independent, including simultaneous, discoveries and rediscoveries in natural and social
Introduction 3 4
science (Merton 1968; also, Alexander 1982; Parsons 1967). These discoveries and rediscoveries in science, including sociology and economics, involve ‘substantively identical or functionally equivalent ideas and empirical findings’ relevant to economic sociology, although their ‘substantive identity or functional equivalence’ may not be easy to establish (Merton5 1968). Notably, it follows that they may include multiple independent and even simultaneous discoveries and rediscoveries which both sociologists and sociologically minded economists make in economic sociology, such as those occurring within a few years and perhaps a decade or so (Merton 1968). In passing, the most cited, near-consensual exemplar of such discoveries in conventional economics is probably the ‘discovery’ of the idea or principle of marginal utility as the supposed chief determinant of exchange value and prices by Jevons, Menger and (Leon) Walras6 during the early 1870s, as the presumed ‘Copernican revolution’ in pure economic theory (Parsons 1935a; Schumpeter 1954; also, Hicks 1961; Hicks and Allen 1934; Medema 2009; Samuelson 1983; Schabas 2014; Stigler 1950; Yonay 1998). An analogous, but more controversial, instance of such discoveries in sociology in conjunction with economics is the supposedly convergent discovery and formulation of the ‘voluntaristic’ (‘common value system’) theory of social action by sociologists Weber and Durkheim, economist-sociologist Pareto and the ‘most eminent economist of his generation’ Marshall (Parsons 1967; also, Alexander 1982; Camic 1992; Costa-Font and Macis 2017; Guillen et al. 2005; Smelser and Swedberg 2005). Exemplifying the above pattern of discovery in science, economic sociologists and sociologically minded or social, political and institutional economists often make multiple independent, including near-simultaneous, discoveries by discovering and formulating substantively identical or functionally equivalent conceptions and empirical findings. Moreover, they make a multiple independent, virtually simultaneous, discovery and formulation, as well as rediscovery and reformulation, of the master concept and term economic sociology itself that hence belongs to and becomes a subfield of both sociology and economics. This tendency starts with the birth of classical economic sociology and later classical political economy through the mature stage of the first and parts of neoclassical economics to early contemporary sociology and economics and the new economic sociology and sections of modern economics. Thus, many early and contemporary sociologists and sociologically minded economists discover or rediscover and formulate or reformulate various concepts, elements and facts of economic sociology— just as the latter itself as a concept or term—independently of and often simultaneously with each other as professional social groups or scientific communities. Such instances range from multiple independent, nearly simultaneous discoveries and formulations, rediscoveries and reformulations of the social economy and institutionalism in classical sociology and political economy and segments of neoclassical economics, as well as its heterodox variant, to the social constitution or structuration and determination or embeddedness of economic activities in early and contemporary sociology (and anthropology), along with parts of economics. A more detailed list includes further instances such as the social nature and conceptions of exchange value/prices, wealth production and distribution, market, competition and non- and quasi competitive market processes and structures, entrepreneurship and invention/innovation, the ideas of statics and dynamics, among others, in sociology and economics alike. The following will consider these examples of multiple independent discoveries and rediscoveries in economic sociology by both sociology and economics.
4 Milan Zafirovski
Instances of multiple discoveries in economic sociology The ensuing consideration places emphasis on original multiple independent, including simultaneous, discoveries by sociologists and sociologically minded economists in economic sociology as well as on their early rediscoveries, and less on their subsequent derivative replications in contemporary economics and sociology since these are so numerous that their discussion and even enumeration would require another chapter. A general and foremost instance of multiple independent, near-simultaneous discoveries in economic sociology which both sociologists and sociologically minded economists make is the discovery of the idea and fact of the social economy by classical sociology since Comte and classical political economy after J. S. Mill and post-Smith.7 Thus, both classical economic sociologists and classical political economists discover and formulate the empirical finding and notion of the social economy as the common subject-matter and domain of their disciplines. Furthermore, they make such discoveries and formulations almost simultaneously in the sense of a span of few years or in extension a decade or so, such as the 1830s–1840s. The social economy in classical economic sociology and classical political economy represents and signifies the economy of society, thus the economic sector or subsystem of the social system, a socially implicated, structured and determined or conditioned economy (also, Bourdieu 2005; Granovetter 2017; Jackson 2014; Jackson, RodriguezBarraquer and Tan 2012). In consequence, each of the two disciplines constitutes the science of the social economy as their shared object of study and their scope of application. In turn, this substantive, empirical conception of the social economy, Comte’s original term, as an economic reality and to that extent ontology and a constituent of society, generates and corresponds to the formal scientific notion of a ‘science of social economy’, J. S. Mill’s expression restating J. B. Say’s ‘social economy’, as a branch of knowledge and in that sense epistemology or epistemics.8 Consequently, the social economy and science of social economy each has its own respective ontological/reality and epistemological/theoretical dimensions and concerns (Addleson 1995; Dixon and Wilson 2013; Hodgson 2013; Lawson 1997; Mäki 2002; McCloskey 1998; Mises 1960; Shackle 1972; Tetlock, Mellers and Scoblic 2017). Alternatively, the ‘science of social economy’, simply ‘social economics’, implies and rests on the substantive, empirical conception of the social economy in that it recognizes that the economy is inherently a socially constituted, structured and conditioned or embedded process and structure by being a constitutive component, creation and function of society (Bourdieu 2005; Granovetter 2017; Ioannides and Loury 2004; Jackson, Rogers and Zenou 2017; Kranton 2016). Overall, the social economy in the sociological sense of the economic structure of society, just as social economics as a theory of the economy, experiences multiple independent, including nearly simultaneous, original discoveries and formulations in early classical economic sociology and later classical political economy during the 1830s–1870s, as Comte and Spencer on one hand and Mill, Marx and Cairnes on the other illustrate. Furthermore, the social economy, along with social economics, undergoes corresponding rediscoveries and reformulations in later classical economic sociology and sociologically minded segments of neoclassical economics during the 1870s–1920s, as Tönnies, Durkheim, Weber and Pareto (as sociologist) and Walras, Wicksell, Wieser and Cassel, respectively, show. Specifically, in early classical sociology, its nominal founder Comte during the 1830s probably first made the discovery and explicit formulation of the theoretical concept
Introduction 5
and empirical finding of a ‘social economy’ and its ‘various functions’, as the principal and general element and subject of economic sociology and by implication of political economy and in extension social economics. Notably, Comte (1983: 59, 274–276) posits that the ‘whole social economy’ with its various functions is ‘naturally implicated’ in the social system as the overarching whole and forms one of its parts, including its polity envisioned to intervene in the ‘performance’ of these functions in the aim of maintaining the holistic idea of society, implying the social, including institutional, embeddedness of economic processes. Furthermore, Comte (1983: 243) proposes a sociological ‘inquiry into the social economy’ and thus by implication economic sociology (without using the term), including the ‘positive theory of material prosperity’, ‘wealth accumulation’ and ‘capital’. In addition, Comte distinguishes the ‘ancient’ social economy consisting of slavery and war from the modern social economy incorporating also art seen as excluded from its prior forms. On this account, Comte reappears as the probable discoverer of the concept and fact of the social economy in the sense of the economic segment of society and by implication the societal embeddedness conception and to that extent of economic sociology hence effectively discovered with the discovery of sociology (Granovetter and Swedberg 1992; Smelser and Swedberg 2005). A decade or so afterward, within later classical political economy during the 1840s, Mill also discovers and formulates, thus rediscovers and reformulates, the idea and existence of a social economy even if by implication or substantive interpretation. Thus, Mill (1968: 135–136) proposes a ‘science of social economy’ or simply ‘social economy’ as an alternative designation and extension of economic science instead of political economy and hence implies that its object is the social economy in Comte’s substantive sociological sense, while implicitly referring to J. B. Say’s (1964) different, epistemic notion of ‘social economy’9 as a science, social economics (Forget 1999). Mill (1968: 135–137) specifically implies the social economy a la Comte by such concepts as an economy in a ‘state of society’, the ‘social state’, the economic ‘conduct or condition of man in society’ and the economy ‘as modified by the social state’. Relatedly, Mill (1968: 156) considers political economy in the sense of traditional economic science as the study of wealth a branch of the ‘science of social economy’ or ‘social philosophy’ and thus implicitly, as Comte does explicitly, of sociology. On this account, Comte’s idea of the social economy explicitly and Mill’s proposal of social economy by implication qualify as an example or proxy of multiple independent, including nearly simultaneous, discoveries and formulations in economic sociology or social economics. More precisely, Comte’s social economy is an original discovery or pre-discovery and that of Mill as a later discovery or rediscovery that is, however, just partly independent given, along with the economic influences of Say and in extension Smith, the sociological influence of Comte10 (Mill 1873; also, Bladen 1941). Another subsequent instance or proxy of multiple independent and proximate simultaneous rediscoveries in economic sociology or social economics includes Comte’s and Mill’s respective successors Spencer and Cairnes. For illustration, Spencer (1970: 344) adopts the concept of a social economy in the Comtean sociological sense by virtue of involving both ‘conservative’ and ‘reforming’ social forces. In turn, Cairnes (1967: 68) identifies and emphasizes the ‘existence of non-competing industrial groups as a feature of our social economy’ hence also understood a la Comte and implicitly Mill. More broadly, following Mill and partly Comte, Cairnes (1965: 56–58) implicitly rediscovers the social economy as an integral part of the structure, development or progress of society. Around the same time as Mill and Cairnes, Marx (1967: 14–15; 91–93)
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independently discovers, formulates and emphasizes capital as ‘social property’ and thus by implication capitalism as a social structure and generally ‘social production’, the ‘social process of production’, and to that extent the social economy. More precisely, this discovery of capitalism and any economy as the social economy qualifies as a rediscovery, reformulation and reemphasis in relation to Comte in sociology and Mill in economics. Overall, early classical sociology after Comte and classical political economy since Mill mark the initial multiple independent, almost simultaneous, discovery and formulation of and emphasis on the social economy which their later, including neoclassical and contemporary, developments and representatives rediscover, reformulate and reemphasize many times. Thus, later classical economic sociology and sociologically minded parts of neoclassical economics during the 1870s–1920s rediscover, reformulate and reaffirm the social economy either explicitly, as does the first, or by implication, as mostly does the second. Within mature classical sociology during the 1880s–1920s, Tönnies (2001: 122) implicitly rediscovers and reformulates the social economy by treating capitalism (Gesellschaft) as a ‘certain kind of social system’ or its component. In addition, he considers not only capitalism but also pre- and post-capitalist ‘communism and socialism’ to be ‘historical social systems’ and to that extent social economies in the substantive sense of Comte (also, Phelps 2007). Even more explicitly, Durkheim (1976: 112) rediscovers and restates the social economy a la Comte as an economic system of the total societal system, including the ‘social economy’ of both simple tribal and complex modern societies. Consequently, elaborating on Comte, Durkheim (1982: 172–174) conceives the economy as inherently a social economy by developing and functioning as a constitutive and inseparable component of society, which is indeed historically secondary and empirically subordinate to societal non-economic realms like culture, including religion, contradicting the ‘materialist conception of history’ that attributes primacy to the ‘economic factor’ (also, Granovetter 2017). Also, echoing Comte, Pareto (1927: 429) rediscovers the social economy as the integral element of society and inherent form of the real-life economy, which ‘mutability’ pervades in varying degrees and shapes, notably radical change via ‘violent revolutions’ manifesting class/elite conflicts. Following Comte and converging with Durkheim, Pareto (1932: 1313) conceptualizes the economy and its states as ‘particular cases’ of the ‘sociological system’ in the sense of society and its general state as an overarching social structure and to that extent as a socially constituted and situated economy. Specifically, Pareto (1932: 1315; 1963: 1442) characterizes the economic system as composed of logical units (‘molecules’) and actions moved by ‘tastes’ and sustained by the ‘connections of obstacles’ to the acquisition of ‘economic goods’ and the social or ‘sociological system’ as much more ‘complicated’ because it encompasses subjects characterized with ‘residues, derivations, interests, and proclivities’ alike and thus performing both ‘logical and non-logical actions’11 (also, Costa-Font and Macis 2017). In addition, Weber (1949: 65) rediscovers and restates the social economy in Comte’s12 sense by implication through the ‘science of social economics’ (traced to Marx and early historical economics) whose scope is ‘almost overwhelming’ by encompassing both purely economic processes and those social phenomena and relations that are ‘economically relevant’ and ‘economically conditioned’. Weber (1968: 68, 79) implies that the social economy as an intrinsic economic reality of society is the subject-matter of social economics as an integral economic science that comprises the ‘field of economic
Introduction 7
sociology’ understood as an analysis of ‘sociological categories of economic action’, a ‘sociological theory of the economy’, simply the ‘sociology of the economy’, which while starting with the ‘theoretical insights’ of economic theory elaborates its own ‘theoretical constructs’ transcending the supposition of isolated actors within orthodox economics (also, Dobbin 2005; Portes 2005; Smelser and Swedberg 2005; Swedberg 1998). Neoclassical economics during the 1870s–1920s also rediscovers or restates the social economy in Comte’s sense of an economic sector of society even if mainly by implication through its epistemic equivalent social economy or ‘social economics’ in Say-Mill’s meaning. Echoing Mill and Say (Leon) Walras (1926: 5, xi; 1936a: 120; also, 1936b) reconstructs social economy as one of the three parts of economic science, in being the ‘theory of division of social wealth’, specifically the ‘theory of distribution of social wealth by property and taxation’, together with ‘pure’ political economy as the ‘theory of social wealth’ and the ‘theory of the determination of prices under a hypothetical regime of absolutely free competition’, and ‘applied’ political economy as the ‘theory of agricultural, industrial and commercial production of social wealth’ (‘social wealth’ is also found in Comte 1983; Say 1964). To that extent, Walras—the ‘greatest of all economists’ in Schumpeter’s (1954: 827) judgment—formally implies the social economy in Comte’s sense as the realm of production and distribution of social wealth and thus the domain of this special branch of economic science termed social or socioeconomics (Burgenmeier 1994). Further, Walras (1926: 449) substantively implies the idea of the social economy a la Comte by the concept of an ‘economic society’, even admitting that the latter could not effectively function ‘without intervention by some authority’, especially its political form through the state (also, Sandmo 2007). Wicksell (1934: 5) closely follows Walras in constructing social economy as one of the three branches of economics—together with pure or theoretical and applied political economy—which he defines as an investigation of the application of ‘economic laws and practical precepts’ for the aim of realizing the ‘most possible social gain’ and of the necessary changes in the ‘existing economic and legal structure of society’. Especially, the last part of this definition suggests the notion of the social economy in the substantive, empirical sociological sense—the economic structure of society. In addition, converging with Weber, Wieser (1967: 152–153) implies the social economy in this sociological meaning by his project of ‘social economics’ as a division of economics through an ‘inquiry into the social relations of the economy’ and involving the ‘sociological problems of economic theory’, thus being virtually identical to economic sociology and more limited than the Weberian ‘science of social economics’. Notably, the first part of the definition of social economics implies the idea of the social economy in this meaning—the ‘social relations of the economy’ reminiscent of Comte’s notion of the social system encompassing the latter as one of its parts—and thus implicitly admits of the social structure of the economy (Bourdieu 2005). More explicitly, Cassel (1928) advances the idea of a ‘rationally regulated social economy’ in the framework of ‘a rationally organized society’, virtually in the manner of Comte, as well as Cairnes and Walras, which suggests that the economy is really a social economy by being the object of rational regulation or intervention by the state and society, as Keynes especially argues and elaborates. For illustration, around the same time, Keynes (1936: 295–298; 1960: 155, 161, 325; 1972: 67, 133, 225, 329) implies Cassel’s idea of a social economy by expressions like social psychology, including the ‘psychology of the community’ and the ‘mass psychology of the market’ driven by actors’ ‘animal spirits’ with their ‘waves’ of optimism and pessimism, social organization, social
8 Milan Zafirovski
stability, social income, social justice and injustice, social customs and social advantage (also Akerlof 2002, 2007; Akerlof and Shiller 2009). In addition, Cassel (1928) conceives ‘a social economy under dynamic conditions’ and identifies the ‘pernicious’ effects of the ‘cyclical movement’ of trade on ‘social economy’ evidently understood in the ontological sense of Comte rather than the epistemic meaning of Say’s social economics. As a corollary, like Mill and Weber, Cassel (1929) conceptualizes and expounds economics as a ‘theory of social economy’ and thus suggests that its subject/realm is axiomatically the social economy in Comte’s substantive terms (though ‘social economy’ here can also be understood in an epistemic sense analogous to political economy or social economics). Among Cassel-Keynes’s contemporaries, Schumpeter (1939: 13, 499) realizes that the ‘very foundations of economic organisms’, particularly business cycles (including the Great Depression), are ‘politically shaped’ and generally influenced by ‘sociological reasons’, such as the ‘typical capitalist pattern of cultural values and motives’, and thus suggests that the economy is a socially conditioned entity, and Knight (1944) embraces the notion of the ‘social economy’ (also social economy as economics in Bye 1950). Taken together, these neoclassical and early contemporary economists rediscover or reformulate the social economy as the economic sphere of society by implication or explicitly, just as do contemporaneous classical sociologists, which indicates a multiple independent, nearly simultaneous, rediscovery or reformulation in economic sociology or social economics. Lastly, both contemporary economic sociology and sociologically minded or social economics rediscover, reformulate and reemphasize in multiple and varying ways the social economy in the sense of a socially constituted, structured and conditioned economy explicitly or by implication through the epistemic notion of social economics/economy (Blume et al. 2015; Bourdieu 2005; Costa-Font and Macis 2017; Granovetter 2017; Jackson 2007; Maccheroni, Marinacci and Rustichini 2014). Discovering and rediscovering the social economy therefore entails or leads to multiple independent, including nearly simultaneous, discoveries and formulations of a corollary empirical finding and conception implied in and derived from the concept. This is the social constitution or structure and determination or conditioning of the economy as the probably most fundamental theoretical premise and empirical finding of economic sociology, as well as social economics. Comte (1983: 274–276) in initial classical sociology discovers and states this principle and fact in his treatment of the social economy as an integral element of the social system and as subjected to the constant and pervasive influence of the latter as a whole on it as a part, including the intervention by government, so that diverse economic activities and functions are ‘implicated’ and thus embedded in society as the complex of ‘relations of greater generality’. Around the same time or sometime afterward, Mill, Cairnes and Marx more (the last) or less (the first two) independently discover and state or imply this principle and finding in their own ways within later classical political economy. Then mature classical and contemporary sociology and sociologically minded parts of neoclassical and modern, especially social, economics perform multiple independent, almost simultaneous, and recurring discoveries and formulations, so rediscoveries and reformulations, of the above theoretical premise and empirical fact. Both contemporary economic sociology and sociologically minded or social economics rediscover, reformulate and reemphasize these ideas and facts in the form of the conception and evidence of the social, including institutional, structuring and determination of economic, including market, processes that reaches the status of their shared paradigm and datum during recent times (Akerlof 2002; Bourdieu 2005; Costa-Font and Macis 2017; Engl, Riedl and Weber 2021; Fligstein and Dauter
Introduction 9
2007; Granovetter 2017; Hodgson 1999; Jackson 2014; Jackson et al. 2017; Ostrom 2010; Polanyi 1968a; Williamson 2000). An epistemic corollary of discovering the social economy and hence its social constitution and determination is the multiple independent, including nearly simultaneous, discovery and formulation of the conception of economic sociology and in part economics such as political economy or social economics in these terms. In short, this is the path of discovery from that of the social economy to discovering the analysis of the social economy as the essence of economic sociology, as well as social economics and even of political economy in some classical views. As typical, Comte discovers and formulates such a substantive conception of economic sociology (and political economy) in terms of an ‘inquiry into the social economy’ as a constituent, creation and function of society as the overarching social system, thus equivalent to social- or socioeconomics (Etzioni 1999; Granovetter and Swedberg 1992; Rutherford 2001). As usual, then Mill largely follows or parallels Comte in classical political economy by discovering or defining the latter as the ‘science of social economy’ or more precisely its branch while referring to Say’s idea of ‘social economy’. Many later classical sociologists and neoclassical economists repeatedly rediscover and restate the conception of economic sociology, as well as social economics, as the theory and analysis of the social economy, as Durkheim and Weber among the first,13 and Jevons and Walras among the second, and Pareto and Schumpeter among both, especially demonstrate. Lastly, contemporary economic sociologists and sociologically minded or social economists make such rediscoveries and reformulations by treating the conception and investigation of the social economy and its societal constitution and conditioning as the shared focus of their disciplines. As the preceding implies, the process of multiple independent and simultaneous discoveries and formulations encompasses economic sociology itself as a concept and term. First and most importantly, one can identify a multiple independent and to some degree simultaneous discovery and formulation of the substantive concept of economic sociology. Comte (1983: 224–227) postulates economic sociology in substantive terms as a branch of sociology that consists of a study of the social economy, namely the economy as an inseparable part and product of society regarded as a whole according to the ‘laws of action and reaction’ of various parts of the social system, a ‘spontaneous harmony’ between its whole and parts and determination by the whole of the parts.14 To that extent, the invention of sociology as a conception of general social science marks that of economic sociology as an idea of a sociological analysis of the economy, including what he describes as the positive sociological ‘theory of material prosperity’, which helps explain the originality and relevance of Comte as the discoverer in this regard, yet overlooked by modern economic sociologists, aside from rare exceptions (Granovetter and Swedberg 1992). In short, Comte substantively discovers economic sociology in the sense of a conception and inquiry (but not yet as a term) as a special, unavoidable facet of discovering sociology (Schumpeter 1954; Smelser and Swedberg 2005). Then in later classical political economy Mill (1968: 135–136), largely following or paralleling Comte, almost simultaneously, though just partly independently in light of Comtean influences, discovers and formulates substantively the concept of economic sociology in the sense of a ‘science of social economy’ investigating the economy, notably wealth, in the ‘social state’. This seems essentially equivalent to economic sociology, as well as analogous to Comtean general sociology (Schumpeter15 1950a). The same applies, with some qualifications, to the two last major representatives of later classical political economy Marx and Cairnes due to their generally similar
10 Milan Zafirovski
treatment of capitalism and the economy overall as a ‘social process of production’ and a ‘social economy’, respectively, and thus its societal constitution and determination. Overall, on this account, Comte in initial classical sociology and Mill, along with Marx and to some degree Cairnes, in later classical political economy appear as mostly or partly independent and almost simultaneous, in extended terms of a decade or more, inventors and exponents of economic sociology as a substantive concept versus a term, albeit Comte comes most closely to its formal terminological invention. The next phase consists of an independent and nearly simultaneous rediscovery, reformulation and elaboration of the substantive concept of economic sociology in mature classical sociology, as well as sociologically minded neoclassical economics. Among later classical sociologists, Durkheim (1994: 80) uses the substantive concept and even the formal designation of economic sociology and specifies its subject-matter as consisting of ‘economic institutions’ exemplified by those pertaining to the production, distribution and exchange of wealth, evoking Say and Comte. In addition, Weber (1968: 63, 79) explicitly delineates and names the ‘field of economic sociology’ as a part of both social economics and sociology and understood in the sense of the ‘sociology of economic action’ analyzing the ‘sociological relationships in the economic sphere’. More implicitly, Tönnies (2001: 122) conceives economic sociology as the sociological analysis of capitalism as a ‘kind of social system’ and in extension of ‘communism and socialism’ treated as ‘historical social systems’. Simmel (1990: 101, 172) implies the substantive conception of economic sociology, especially in his ‘philosophy of money’, exchange value and market processes, treating money as ‘entirely a sociological phenomenon’ and economic exchange as a ‘sociological phenomenon sui generis’, which Durkheim (1979) denotes ‘a work primarily concerned with economic sociology’. Within sociologically minded segments of neoclassical economics, Wicksteed (1934: 784) implies the idea of economic sociology by his striking conclusion that ‘economics must be the handmaid of sociology’, including the sociology of the market by the observation that the latter has by implication always been implicated in and influenced by society (‘never has been left to itself ’). Following or converging with Weber, Wieser (1967: 152–153) implicitly defines, evoking Comte, economic sociology as an ‘inquiry into the social relations of the economy’ and as involving the ‘sociological problems of economic theory’. In addition, J. B. Clark (1899: 187) proposes a division of economic science ‘based on sociological evolution’ and to that extent implies economic sociology or sociological economics as one of these divisions (also, Akerlof 2002; Knight 1958; Lewin 1996; Solow 1990; Weiller and Homme 1958). Furthermore, Marshall (1961: 618) approvingly notes that Sociology ‘recognizes the need for the intensive study of economics and other branches of social science’ and thus implies economic sociology16 as a subfield of sociology, or sociological economics as a branch of economics (Reisman 1990). Even more explicitly and consistently, Pareto (1932: 1313–1317) as a neoclassical economist-turned late classical sociologist admonishes that the study of many economic facts is incomplete and even impossible without the ‘aid of sociology’ and thus provides a scientific, epistemic rationale for economic sociology to supplement, although not supplant, economics, as well as by suggesting that economic states should be considered ‘particular cases of the general states of the sociological system’ provides a real-life, ontological foundation for it. Taken together, the period of the 1870s–1920s marks not only an independent, simultaneous discovery, formulation and elaboration of the marginal utility theory of exchange value and prices—and wealth distribution through the marginal productivity
Introduction 11
principle—in neoclassical qua marginalist economics in these terms (Samuelson 1983; Schabas 2014; Schumpeter 1954; also, Merton 1968). This time also witnesses a rediscovery, reformulation and elaboration of economic sociology as a substantive concept and subfield in mature classical sociology and sociologically minded currents of neoclassical economics. In passing, marginal utility (and productivity) theory ultimately turns out to be far from a panacea and what Schumpeter (1954: 919) exalts as a ‘Copernican revolution’ in economics, but, as in Marshall’s synthetic solution (after the image of a pair of scissors), a short-term explanation of prices versus the Ricardian cost of production theory as the long-term determinant (also, Samuelson 1983). Moreover, marginal utility theory looks as an analogue, together with Marx’s labor theory, of the metaphysical search for the absolute, or the first principle, solely determining and explaining, as a deus ex machina, exchange value, prices and even all economic phenomena, a marginalist equivalent17 of the ‘Classical Classical Fallacy’ in this respect (Samuelson 1994). To that extent, the substantive rediscovery, restatement and elaboration of economic sociology as a subdiscipline of economics and sociology by such contemporaries as Durkheim, Weber and Pareto, along with implicitly Wicksteed, Wieser and Marshall, during the 1870s–1920s, may prove to be more relevant and enduring than that of marginal utility theory from the standpoint of sociological science and sociologically minded or social and institutional economics (Akerlof 2002; Hodgson 1998; Jackson 2014; Phelps18 2013). Second and related, one can identify a multiple independent and nearly simultaneous discovery and designation of economic sociology as the term in mature classical sociology and even sociologically minded streams of neoclassical economics. Comte (1983: 224) already comes strikingly close to inventing the name economic sociology as a logical branch of his sociology or social physics, especially part of ‘social statics’ as the study of the ‘action and reaction of the different parts of the social system’, thus including the interaction between its economy, polity, culture, morality, religion and other elements of society. Still, in a historical irony in social science, one can credit an early neoclassical economist Jevons for probably inventing formally the term economic sociology, although doing so under the apparent influence of Comte, as well as Spencer. Generally, Jevons (1965: 20) apparently embraces and restates Spencer’s evolutionary definitions of sociology by redefining the latter as the ‘Science of the Evolution of Social Relations’ and suggesting a ‘science of the development of economic forms and relations’ as the seeming subject-matter of economic sociology. Specifically, Jevons (1965: xvii) designates and includes economic sociology into ‘various sciences’ of economics, together with ‘commercial, the mathematical theory of economics, systematic and descriptive economics, and fiscal science’. Moreover, Jevons (1965: 20–21) urges that only creating a ‘branch of Economic Sociology’—along with ‘two or three other branches of statistical, jural, or social science’—can ‘rescue’ economic science from its ‘confused state’.19 Jevons does not explicitly define economic sociology and its subject-matter but an implicit definition of it seems to be that based on the preceding classical definitions of sociology, namely as a ‘science of the development of economic forms and relations’ by implication in connection with other social forms and relations. Furthermore, Jevons (1965: 124, 182) holds that market transactions are often settled on ‘other than strictly economic grounds’ and the future states of supply and demand are the function of the ‘political information of the moment’ and to that extent makes some substantive propositions or implications of economic sociology, especially sociology of the market and modern political economy. His successor Wicksteed (1934: 784) adopts and elaborates on Jevons’s notion of economic sociology, especially that of the market,
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proposing that, while referring to the analysis of the latter seen as existing in a broader social framework, economics should be a ‘handmaid of sociology’. In this connection, Wicksteed (1934: 1) adopts and invokes Comte’s statements suggesting such relations of economics to sociology.20 Around this time or slightly later, mature classical sociology invents ‘economic sociology’ as a designation for a sociological theory and analysis of the economy, including the market, while, like Jevons and Wicksteed, building and elaborating on Comte’s original insights. Later classical sociologists, such as especially Durkheim and Weber, adopt and explicitly use the term economic sociology as an important subdiscipline of sociology and, as with the latter, of economics. Durkheim (1994: 80) designates ‘economic sociology’ as an integral part of sociology and specifies its subject-matter as comprising ‘economic institutions’ defined as those social institutions relating to and by implication impacting the economy as the sphere of production, exchange and distribution of wealth. Thus understood, Durkheim’s economic sociology shows an evident affinity or convergence with social or socioeconomics, especially early institutional and historical economics (Hodgson 1999; Parsons 1935b; Rutherford 21 2001; Stinchcombe 1997). In addition, Weber (1968: 63–68, 79–81) demarcates and characterizes the ‘field of economic sociology’ within sociology, as well as social economics (together with economic theory and economic history), as an analysis of ‘sociological categories of economic action’ by analyzing the ‘sociological relationships in the economic sphere’, thus being the ‘sociological theory’ or ‘sociology of economic action’, including the ‘sociology of the market’ (also, Diehl 1923; Dobbin 2005; Portes 2005; Smelser and Swedberg 2005; Swedberg 2003). Specifically, Weber (1949: 45) defines economic sociology as the analysis of the influence of non-economic social factors on economic processes, emphasizing ‘political actions and structures, especially the state and the state-guaranteed legal systems’, as being of ‘primary importance’ among these influences. Overall, after a period of gestation and intimation in the prototypical sociology of Comte containing the substantive concept, economic sociology as a formal designation is born largely independently and almost simultaneously in mature classical sociology and indeed unexpectedly in sociologically minded currents of neoclassical economics. The next phase involves the rediscovery, reformulation and reaffirmation of economic sociology as the idea and term in late neoclassical or early contemporary economics and sociology. Since the present emphasis is on the original discovery of economic sociology and its concepts and elements, considering a few pertinent derivative rediscoveries suffices at this point. At this stage, the key players in this respect are Schumpeter in the first and Parsons in the second discipline, or more precisely as economists-sociologists in both economics and sociology. Schumpeter in particular uses explicitly the term economic sociology—while likely taking it and its conception 22 from Durkheim and Weber—in his various works (especially History of Economic Analysis) definitely more than any other neoclassical or early contemporary economists and probably sociologists before and during his time (perhaps followed in postwar economics by Boulding 1957, 1970). Furthermore, Schumpeter (1954: 9) consistently explores and detects elements or approximations of economic sociology in the history of economic analysis since Adam Smith and even before. Schumpeter (1956: 134; 1949: 60) describes economic sociology as ‘no man’s land, or every man’s land’ developing from the inevitable overlap of a ‘major’ part of economics with the ‘sociological preserves’ in regard to ‘institutions and forces which shape economic behavior’ and thus the ‘social framework of the economic course
Introduction 13
of events’ (also, MacDonald 1965). Moreover, even purer contemporaneous economists like Hicks (1959) recognize the ‘social framework’ of the economy and thus by implication the domain and need of economic sociology or social economics. In addition, their contemporary in postwar economics Boulding 23 (1957: 5, 10; 1970: 153–155) suggests that economic sociology as one of the ‘interstitial disciplines’ between the latter and other science and economics through the classical works of Weber, Durkheim, Simmel and Pareto contributes toward the ‘broadening of the outlook of economics’, while notably proposing ‘economic sociology of the market’. Like Schumpeter, Parsons (1947: 31–32; also, Parsons and Smelser 1965) apparently takes the term and especially concept from Durkheim and/or Weber24 and reintroduces and reestablishes it into early contemporary sociology during the 1930s–1950s. In addition, Parsons (1967: 719, 722, 768) posits the ‘very impressive fact of convergence’ substantively between the two, along with Marshall and Pareto, on the ‘structural aspect of the voluntaristic theory of action’ of which an expression is that of the pervasive and strong role of especially social institutions, norms and values (‘common-value integration’) in the economy and to that extent converging on economic sociology in its institutionalist rendition. Also, like Schumpeter, Parsons (1935a, b), especially during his early career as an economist, systematically investigates and identifies ‘sociological elements’ in economic thought in its orthodox and unorthodox forms and hence those of economic sociology. Parsons, though rarely defines it explicitly, understands economic sociology as the sociological theory of the economy viewed as a ‘social system’ generally and of its ‘institutional structure’ particularly in the style of Durkheim and Weber and to some degree Pareto and in part Veblen (see Parsons and Smelser 1965: 39, 102). Taken together, especially Schumpeter and Parsons help firmly reestablish economic sociology as both a conception and designation for a sociological analysis and theory of the economy in early contemporary economics and sociology. Later contemporary economics and sociology make further rediscoveries, reformulations and reaffirmations of economic sociology as the concept and name of either a sociological or sociologically minded theory and study of economic processes, including the ‘new’ economic sociology in the second and its analogues or ramifications in the first since the 1980s through the present. Since these derivative rediscoveries are abundant and given the present emphasis on the original discovery and earlier rediscovery of economic sociology and its ideas, mentioning several instances from each discipline will be sufficient at this juncture. Contemporary sociologists post-Parsons embrace the conception and denotation of economic sociology mainly from Durkheim and Weber and restate and rename or refer to it as the ‘new economic sociology’ in distinction from its old, especially Parsonian version, by directly facing and addressing problems of the economy, notably markets, that the latter presumably avoids in a tacit delineation (‘common-value integration’) from economics (Bandelj 2020; Beckert 2002; Block 1990; Bourdieu 2005; Fligstein 2001; Granovetter 1985, 2005a, b, 2017; Guillén et al. 2005; King and Pearce 2010; Smelser and Swedberg 2005; Swedberg 2003; Trigilia 2002). Also, some prominent sociologically minded economists post-Schumpeter adopt or imply the substantive concept and sometimes using or referring to the term economic sociology by recognizing ‘sociological factors’ in the economy and markets and adopting ‘realistic assumptions grounded in sociological [and psychological] observation’, including the ‘sociology of the corporation’ (Akerlof 2002, 2007; also, Akerlof and Holden 2016; Gibbons 2005; Ioannides 2013; Jackson et al. 2012.; Phelps 2013; Piore 2002; Tetlock et al. 2017; Williamson 2000).
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Implicit in the concepts of the social economy as an economic system of society and economic sociology as a subfield of economics and sociology, institutionalism provides a particularly salient specific instance of multiple independent and to some degree simultaneous discoveries and formulations in sociology and economics alike. Classical sociology, especially Durkheim, invents, elaborates and formulates institutionalism in the sense of a theory and analysis of social institutions and their conditioning of the economy and society in contrast to the ‘new institutionalism’ in sociology emulating the economistic and individualistic ‘rational choice’ explanation of institutions25 in economics (Boulding 1957; Merton 1998; Parsons 1935a, Parsons and Smelser 1965; Stinchcombe 1997; Trigilia 2002). In a parallel development around the approximately same time, the Historical School, and especially early institutional economics, posits and states the original version of economic institutionalism in contrast to the ‘new institutional economics’ as mostly the extension of the economic approach to human behavior or rational choice theory to the analysis and explanation of institutions (Commons 1931; Veblen 1934; also, Bowles and Gintis 2000; Costa-Font and Macis 2017; Furubotn and Richter 2010; Granovetter and Swedberg 1992; Hodgson 1998; Rutherford 2001). While Durkheimian sociological and Veblenian economic institutionalism are not certainly identical in that the first emphasizes social norms and values and the second habits, they share the treatment of institutions as key determinants of economic, including market, behaviors, processes and outcomes (Hodgson 1999; Parsons 1935b). Relatedly, they both seek to remedy what they regard as the neglect or inadequate treatment of institutions in classical and what Veblen (1900: 265, 268) probably first called ‘neo-classical’ economics/political economy (Granovetter and Swedberg 1992; Hodgson 1998; Parsons 1935a, b; Rutherford 2001). Moreover, given the central role of institutions in the social economy and its study, institutionalism represents one of the most important exemplars of multiple independent, approximately simultaneous discoveries and formulations in economic sociology and thus, due to being an interdisciplinary field, within economics and sociology alike (Boulding 1957; Granovetter 2017; Hodgson 1998; Merton 1998; Rutherford 2001; Smelser and Swedberg 2005; Stinchcombe 1997). The discovery of institutionalism in classical sociological theory and heterodox economic theories therefore implies an institutionalist and related social conception and construction of economic sociology and indeed of sociology and economics more broadly (Beckert 2002; Smelser and Swedberg 2005; Stinchcombe 1997; Trigilia 2002). Durkheim (1994: 80, 1966: lvii) essentially conceives economic sociology as the analysis of the institutional and hence social structure of the economy, with its subject-matter comprising ‘economic institutions’ as those social institutions concerning wealth production, exchange and distribution, which is consistent with and an application of his definition of sociology as the ‘science of institutions, of their genesis and functioning’ (also, Parsons 1935b; 1966). Similarly, Veblen (1934: 72–76) reconstructs economics in institutional and thus social terms, characterizing his best known work (the Theory Of The Leisure Class) as an ‘economic study of institutions’, such as the ‘institution of a leisure class’ and the ‘institution of private property’ or ownership as ‘elements of social structure’ a la Durkheim.26 Overall, Durkheim and Veblen share, with some differences, an institutionalist and in that sense social-structural conception of economic sociology, or converge on socioeconomics (Rutherford 2001). Consequently, institutionalism becomes the core and heart of economic sociology in Durkheim’s classical sociological formulation and Veblen’s heterodox economics implication, and, with some variations,
Introduction 15
remains since, especially of its macroscopic rendition, including ‘new’ institutionalist economic sociology27 (Fligstein 2001; Guillén et al. 2005; Stinchcombe 1997). In short, Durkheim appears as the inventor of institutionalism, in which institutions consist of social rules and values, within economic sociology and Veblen independently invents institutionalism, where institutions mostly involve habits, in heterodox economics. As an instance or proxy of subsequent multiple independent and almost simultaneous rediscoveries and reformulations, some later eminent sociologically minded economists and sociologists rediscover and reformulate institutionalism and thus the institutionalist conception of economic sociology, as well as of economics. Schumpeter, Parsons, Myrdal and other early contemporary figures28 embrace and elaborate especially Durkheim’s institutionalism and his institutionalist conception of economic sociology and to some extent its Veblenian version.29 Schumpeter (1954: 9–22, 518) redefines economic sociology in an apparently Durkheimian manner as the ‘analysis of social institutions’ characterizing and by implication impacting the ‘economic organization’ of societies and operating as the essential component of the social context and determination of the economy in contrast to economics defined as the ‘study of economic mechanisms’ (also, Smelser and Swedberg 2005; Swedberg 1991). In a similar vein but more explicitly, Parsons (1935b: 650; Parsons and Smelser 1965: 102) invokes and embraces Durkheim’s ‘institutionalism’ and generally ‘sociological treatment of ‘economic’ activities’ by positing and analyzing the ‘institutional structure of the economy’, including the ‘institutional structure of markets’, the ‘institutionalization of economic values’ and ‘institutional motivation’. In addition, their contemporary Myrdal (1953: 197–198) posits that various institutional factors ‘determine the structure of the market, even the whole economic system’ and that all these factors are subject to changes by social forces with enough ‘political power’ if they seek change. In this connection, Myrdal (1953: 197) suggests that economic exchanges are governed by such institutional and political factors as the ‘rules of those in power’ preceding for long the existence of any market. Even Samuelson (1983: 8) while dedicated to pure, mathematical economics after the model of physics or mechanics (Backhouse 2015; McCloskey 1998) acknowledges the ‘governmental and institutional framework’ of the economy and market. In sum, the multiple independent and near-simultaneous discoveries and elaborations, and then rediscoveries and reaffirmations, of institutionalism marks—after Comte’s invention of the social economy as the economic field of society—the probably major substantive phase in the evolution of economic sociology that therefore becomes essentially institutionalist and mostly remains so especially in its Durkheimian macro versions,30 as well as relatedly of socioeconomics (Etzioni 1999; Granovetter and Swedberg 1992; Rutherford 2001). A subsequent variation of this multiple independent and near-simultaneous discovery in economic sociology is yet another rediscovery or revival of institutionalism by rediscovering and reaffirming institutions and especially their conditioning of the economy in later economics and sociology alike. A few instances and remarks will suffice at this point in view of that the current emphasis is on original discoveries in economic sociology versus derivative rediscoveries and that the latter are relatively numerous in this case. Both contemporary economics and economic sociology rediscover or revive the institutionalist theory and analysis of the economy and society through postulating and elaborating the ‘new’ sociological and economic institutionalism. Specifically, apart from dissenting exceptions (Hodgson 1998), the ‘new’ economic institutionalism purports to be more distinct (‘theoretical’) and discontinuous from its older (‘anti-theoretical’)
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Veblenian version and more consistent with neoclassical economics by essentially applying the economic approach to theorizing institutions,31 with some qualifications (Coase 1998, North 1994, Williamson 2000; also, Eccles and White 1988; Granovetter 1985; Granovetter and Swedberg 1992; Ostrom 2005; Rutherford 2001). By contrast, in economic sociology, the ‘new’ sociological institutionalism largely remains, except for its ‘rational choice’ importation from economics, consistent and continuous with its classical, especially Durkheimian, variant and in that sense rediscovers and reaffirms the latter (Merton 1998; Stinchcombe 1997; Smelser and Swedberg 2005; Trigilia 2002). In this regard, the rediscovery or revival of institutionalism through rediscovering institutions and their effects on the economy and markets is a multiple, partially independent, and effectively simultaneous or parallel movement in contemporary economics and economic sociology, as well as political science and other social sciences. While the new sociological and economic institutionalisms probably differ even more especially in their theoretical explanations and empirical accounts of the origin and function of institutions than their original renditions, such as those of Durkheim and Veblen, they still share or converge toward rediscovering in their own distinct ways and almost simultaneously the crucial importance of institutional arrangements for economic activities and outcomes. At least in this latter sense, both epitomize the revival of institutionalism and to that extent institutional structuralism and more broadly the rediscovery of social structuration of the economy in contemporary economics, economic sociology and social science as a whole, with some variations. Institutionalism in both contemporary economics and modern economic sociology rediscovers and reaffirms, following or echoing the original discovery and affirmation by Durkheim and Veblen, the institutional and hence social structure of the economy, including that of production, firms and markets (Bourdieu 2005; Charness, Rigotti and Rustichini 2007; Coase 1998; Fligstein 2001; Granovetter 2017; Ostrom 2010; Spence 2002; Stinchcombe 1997; Williamson 2005). This contemporary rediscovery of sociological and economic institutionalism marks the advent of the new economic sociology especially its macro-formulation and the new institutional economics, respectively. They differ in some important aspects and degrees in that the macro new economic sociology mostly continues to be institutionalist in the classical sociological, especially Durkheimian, as well as Weberian and Marxian, sense (Fligstein 2001; Smelser and Swedberg 2005; Stinchcombe 1997; Trigilia 2002). By contrast, the new institutional economics seeks to differentiate from, namely, to be more ‘theoretical’ than, even while building on its predecessors like Veblen, Commons and others, by adopting to some degree neoclassical assumptions such as individual rationality and optimization as the supposed explanation of the origins and functions of social institutions, albeit with significant qualifications32 and exceptions (Coase 1998, North 1994, Williamson 2000; also, Furubotn and Richter 2010; Greif 1998; Greif and Tabellini 2010; Hodgson 1998). Still, in spite of such differences in the respective presence and absence of deliberate path-dependence on the previous discoveries of institutionalism, the new economic sociology and the new institutional economics share or converge toward common theoretical conceptions and empirical results, most notably those pertaining to the institutional framework and determination of the economy, including the institutional structure of production and markets (Coase 1998; Fligstein 2001; Greif 1998; Smelser and Swedberg 2005; Spence 2002). In particular, the new macro-economic sociology postulates and elaborates explicitly or implicitly in the manner of Durkheim and other classical sociologists and the new institutional
Introduction 17
economics embraces and maintains as one of its ‘background assumptions’ the conception of institutional and other ‘societal embeddedness’ of the economy (Fligstein 2001; Williamson33 1998, 2002, 2005). In this regard, they make a dual independent and near-simultaneous discovery and statement, more precisely rediscovery and restatement following their classical and earlier versions, of the institutional and other societal embeddedness of the economy. The preceding hence introduces another salient example of multiple independent and nearly simultaneous discoveries and formulations, as well as rediscoveries and reformulations, in economic sociology and social, including institutional, economics. This is the discovery and rediscovery of the social embeddedness of economic activities and processes, emphasizing its original discoveries and formulations while taking accounts of its derivative rediscoveries and restatements or later replications. First and foremost, the social embeddedness of economic activities is a particular aspect and form explicitly of the societal constitution or structure and by implication determination or conditioning of the economy. Hence, the discovery or rediscovery of the societal foundation and structuration of the economy, as in classical sociology and political economy, usually even if implicitly involves discovering or rediscovering the social embeddedness of economic processes in these two phases of sociology and economics. Comte and Mill by near-simultaneously—although the first influencing the second—discovering the societal constitution and determination of the economy essentially discovered, even if by implication, its social, including institutional and partly relational, embeddedness. In this regard, they appear as implicit near-simultaneous discoverers of the social embeddedness of the economy, more precisely Comte as its first latent discoverer and Mill as the second or rediscoverer in respect of sequence. To that extent, the principle of the societal constitution and determination of the economy that Comte and Mill near-simultaneously discover and formulate may render a separate discovery and conception of its social embeddedness a redundant replication or just a restatement, by comprising the latter as its particular facet and thus making it vanish in the analysis and equation of the social economy (by partial analogy to what Keynes (1960: 275) calls vanishing ‘partial differentials’ in mathematical economics). Still, if one wishes to disaggregate or elaborate and specify the premise of societal constitution and determination, as usually is the case in contemporary economic sociology and social economics, the conception of the social, including institutional and relational, embeddedness of economic activities becomes necessary and important as an elaboration and specification of that premise and the notion of a social economy. Moreover, in a sense, especially Comte and partly Mill can be credited with almost explicitly discovering the social embeddedness of economic processes in the sense of both a theoretical conception and empirical finding, even if not using the term. Comte34 (1983: 276) proposes that the social economy is ’naturally implicated in relations of greater generality’ such as the social system as a whole acting on its parts, with ’implicated’ apparently equivalent or analogous to ‘embedded’ and ‘relations of greater generality’ plausibly referring to societal institutions such as governments and in part to social ties that form the locus of the social embeddedness of economic action in the new micro-economic sociology. As it stands, this looks like Comte’s discovery and formulation of the social economy’s involvement and immersion in society’s institutions and relations as the early classical sociological equivalent or precursor of the social embeddedness of economic actions in modern economic sociology. As usual in this context, Mill (1968: 135–137), with some modifications, adopts and elaborates Comte’s implicit
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embeddedness proposition by admitting that the economy develops in the ‘natural history of society’ and exists and operates only in the ‘social state’, so that the economic and other ‘conduct or condition of man’ is always situated in society.35 On this account, early classical sociology and political economy make the first multiple independent, nearly simultaneous, discovery and formulation of the societal constitution and structuration and, in that sense, at least pre-discovery or anticipation or adumbration (in the sense of Merton 1968: 13), of the social, including relational and institutional, embeddedness of economic actions. Rather than being unexpected or fictious according to what Merton (1984) would call the ‘fallacy of the latest word’ in the ‘new’ economic sociology, this discovery essentially derives from Comte’s concept of the ‘social economy’ that suggests that the latter inherently is socially constituted and conditioned and to that extent embedded, including in social institutions and relations, and more implicitly from Mill’s ‘science of social economy’ that implies that economic behavior intrinsically operates in the ‘social state’. Such a discovery or pre-discovery of the social embeddedness of the economy may also look undeveloped, unelaborated and crude, but such are probably most original theoretical or empirical discoveries, as distinct from derivative rediscoveries, in social science from labor/cost and marginal utility theories and their synthesis in pure economics to the social economy and institutionalism in economic sociology and sociologically minded economics. Also, this discovery or pre-discovery may seem dubious in that it does not explicitly uses the word ‘embeddedness’, ‘embedded’ and the like. Yet, the same applies to most original discoveries of theories or facts, including that of marginal utility theory—its inventors Jevons, Menger and Walras hardly ever use the exact expression—in pure economics and institutionalism in economic sociology and social economics, since Durkheim and Veblen do not use this precise word. And what is crucial is the substantive conception and demonstration rather than the formal designation and label of embeddedness, as well as of economic sociology generally. Furthermore, mature classical sociology and sociologically minded currents in neoclassical economics make subsequent independent and nearly simultaneous rediscoveries and reformulations of the institutional and social foundation, structuration and to that extent by implication embeddedness of economic activities and processes. In later classical sociology, Tönnies (2001: 88) considers the labor market a ‘network of communication’ in the market system and hence implies that market processes are embedded in social networks and anticipates the conception of the network-relational embeddedness of markets and the economy overall. Further, Durkheim (1965: 158, 215) proposes that a market contract is only enforceable and viable because of its ‘essentially social regulation’ and thus posits normative, noncontractual bases of commercial contracts and in extension the institutional basis and embeddedness of the economy, a statement widely cited and embraced by economic sociologists and some institutional and social economists (Bowles and Carlin 2020; Fligstein and Freeland 1995; Hodgson 1999; Portes and Sensenbrenner 1993; Stinchcombe 1997). Weber (1968: 41) allows that even a market transaction between merchants and customers can involve ‘common absolute values’ or ‘emotional values’ transcending its ‘utilitarian significance’ and thus implies the normative, value-driven constitution, conditioning and to that extent, without using the term, embeddedness of economic action.36 Within neoclassical economics, Wicksteed (1934: 784) acknowledges that the market in its broadest meaning ‘never has been left to itself ’ and instead by implication conditioned or regulated by and immersed in society, thus implying the societal conditioning
Introduction 19
or embeddedness of markets, as the empirical rationale for the striking Comtean epistemic inference that economics has to be the ‘handmaid of sociology’. In addition, Marshall (1961: 485) suggests that the indirect effects of customs on economic processes such as precluding the free development of the ‘methods of production and the character of producers’ are cumulative and exert ‘a deep and controlling influence’, which implies the customary and thus sociocultural conditioning or embeddedness of the economy reminiscent of and partly convergent with Durkheim’s, Weber’s and Pareto’s sociological normative-institutional theories of the economy and society (Parsons37 1967). Finally, the new economic sociology and subsequent heterodox economics independently and in part simultaneously rediscover and reformulate or reaffirm the social constitution, conditioning and embeddedness of economic actors and activities. Considering the emphasis on original discoveries versus derivative rediscoveries and that these with regard to the social embeddedness of the economy are relatively abundant, invoking few relevant instances suffices to illustrate this tendency. Polanyi probably first rediscovers and restates the social embeddedness principle in heterodox economics or economic anthropology under the apparent influence of Durkheim and other classical sociologists and anthropologists (Costa-Font and Macis 2017). Polanyi (1968a, 1968b; also, 1944) does this by stating that the human economy is an ‘instituted process’ due to being ‘embedded and enmeshed in institutions’, though primarily with reference to pre-market economies, while suggesting that the market economy or capitalism is disembedded in that instead of being embedded in society, the latter is embedded in the economic system. Leading contemporary sociologists (Granovetter 1985, 2005a, b, 2017) working within the new economic sociology, while crediting Polanyi for the initial rediscovery and reformulation, rediscover and restate the ‘embeddedness perspective’ for the market economy as well, in the primary form of the ‘embeddedness’ of economic action in micro-level structures like social relations and networks and thus its relational-network version (also, Bandelj 2020; Carruthers and Kim 2011; Uzzi 1996; Uzzi and Lancaster 2004; Podolny and Baron 1997; Thiemann and Lepoutre 2017). This conception differs from and typically, especially in its early statements, has primacy over that positing the embeddedness of economic action in macroscopic institutions, norms and values in the manner of Durkheim, Weber and Polanyi, by casting doubt on institutionalism such as the normative version of the social constitution and determination of the economy. In particular, this micro-embeddedness conception disputes or suspects Durkheim’s concept of ‘generalized morality’ as ‘oversocialized’ (Granovetter 1985), while some institutional and other economists embrace the same idea, thus, ironically, appearing more Durkheimian (Alesina and Giuliano 2015; Greif and Tabellini 2010). In this respect, Polanyi’s, like Durkheim’s, variant primarily is the principle of the macro-social, specifically institutional, organizational, political, legal and cultural, structuration and embeddedness of the economy, including the market (Fligstein 2001; Fligstein and Dauter 2007; Fligstein and Sweet 2002; Fourcade and Healy 2007; Prechel and Morris 2010). By contrast, the new economic sociology’s version appears, at least initially, mainly as the conception of the micro-social conditioning and embeddedness of economic actions and in that sense does not constitute a complete38 theory of the societal constitution and embeddedness of economies and markets due to the missing link of the impact of institutions and moral norms that exist and operate beyond inter-individual relations and local networks (Callon 1998; Fligstein 1995. Krippner and Alvarez 2007; Portes 2005; Trigilia 2002). Prominent contemporary sociologists
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propose a more holistic or revised theory of the societal structuration and thus embeddedness of the economy and market in macro-structures like institutions and social norms and in micro-structures such as social relations and networks (Bourdieu 2005; also, Granovetter 2017; Guillén et al. 2005; Smelser and Swedberg 2005; Swedberg 2003). Furthermore, some contemporary sociologically minded economists embrace, restate and apply the sociological conception of embeddedness both in its micro and macro, namely, network-relational and institutional-cultural, formulations (Basu 2000; Gagnon and Goyal 2017; Goyal 2012; Hodgson 1999; Ioannides 2013; Ioannides and Loury 2004; Jackson 2014; Jackson et al. 2017; Williamson 1998, 2000, 2005; also, Gorodnichenko and Roland 2011; Greif 1998). In this respect, these economists and modern economic sociologists again in multiple ways rediscover and reformulate or reaffirm the social constitution or embeddedness of the economy following its rediscovery and restatement by their not-so-distant predecessors (Polanyi 1968a, b) or contemporaries (Granovetter 2017) and in extension its original discoverers or early rediscoverers from Comte and Mill to Durkheim, Weber, Wicksteed and Marshall.
Other examples of multiple discoveries in economic sociology Furthermore, multiple independent and near-simultaneous discoveries or rediscoveries in economic sociology by sociologists and sociologically minded economists include the social nature and concepts of exchange value and wealth production and distribution. In turn, these discoveries and rediscoveries often overlap or intersect with each other, as well as with the previous. Thus, another specific instance of multiple independent and near-simultaneous discoveries or rediscoveries involves the social nature and conception of exchange value or prices in economic sociology and social economics. More precisely, as typical, classical sociology on one hand and sociologically minded currents of political economy and neoclassical economics on the other discover independently and near-simultaneously the social origin and hence formulate a social concept of exchange value and prices. The classical sociological theory of exchange value deciphers and treats the latter as an essential social phenomenon with its origins and setting in society, as do in part classical political economy and neoclassical economics. As before, in this consideration, the emphasis will be on the original discoveries and formulations, as well as on the earlier rediscoveries and reformulations, of the social basis and conception of exchange values and prices versus their later replications. Specifically, as in most other elements of economic sociology, Comte probably first discovers and elaborates the social nature and determination of economic value and influences Mill, Cairnes and other later, including to some extent neoclassical economists, such as J. B. Clark, Edgeworth, Marshall, and Wicksteed. Comte makes this discovery independently of and near-simultaneously with, more precisely a decade or so prior to Marx, Mill, Cairnes and other relevant figures in classical political economy. In this sense, Comte in early classical sociology and Marx and Mill in later classical political economy can be credited with discovering and formulating in a multiple independent and near-simultaneous fashion the social basis and concept of economic value and money prices. Comte’s earliest treatment of economic value as social value is, while formally different from, substantively analogous, as well as nearly simultaneous with or slightly prior to that of Mill and to some degree Marx. Specifically, reminiscent
Introduction 21 39
of Adam Smith and Ricardo, Comte (1983: 188, 270) suggesting that ‘systematic and continuous labour’ in production determines, to some extent jointly with ‘utility’, exchange values, holds that the division of labor has both an ‘industrial value’ and a ‘social value’ because of the ‘reconciliation of the individuality of labour with cooperation of endeavors’ and to that extent by implication causes economic value to be intrinsically social value. Influenced by or converging with Comte again, Mill (1968: 133) recognizes that from the standpoint of political economy the production and distribution of wealth enfold ‘only in the social state’ and thus implies that economic value as pertaining to wealth is inherently social value. More explicitly, Marx (1967: 316) contends that the real exchange value of a commodity instead of its individual value is its ‘social value’ determined by ‘social labour’ specified as labor-time under the ‘average social conditions’ or ‘socially required for its production’. Like Marx and mostly following Mill, Cairnes (1967: 85, 94) by adopting the notion of ‘average sacrifices undergone’ that indicates socially necessary cost of production as the principal condition of ‘normal’ exchange value implicitly considers the latter social value, notably because this societal valuation is by implication the law of value of the ‘products of noncompeting industrial groups’ as exemplary social collectives in contrast to the law of supply and demand operating ‘within the range of industrial competition’. Furthermore, in early classical sociology post-Comte, Tönnies’s theory of exchange values or market prices in capitalism as social phenomena represents another discovery or rediscovery and restatement in this regard by being essentially equivalent, although mostly derived from, and nearly simultaneous with, or more precisely posterior to, that of Marx and to some degree of Comte. Following or evoking both Marx and Comte, Tönnies (2001: 85) stating that the ‘sole constituent’ of the exchange value of all goods is the ‘average labour time’ that market society (Gesellschaft) deems necessary for their production implies that their economic values are societally grounded and determined, simply social values.40 In addition, other later classical sociologists, as well as some neoclassical economists, perform multiple independent and near-simultaneous rediscoveries and reformulations of the social nature and concept of exchange value and market prices under the direct or indirect influence primarily of Comte déjà vu following his influencing Mill and in part Cairnes in classical political economy. Apparently building on Comte, Durkheim rediscovers and reformulates the societal origin and explanation of economic value in mature classical sociology, as does Simmel in his sociology of exchange and money and Weber in his economic sociology in their independent and specific ways. For illustration, Durkheim (1965: 381–382) maintains that, because material objects are always produced and exchanged ‘in a given society’, every ‘object of exchange’ acquires a ‘determined value’ that is inherently its ‘social value’.41 Relatedly, Durkheim (1966: 230–231) suggests that the prices of labor or rates of pay depend on a ‘basic standard’ that is determined by ‘public opinion’ in all societies and eras, which implies that the values of production factors are also socially grounded and conditioned categories and in that sense social values. Also, Simmel (1990: 97) by positing that exchange emerges and functions as a ‘sociological phenomenon sui generis and the original form and function of social life’ or the ‘purest sociological occurrence’, along with money as ‘entirely a sociological phenomenon’, suggests that exchange value is intrinsically social value and the ‘process of valuation’ of material objects, in which ‘utility and scarcity’ are relevant forces, a societal process. In addition, by asserting that the ‘historical peculiarity of the
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capitalist epoch’, and not some psychological force (e.g., the ‘Weber-Fechner law’ of diminishing psychical and physical sensitivity), determines the ‘significance of marginal utility theory (as of every economic theory of value) for the understanding of this epoch’, Weber (1975b: 33) intimates that exchange values in capitalism are invariably social-historical values.42 On the other hand, almost simultaneously and perhaps surprisingly, J. B. Clark, Fisher, Edgeworth, Marshall, Wicksteed and Wieser in neoclassical/marginalist economics following or evoking Comte rediscover, reaffirm and restate the social nature and concept of exchange value and prices. Clark (1899: 187–188) explicitly recognizes that market value is a ‘social phenomenon, not a universal one’ connected to the fact that labor, capital and related production factors are dependent on ‘social organization’. Similarly, Fisher (1965: 103–106) suggests that ‘normal’ price, while ‘sufficiently intricate’, is further intensified in this regard by the ‘complication of changes in social structure’ and thus socially conditioned, just as relatedly ‘social organization’ intensifying processes and distinctions of production and consumption. Further, even ostensibly purer marginalist Edgeworth (1967: 109) implicitly admits of the sociological underpinnings of economic values by stating that the marginal utility theory of value through the ‘Calculus of Variations’ in utility and thus marginal economics is the branch ‘most applicable to Sociology’ while invoking its founder Comte. Marshall (1961: 27) treats ‘economic laws’ or ‘laws of tendencies’ in the economy, thus including by implication those of market value, as special cases of ‘social laws’ and to that extent exchange values or prices are social phenomena. In a similar vein, Wicksteed (1934: 767) argues that economic laws, including the ‘law’ of the market’ and price, are ‘ultimately the laws of human conduct’ and to that extent socio-psychological rather than natural in character and notably suggests that the prices and ‘scales of expenditure’ of goods depend on the ‘social environment’, emphasizing the ‘social nature’ of the consumption and thus implicitly price of bread, for example. Also, Wieser (1967: 152–153), following or converging with Weber, suggests that the explanation of economic value becomes one of ‘sociological fields’ by involving an ‘economic intercourse’ and in extension the ‘social relations of the economy’. Notably, within later classical sociology, Durkheim (1994: 80) a la Comte and partly reminiscent of Marx co-rediscovers independently and near-simultaneously the social, notably institutional, origins and concept of exchange values and similar phenomena by his sociological theory of institutions of exchange, including markets and stock exchanges and institutions of distribution like rent, interest, and wages, making, along with institutions of the production of wealth, the domain of economic sociology. And if Marshall (1961: 675) solves the problem of economic determination of value by integrating cost of production and marginal utility theories (after the image of a ‘pair of scissors’) in neoclassical economics, Durkheim resolves that of the social, especially institutional, conditioning of exchange values in economic sociology. In this sense, Marshall and Durkheim provide respective seemingly definitive solutions to the economic and sociological problems of exchange values and prices in neoclassical economics and classical economic sociology. Moreover, Durkheim (1965: 381–382) implies or converges with Marshall’s eclectic cost-utility solution by holding that both the embodied ‘quantity of labour’ and its ‘useful social effects’ and so utility by products and services satisfying ‘normal needs’ condition exchange value, just as Comte anticipates the ‘pair of scissors’ resolution earlier by his notions of labor ‘value’ and ‘utility’ as the joint conditions of economic values.
Introduction 23
Generally, the era of mature classical sociology and neoclassical economics marks not only the triple independent and simultaneous discovery of the marginal utility theory of value, but also—what pure economists overlook—the multiple rediscoveries of the social nature and concept of exchange values and prices after its pre-discovery by Comte and to some extent Tönnies in earlier sociology and by Mill and Marx in political economy. Moreover, if the rise and dominance of the marginal utility theory of value is Schumpeter’s ‘Copernican Revolution’ in pure market economics, the rediscovery and reformulation of the social origin and conception of exchange values and prices represents its analogue or proxy, although seemingly a latent or inconspicuous one, in later classical economic sociology, as well as of economics’ sociologically minded currents that he explores during its history. Furthermore, early contemporary sociology and economics alike make another multiple independent and near-simultaneous rediscovery and reformulation of the social origin and conception of exchange values and prices. Parsons outlines a sociological conception of exchange values treating the analysis of the ‘determination of particular prices and price levels’ as resting on the ‘fundamentals of action theory—particular instrumental orientation as an action type’ (Parsons et al. 1951: 28), as well as relatedly suggesting that the imperfection of markets varies in ‘sociological type’, and not just in the degree of control over output and prices by firms (Parsons and Smelser 1965: 3). Around the same time or somewhat earlier, his contemporary Schumpeter (1951: 2; 1954: 61–62) rediscovers and reformulates concept of exchange value as ‘social value’ expressing the ‘community’s evaluation of every commodity’ apparently reminiscent of Durkheim, stating that prices are ‘obviously social phenomena’ in the sense that economic processes are inherently ‘social’, as do some other Durkheimian and Marxian early contemporary economists43 (Aftalion 1948; Lange 1969). In addition, Myrdal (1953: 100) proposes that sociology/social psychology probably can produce ‘more satisfying results’ than pure economics (and even individual psychology) in the explanation of the ‘causes of supply, demand and prices’, which implies that these also involve social factors and hence economic values are socially caused values. As a corollary and reminiscent of Wicksteed and Wieser, Myrdal (1953: 204) infers that economics (or its ‘technology’) becomes ‘a branch of the modern psychologically orientated sociology’. Finally, later contemporary economic sociology and economics, especially social economics, make multiple independent and near-simultaneous rediscoveries and reformulations of the social basis and conception of exchange values and prices, or reach a proxy consensus or convergence in this respect. It is sufficient to mention a few instances of these endeavors since the emphasis is on original discoveries and earlier rediscoveries in this respect. On one hand, modern pure economics incorporates the neoclassical Marshallian (‘pair of scissors’) resolution to the old problem of the causes of exchange value or determination of prices, although increasingly just by implication by taking it as definitive and settled with no need of reinvention, reformulation or reinterpretation44 (Samuelson 1983; also, Hicks 1961). On the other hand, contemporary economic sociology rediscovers, reaffirms and reformulates the classical sociological Durkheimian or Weberian conception and explanation of exchange value, and modern social, including institutional Veblenian, economics adopts an equivalent notion of prices as social categories. Prominent representatives of the new economic sociology suggest that the notion of monetary value is an ‘example of a collective representation’ a la Durkheim in view of that all social actions, thus including market-economic action, are ‘always oriented toward and inspired by certain
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‘collective representations’, just as being ‘a social construct of meaning’ in Weber’s sense (Granovetter and Swedberg 1992: 1992). Similarly, contemporary institutional economists in the Veblenian tradition adopt the tenet of the original institutional economics that prices are ‘social conventions, reinforced by habits and embedded in specific institutions’, inferring that price theory becomes partly a ‘theory of ideas, expectations, habits, and institutions, involving routines and processes of valuation’ (Hodgson 1998: 169). Furthermore, some prominent contemporary economic theorists propose that, just as the ‘interaction’ of individual generates a ‘social value’ under market competition, prices are ‘determined on social institutions known as markets’ (Arrow 1994: 4) and to that extent represent social-institutional phenomena. In addition, other contemporary economists adopt or imply the notion of economic values or prices as social values, such as the ‘social value’ of products and of product and other innovations, as well as of public goods (Bergstrom 2006; Spence 1976; Weyl and Tirole 2012). The social character and concept of wealth, including its accumulation, distribution and reproduction, provides an additional example of multiple independent and nearsimultaneous discoveries and rediscoveries in economic sociology and social economics. As before, the following discussion will emphasize original discoveries and early rediscoveries in this respect, while noting some of their contemporary replications. First, both early classical sociology and mature political economy discover and formulate independently and almost simultaneously the social nature and conception of wealth accumulation, distribution and reproduction. In early classical sociology, a case in point is Comte’s classical sociological theory of wealth accumulation, distribution and reproduction or transmission as an essentially social, including institutional, normative, including altruistic or moral, and political, process. Comte (1983: 399, 403, 404) proposes a positive sociological ‘theory of material prosperity’ involving the notion of social or public, as distinct from natural, individual or private wealth, and the ‘total amount of wealth’ in society. In this connection, Comte defines capital as the ‘permanent aggregate of material products’ and posits that when economic life assumes a ‘social character’, as in the family, the ‘habit of cooperation’ gradually transforms the ‘original selfish character’ of labor into a ‘social mode’. Specifically, for Comte wealth accumulation, preservation and transmission primarily causes the ‘progress from selfish to unselfish’ labor so that its concentration and reproduction allows one to ‘live for others’ as the ‘grandest of human attributes’ by gradually transforming ‘originally egoist activity’ into altruistic ‘social activity’.45 In mature political economy, an exemplar is Mill’s classical economic conception of wealth distribution and thus transmission, though not of its production, as an institutional process, along with Marx’s amplification and Cairnes’s elaboration of the first. Mill (1884: 155–156) states that, unlike its production governed by ‘natura’ laws, the distribution of wealth is ‘a matter of human institution only’ by depending on the ‘laws and customs of society’ in that the ‘opinions and feelings of the ruling portion of the community’ create and enforce the societal ‘rules’ that determine the distributive process in the economy. In this connection, Marx and Engels (1947: 39–41) seem to just substitute Mill’s notion of the ‘opinions and feelings of the ruling portion’ with the ‘ideas of the ruling class’ and the ‘interested prejudices of the ruling classes’ as the creator and enforcer of the rules determining the distribution of wealth. Partly echoing Comte and elaborating on Mill, Cairnes (1965: 71) suggests that the ‘laws of production and distribution of wealth’ derive from the ‘combined operation’ of the political and social conditions of societies or communities, along with the ‘principles of human nature and the physical laws of the external world’, as their causes.
Introduction 25
In this sense, Comte and Mill can be credited for discovering and formulating the social origin and concept of wealth in a dual, mostly independent and almost simultaneous manner, although a more detailed account would specify the substantive influence and temporal precedence of the first vis-à-vis the second, while none of these classical economists preceded and thus influenced the titular founder of sociology. In such an account, Comte qualifies as the original inventor of this empirical finding and concept and Mill, as well as Marx, as its reinventors, but since the time differential of around a decade or so is relatively small with respect to the era of classical sociology and political economy and the 19th century overall, they all qualify as multiple, mostly independent and near-simultaneously co-inventors of the same or similar conception and fact. Subsequently, later classical sociology and neoclassical economics perform multiple independent and near-simultaneous rediscoveries and restatements of the social foundation and conception of wealth and its various processes and forms. In later classical sociology, Durkheim elaborating on Comte rediscovers and restates the societal basis and sociological concept of wealth reproduction, distribution and accumulation, as does Tönnies also acknowledging Comtean general influences, but mostly building on Marx’s theory of capital, as well as Weber elaborating on the latter. Durkheim46 (1965: lv; 1982: 24, 230) posits that ‘ideal justice’ exists in society ‘in a state of perfect equality’ such that wealth is not ‘hereditary’ and thus implies distributive justice, as well as that wealth always operates in a ‘sphere of social activity’ and thus is a social phenomenon. Relatedly, Durkheim maintains that wealth as the ‘object of political economy’ comprises objects that are not just ‘apparently essentially objective’ but also a ‘matter of [public] opinion’ and in that sense socially conditioned through ‘collective representations’. In turn, Tönnies (2001: 196) proposes that in the city ‘typical of Gesellschaft’ qua capitalist society wealth is ‘capital wealth’ in the form of ‘trade, usury, or industrial capital’ as the ‘means for the appropriation of products of labour or for the exploitation of workers’; thus, it implies the concept of capital as a social phenomenon partly a la Comte and wholly Marx-style, as well as considers just reward an ‘act of distributive justice’ and so implies the notion of justice in wealth distribution. In addition, partly elaborating on Marx’s class theory, Weber (1968: 303–304) posits that the ‘redistribution of wealth’ between social classes is the driving force of revolutionary conflicts such as ‘property revolutions’ and in that sense not only operates as a force of social change but also depends on social, including political, factors as an aspect of wealth distribution being a problem of societal institution in Comte-Mill’s sense. Weber’s and Marx’s reverse implication is if this distributive process involving contending social classes were ‘natural’ or ‘Divine’ impervious to and forbidding human action, it would deter and make these revolutions and concomitant changes in society impossible. Further, in neoclassical economics, Walras echoing Mill and in extension Say outlines a theory of wealth and its distribution and transmission as a social, including normative and to some degree political, process. Walras (1936a: 120–121; 1926: 449) explicitly uses the notion of ‘social wealth’ a la Comte and Say in recognition of its inherent societal nature and basis while defining social economy as the theory of distribution of wealth ‘by property and taxation’ and implies that the distributive form of ‘Justice’ as the ‘law of moral relations of people in society’ applies to this process (through the marginal productivity-wage equivalence). Moreover, Walras (1926: 449) admits that an economy of the production and accumulation of wealth consisting of ‘capitals’ or durable goods and ‘revenues’ or fungible goods cannot properly operate ‘without intervention by some
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authority’ from society. Wicksell (1934: 5) conceptualizing a la Walras social economy (or economic policy) mostly in terms of a focus on the distribution of wealth, including the impact on the latter of ‘changes in the existing economic and legal structure of society’, implies that this constitutes or resembles a socially conditioned process. To that extent, Durkheim, Tönnies and Weber on one hand and Walras and in part Wicksell on the other make a multiple independent and near-simultaneous rediscovery and restatement of the social nature, condition and theory of wealth, especially of its distribution to be regulated by the ideal of justice and society, while building on or evoking the discovery and formulation of their precursors Comte, Marx and Mill, respectively. Overall, the later classical sociological theory of wealth accumulation, distribution and reproduction and some versions of neoclassical economics rediscover and restate what Comte and Mill/Marx, respectively, discover and state in their earlier stages—the social nature and concept of wealth and its processes. In addition, early contemporary economic sociology shares further multiple independent and near-simultaneous rediscoveries and restatements of the social character and notion of wealth with early modern, especially Keynesian, economics. Parsons posits that the distribution of wealth opens many societal ‘integrative problems’ consistent with the economy’s ‘integrative significance’ for society and to that extent forms a social process in interaction with other processes (Parsons and Smelser1965: 56). Keynes (1960: 329) emphasizes that ‘all kinds of social customs’, along with economic practices, impact the ‘distribution of wealth and of economic rewards and penalties useful in promoting the accumulation of capital’, which makes this distributive process and wealth itself, including capital, a socially conditioned phenomenon. In addition, Schumpeter (1951: 1–4) allows that a society ‘with one and the same amount of general wealth may be rich or poor according to the manner in which that wealth is distributed’ and thus intimates that the distribution of wealth is a societal phenomenon by inherently taking place within and being usually conditioned by the social system. Lastly, later contemporary economic sociology and social and related economics continue to rediscover and reformulate in multiple independent and near-simultaneous ways the social basis and conception of wealth, including capital, and its processes. These replications are so numerous, various and convergent in both modern economic sociology and economics that it suffices to briefly summarize them on this occasion also given the present emphasis on original discoveries and early rediscoveries. Most new economic sociologists regard wealth as a social phenomenon and its production, accumulation and especially distribution and redistribution, as well as relatedly those of income, as eminently social processes (Block 1990; Granovetter 2017; Shanahan and Tuma 1994; Smelser and Swedberg. 2005). Similarly, some modern, especially social and institutional, economists recognize and emphasize that unequal wealth, income and related distribution or redistribution is a social, including institutional and political, process in that it is socially, in particular institutionally, ideologically and politically, conditioned (Acemoglu 2005; Akerlof and Kranton 2002; Bowles and Carlin 2020; Hodgson 1999; Kranton 2016; Piketty 2014, 2020; Sen 1999, 2009).
Additional cases of multiple discoveries in economic sociology Further multiple discoveries or rediscoveries in economic sociology, which both sociologists and sociologically minded economists make, comprise the social bases and concepts of the market, competition and non- or quasi-competitive processes and
Introduction 27
structures, entrepreneurship and invention, the ideas of statics and dynamics, among others. As before, these discoveries or rediscoveries to some degree overlap or interrelate with one another and the previous. To take one instance, classical sociology and classical political economy make such multiple independent and near-simultaneous discoveries and formulations of the social framework and concept of the market and competition, with their subsequent stages making rediscoveries and reformulations in this respect. As usual, in classical sociology, Comte discovers or implies and anticipates this fact and idea in his early, rudimentary sociological conception and classification of economic exchange, including its market, non-market forms and opposites, as forming or resembling a social process. Comte (1983: 404–405) characterizes market exchange as a ‘free’ and ‘interested’ form of wealth transmission and generally of social process in contrast to gift and so nonmarket exchange as a ‘free’ but ‘gratuitous’ and by implication traditional or customary form versus inheritance and conquest as legal and violent forms, respectively. In classical political economy, Mill again parallels Comte in this regard by his analysis of the role of customs and traditions as cultural-social factors in the market and competition. Mill (1884: 176) notes that market competition only becomes the ‘governing principle’ of commercial contracts during modern periods, while in earlier times ‘all transactions and engagements’ are under the ‘influence of fixed customs’, reminiscent of Ricardo’s (1975) observation that wages everywhere ‘essentially’ depend on the ‘habits and customs of the people’.47 To that extent, Comte and Mill discover mostly independently and near-simultaneously, with the second slightly after the first, the social foundation and conception of the market and exchange overall. Subsequently, their successors in mature classical sociology and neoclassical economics like Durkheim, Tönnies and Weber and Walras and Wicksteed, respectively, make independent and almost simultaneous rediscoveries and reformulations of this main empirical finding and premise of the sociology of the market. Durkheim (1965: 158, 215) does this, inter alia, especially by his sociological conception of market contracts stating that ‘not everything is contractual’ in a commercial contract that is insufficient in itself and owes its existence to its social regulation that produces and reveals its noncontractual normative, including customary and legal, elements. Tönnies (1955: 270) converges with Durkheim in observing that the ‘law of contracts’ in capitalism (Gesellschaft) is the ‘custom and creed of business’ and thus implies their legal and customary components and in that sense social bases. In this connection, Tönnies seems to discover or prefigure the theory of incomplete or informal market and other economic contracts that much of modern micro-economics adopts in replacement of that of complete contracts and to that extent just rediscovers and restates.48 Especially, Tönnies (2001: 88) characterizes the labor market as a ‘network of communication within the periphery’ of the market system of capitalism and to that extent identifies and posits the social-network structure and notion of markets. In a similar vein to Durkheim, Walras (1926: 449; xi) recognizes that the market and economy as a whole cannot operate effectively without social regulation such as ‘intervention by some authority’ in society like the state,49 which he also implies by the expression a ‘hypothetical regime of absolutely free competition’ admitting that the latter is just a counterfactual ideal and not an economic reality. Similarly, Weber on one hand and Wicksteed on the other independently and almost simultaneously rediscover and reformulate the social setting and concept of the market by positing and stressing its social connotations and influences. Weber (1968: 81, 635) proposes the ‘sociology
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of the market’ seen as the ‘archetype of all rational social action’ and thus characterizes the market from a ‘sociological point of view’ as a ‘coexistence and sequence of rational consociations’. Wicksteed (1934: 784) cautions that the market ‘never has been left to itself ’ (and ‘never must be’), thus implying that markets always have been subject to some form or degree of social conditioning, while casting doubt on laissez-faire ‘economic harmonies’ by implication a la Bastiat, Say and Smith, which in his view earlier generations of economists exalt with ‘religious awe and enthusiasm’. Early contemporary economic sociology and economics further rediscover and restate the social basis and conception of the market. Within early contemporary economic sociology, Parsons considers the market a ‘social system’ and especially posits and stresses the ‘institutional structure of markets’ (Parsons and Smelser 1965: 143, 174). In early contemporary economics, Myrdal (1953: 147) similarly depicts the market economy as a ‘social system of efficient housekeeping’ and remarks that such a notion is common to ‘all political doctrines in economics’. In addition, Schumpeter (1950b: 184) regards the market not just as an economic mechanism or organism but also as an instance or function of social institutions, even the most ‘democratic institution’ in society. Moreover, Boulding (1970: 153–155) proposes the ‘economic sociology of the market’ in view of that market and other economic processes implicate and depend on ‘total society’ or the ‘socio-sphere‘. Furthermore, the new economic sociology, particularly sociology of the market, and modern, especially social and institutional, economics make additional independent and almost simultaneous rediscoveries or reformulations of the social structure, construction and concept of the market. Considering this, it suffices to just list these replications at this juncture in view also of the current emphasis on original discoveries in this respect. Their instances within the new economic sociology, especially sociology of the market, are theoretical and empirical alike and multiple (e.g., Bourdieu 2005; Fligstein and Dauter 2007; Granovetter 2005a, 2017; Knorr Cetina and Preda 2005; Lie 1997; MacKenzie 2018; Swedberg 2003, 2005; White 1981). Similarly, their examples in modern sociologically minded economics are theoretical-empirical and relatively numerous (e.g., Akerlof 2002; Arrow 1994; Bayer, Mangum and Roberts 2021; Becker and Murphy 2000; Bowles and Gintis 2000; Gagnon and Goyal 2017; Hodgson 1999; Roth 2018; Phelps 2013). In particular, the above implies and includes multiple independent and nearsimultaneous discoveries and formulations of the social nature and concept of competition and other market processes and structures. Both classical sociologists and their counterparts in classical political economy, as well as some of their neoclassical successors, discover and formulate or rediscover and reformulate the social character and conception of market competition and its variations and opposites. In classical sociology, Comte (1983: 276) intimates that economic competition or exchange as part of the social economy is involved in and conditioned by the entire social system, including its polity intervening in the economy, comprising ‘relations of greater generality’, and to that extent represents an eminently social process. Tönnies (1955: 86–90) considers ‘general competition’, especially its market form, in capitalist society (Gesellschaft) a social relation or conflict in which the ‘loss of one is the profit of the other’, thus expressing a proxy of war of ‘all against all’ in the style of Hobbes, albeit competitors may find agreeing to ‘leave each other alone’ to their advantage. Notably, Tönnies (2001: 84) alerts to the ‘essential principle’ of capitalist market competition as a largely impersonal and anonymous process and in that sense identifies and posits the social basis and concept
Introduction 29
of what classical, neoclassical and modern economists consider and describe as perfect competition50 (Phelps 2007). Next, Simmel (1955: 60) suggests that commercial and all competition has an ‘incomparable sociological constellation’. Similarly, Durkheim (1965: xxxv) allows that economic and other competition generates ‘mutual relationships’ (though not regular ones) between competitors and in that degree constitutes or resembles a social process. Weber (1968: 38, 635) defines economic and other competition, including its ‘regulated’ variant, as a form of non-violent social conflict consisting in a ‘formally peaceful attempt to attain control over opportunities and advantages’ that others also desire, and more broadly of social action by involving a ‘plurality of potential parties’. In classical political economy, near-simultaneously with or following on Comte, Mill (1884: 214) recognizes that free competition can be limited by, aside from ‘natural causes’, the ‘unintended effect of general social circumstances’, especially allowing that law and custom ‘may interfere to limit competition’, thus suggesting that the latter is a socially conditioned process. Elaborating on Mill, Cairnes (1967: 68) by identifying the ‘existence of non-competing industrial groups’ in the social economy suggests that free competition can be restricted by certain economic and social groups and thus socially shaped. Also, Marx (1967: 356, 551) posits that competition between both capitalists and laborers is a social process by involving certain, even if antagonistic or conflictual, relations between competitors and forming a societal analogue of the animal kingdom’s bellum omnium contra omnes (war of all against all). Within neoclassical economics, Walras (1926: xi) by notion of a ‘hypothetical regime of absolutely free competition’ and the implication that the latter as part of the economy cannot function without ‘intervention by some authority’ implies that competition is a socially conditioned, including politically influenced, process. In addition, evoking Mill, Marshall (1961: 5) laments that when critics denounce economic competition, they made its ‘anti-social forms’ prominent and instead reaffirm its social forms as critical to the ‘balance of social well-being’, and thus it implies that free competition operates as a case of social processes or ‘laws of tendencies’ within society. In a familiar pattern, early contemporary economic sociology and economics rediscover and restate the character and concept of market-economic competition as a socially conditioned process. Parsons (1966: 21) proposes that the ‘terms of competition’ may be altered by the inherently social process of adoption and diffusion of inventions or innovations and to that extent is at least partly a socially determined phenomenon. Among his contemporaries, Schumpeter, (1949: 1, 88) implicitly considers market competition a dimension of the ‘social process’ operating through ‘economic leadership’ in the form of invention and especially innovation. Relatedly, Myrdal51 (1953: 4) remarks that the theory of free competition is a ‘political desideratum’ and not just a ‘set of abstract assumptions’. Even Samuelson (1983: 7), an ostensibly pure economist, acknowledges, while taking it as a datum, the ‘institutional framework’ of competition and other market and economic processes. Lastly, after the same pattern, later contemporary economic sociology and economics perform in diverse degrees and ways a myriad of further independent, nearsimultaneous rediscoveries or restatements déjà vu of the social, including institutional, setting and concept of market-economic competition as a socially shaped process. In consideration of this, it is sufficient to mention just some of these replications, also considering the emphasis on original discoveries. Cases in point are manifest and comparatively numerous in contemporary economic sociology as well as anthropology
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(e.g., Abolafia 1998; Bothner 2003; Granovetter and McGuire 1998; Podolny 1993; Schutz 2001; Stinchcombe 1997; Swedberg 2005; White 1981; Zuckerman and Sgourev 2006). Also, some analogous instances are present or implicit in contemporary sociologically minded and related economics (e.g., Akerlof 2002; Arrow 1994; Hodgson 1999; Rosen52 1997). In addition to and conjunction with the preceding, classical economic sociology and neoclassical and other economics share the discovery and formulation of the social origins and concepts of alternative non- or quasi-competitive market structures, such as monopoly, oligopoly and monopolistic or imperfect competition regarded as a deviation from of normal, pure, perfect or free competition. As before, the discussion will focus on original multiple discoveries and early discoveries versus later rediscoveries and so replications in this respect. In classical economic sociology, apparently building on Marx, Tönnies (1955: 71) discovers and proposes the social bases and notions of monopoly, oligopoly and monopolistic competition by generally pointing to monopoly capitalists controlling the market and indeed ruling capitalist society existing only for their ‘sake’ and as their ‘tool’ as its ‘natural lords and masters’ through the concentration of wealth and power while ‘all non-capitalists’ being either like ‘inanimate tools’, as the ‘very essence of slavery’ or ‘legally nonentities’ that are ‘incapable of exercising rational choice’. Particularly, Tönnies (1955: 89) notes that competition tends to be limited and ultimately abolished by ‘coalition’ and to that extent discovers and posits the social origin and concept of monopoly53 or oligopoly. Similarly, Simmel (1955: 77) proposes that voluntary agreements among competitors can reach the ‘point of abolishing competition’ through ‘cartelization’ rather than lead to ‘ever intenser and purer competition’, thus implying the notion of monopolization or concentration in the market as a social process. Elaborating on Tönnies (and Marx), Weber54 (1968: 638–639) outlines a sociological account of the development of market structures consisting of the following stages: the first stage, ‘monopolies of status groups’ based on ‘sacred, status and traditional bonds’, the intermediate, ‘free competition’ and the last, ‘capitalistic monopolies’ established in the market through the ‘power of property’. Especially, Weber (1968: 942–943) considers a ‘position of monopoly’ a major source of market-economic power described as ‘domination by virtue of a constellation of interests’ and characterizes ‘monopolistic domination of the market’ as the ‘purest type’ of the latter. Moreover, Tönnies55 (1955: 84) probably discovers, at least within classical economic sociology, monopolistic competition as a market structure—which would be in itself a discovery in economics—and by implication its social conditions, by detecting monopolists’ tendency to resort on and compete by a ‘price war’ through the strategy of product differentiation (brands of a commodity), as the main element of its redefinitions in later and contemporary economic theory (since Chamberlin 1933). Notably, Tönnies does this independently of and almost simultaneously with Marshall who also discovers some processes deviating from perfect competition such as monopolistic tendencies and other imperfections in the market. Hence, Tönnies discovers this market structure prior to Marshall’s neoclassical disciples like Pigou (1960: 171–172), who probably first coins the term ‘monopolistic competition’ defined as competition ‘between several sellers each producing a considerable proportion of the aggregate output’ but without product differentiation and seen as comprising ‘all forms of imperfect competition’. Tönnies thus also precedes in this discovery early contemporary economists (Chamberlin 1933; Robinson 1933) who redefine, develop and insist on the concept of monopolistic
Introduction 31
and/or imperfect competition as the dominant or expanding market process and structure in the modern economy. Furthermore, neoclassical economics independently and near-simultaneously (or slightly earlier) discovers or intimates the social elements of monopolistic or imperfect competition, as well as monopoly and oligopoly, just as those of pure, perfect or free competition, as distinct market processes and structures. Especially, Marshall (1961: 218, 287) does this in neoclassical economics by identifying various monopolistic and oligopolistic deformations or imperfections of perfect competition, including ‘spoiling the market’ by a producer through ‘formal or informal agreement with other producers’ for their ‘immediate gains’, which seems equivalent to Tönnies’s observation of abolishing competition by ‘coalition’ and thus a social action. Marshall’s follower Pigou (1960: 173, 271) elaborates his insights in noting the ‘simple exercise of monopoly power’ taking place under and causing the ‘long-run disadvantages’ of pure monopoly and in extension monopolistic or imperfect competition involving several monopolists and leading, under certain conditions, to the ‘evolution of simple monopoly’ and so monopoly power. This implies that these market structures by their high ‘degree of monopoly power’ (Lerner 1955; also, Elzinga and Mills 2011) represent or resemble social-political structures of power equivalent to Weber’s economic domination due to a ‘position of monopoly’ and related ‘power constellations’, as do firms as what Pigou’s contemporary Robertson describes (1948: 85) and Coase (1937: 388) cites as ‘islands of conscious power in this ocean of unconscious co-operation’. And many later and contemporary economists recognize and emphasize the presence and operation of monopoly and broader power in markets, especially monopoly, oligopoly and monopolistic competition, as well as the nature and functioning of firms as Weberian power structures in modern capitalism (Bilbiie, Ghironi and Melitz 2019; Bowles and Gintis 2000; Bowles and Carlin 2020; Galbraith 1952, 1956, Lamoreaux 2019; Li, Matouschek and Powell 2017; Parente and Prescott 1999; Rajan and Zingales 1998; Syverson 2019). As typical, early contemporary economic sociology and economics explicitly or implicitly rediscover and restate in their ways independently and near-simultaneously the social origins of alternative, non- or quasi-competitive market processes and structures, including monopoly, oligopoly and monopolistic or imperfect competition. Within early contemporary economic sociology, Parsons postulates that ‘market structures differ in sociological type’—and ‘not merely along some dimension of competitiveness’—in that markets differentiate in accordance with the general boundary social processes of the economy and thus each of them is a ‘social system’ (Parsons and Smelser 1965: 173–174). In early contemporary economics, Schumpeter (1949: 106) posits the existence of the ‘monopoloid’ species of capitalism’, including monopoly, duopoly and oligopoly, as market configurations different from perfect competition, and even argues that the latter has no basis to be deemed ‘a model of efficiency’ as considered in classical and neoclassical economics. Notably, Chamberlin (1951a: 356; 1951b: 306) alerts that many ‘situations’ in the market like oligopoly and monopolistic competition are under and made ‘determinate’ by the ‘influence of non-economic factors’ such as a ‘wider context’ of society and thus suggests the social setting and concept of these alternative market structures to pure competition, inferring that economics addresses ‘only one aspect’ of ‘social reality’ or ‘a much wider set of social relationships’ and in that sense ‘simply is not an autonomous science’. Finally, the new economic sociology and parts of modern economics make further independent and near-simultaneous rediscoveries or reformulations, in diverse degrees
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and manners, of the social bases and concepts of additional market structures like monopoly, oligopoly and monopolistic or imperfect competition so that it is sufficient to only register some of them and given that they are mostly replications in this regard. For illustration, some modern economic sociologists suggest monopolistic competition through ‘differentiated products’ (White 1981: 517), use the Weberian notion of power in the economy with its source in ‘a position of monopoly’ (albeit cast doubt on ‘natural monopoly’) as a special ‘constellation of interests’ (Granovetter 2005b: 12), adopt the dichotomy between ‘perfect competition’ and ‘perfect monopoly’ (Dobbin and Dowd 2000: 643) and envision ‘monopoly power’ in product markets and ‘monopsonistic positions’ in labor markets within the emerging gig economy (Vallas and Schor 2020, 278). In turn, a growing number of modern economists embrace and refine the Chamberlin and in extension (but without familiarity with or invocation of ) Tönnies’ concept of monopolistic or imperfect competition and by implication its social bases or underpinnings, as the prevailing or rising market process and structure, overlapping with monopolization, monopoly power, concentration and oligopoly, or the ‘new industrial state’ in the contemporary economy (Akerlof 2002; Akerlof and Yellen 1987; Dixit and Stiglitz 1977; Galbraith 1952, 1967; Hart 1985. Spence 1976; Stiglitz 1979; also, Behrens et al. 2020, Berry, Gaynor and Morton 2019; Matsuyama 1995). Taking another instance, the social nature and concept of entrepreneurship and invention or innovation, including ‘creative production’, in the economy is a further illustration of multiple independent and near-simultaneous discoveries and rediscoveries in economic sociology. In particular, later classical economic sociology and late neoclassical or early contemporary economics make such a discovery independently and almost simultaneously. Cases in point are Weber’s sociological conception of capitalist entrepreneurs as socially conditioned actors and its near-simultaneous or slightly subsequent analogue in Schumpeter’s neoclassical economic theory of entrepreneurship as a social process in capitalism, notably his ‘sociology of enterprise’, with the qualification that the first author influenced and preceded the latter (Phelps 2013; Swedberg 1991). Weber (1976: 70–71) constructs the ‘ideal type of the capitalistic entrepreneur’— embodied especially by Calvinist entrepreneurs during early capitalism—as a socially, including religiously determined, actor who displays the avoidance of ‘ostentation and unnecessary expenditure’, an ‘ascetic’ manner of life, getting ‘nothing out of his wealth for himself, except the irrational sense of having done his job well’. Schumpeter (1949: 92–93) depicts the ‘typical entrepreneur’ in capitalism in essentially identical terms, as a social actor driven by a ‘psychology of a non-hedonist character’, including the ‘dream and will to found a private kingdom (like) a dynasty’, the ‘will to conquer: the impulse to fight, to prove oneself superior to others, to succeed for the sake, not of the fruits of the success, but of success itself ’, as well as the ‘joy of creating, getting things done, or simply by exercising one’s energy and ingenuity’. Invoking a related, relatedly unknown example, in later classical sociology, Tarde discovers ‘creative production’ as a social process of invention in industry independently of and near-simultaneously, more precisely preceding, Schumpeter‘s discovery of ‘creative destruction’ in capitalism as its apparent equivalent in neoclassical economics. This precedence in time makes Schumpeter’s discovery and formulation of ‘creative destruction’ actually a rediscovery and restatement and thus derivative, but this case still can qualify as a multiple independent and near-simultaneous discovery so long as the temporal difference of a decade or so seems relatively small in the context and spirit of the time, the late 19th and early 20th centuries. Specifically, Tarde (2000: 8) regards
Introduction 33
‘creative production’ as consisting of processes of ‘industrial invention’, especially its adoption or monopolization and triumph by a rival among ‘various industrial rivals’ transiently marks ‘an end to competition’, and to that extent as constituting or resembling a social process. Schumpeter (1950b: 83) defines the ‘process of Creative Destruction’ in a similar manner, in terms of economic innovation or industrial mutation that ‘revolutionizes economic structure from within, by destroying the old, creating the new’, thus as a social process, converging with Tarde and amplifying Marx’s idea of capitalism as a ‘revolutionizing’ force. In addition, Sorokin (1970: 672) in an independent and near-simultaneous fashion (or somewhat later) discovers or rediscovers ‘inexhaustible creative variations’ as a ‘diverse and ever-new process’ of society involving the ‘immanent’ change of its systems and an ‘incessant replacement of the dying systems by newly born ones’, and thus by implication equivalent to ‘creative destruction’ in Schumpeter’s framework. The new economic sociology and modern economics replicate in various ways independent or simultaneous rediscoveries and restatements of the social context and conception of entrepreneurship and entrepreneurial innovation, including ‘creative destruction’, so it suffices to just take notice of them, specifically of the latter, also in light of, fittingly, the current emphasis on original discoveries or inventions in this regard. Some modern economic sociologists adopt Tarde’s theory of diffusion of inventions or innovations, including implicitly his idea of ‘creative production’ (Wejnert 2002) and the notion of ‘Schumpeterian creative destruction’ and by implication Tarde’s ‘creative production’ with reference to the platform economy (Vallas and Schor 2020) and generally the Weberian and related sociological theory of entrepreneurship (Granovetter 2005a; Martinelli 1994; Ruef 2010; Thornton 1999). In addition, many contemporary economists embrace and apply (and occasionally overuse) Schumpeter’s concept of ‘creative destruction’ and thus by implication (but without reference to) Tarde’s concept of ‘creative production’ or Sorokin’s concept of ‘creative variations’ and more broadly the Weberian theory of capitalist entrepreneurship (Aghion et al. 2019; Akerlof and Holden 2016; Broda and Weinstein 2010; Gharad, Choi and Karlan 2021; Francois and Lloyd-Ellis 2003; Kogan, Papanikolaou and Stoffman 2020; Phelps 2013; Thesmar and Thoenig 2000). To take a last example, the concepts of social-economic statics and dynamics also exemplify multiple independent and near-simultaneous discoveries56 in economic sociology and beyond. As in many previous instances, early classical sociology and later political economy make such a discovery that is near-simultaneous, although not independent with respect to the latter. Comte invents the concepts of social statics and social dynamics in an exposition and analysis in which the first always precedes the second, and then J. S. Mill borrows and introduces them to economics while renaming them as economic statics and dynamics. Comte (1983: 224) defines social statics (in the sense of the ‘static study of sociology’) as studying the ‘laws of action and reaction of different parts of the social system’ and then social dynamics as an investigation analytically ‘connecting of each of these consecutive social states as the necessary result of the preceding, and the indispensable mover of the following’. Comte57 (1983: 224, 233) suggests that social statics is the theory of a ‘spontaneous harmony between the whole and the parts of the social system’ and in that sense societal ‘equilibrium‘ that ‘always establishes itself spontaneously’, and social dynamics as the theory of ‘social progress’. Generally, Mill (1873: 82, 92) adopts these concepts from what he calls Comte’s ‘great work’ in the ‘general philosophy of sociology’ and redefines them in an essentially
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identical manner, the ‘statics of society’ as the ‘study of the conditions of existence and permanence of the social state’, and the dynamics as the study of the ‘laws of the evolution of human society’, the first hence being the ‘theory of the consensus, or inter-dependence of social phenomena’ and the second the ‘theory of their filiation’. Particularly, adopting and applying Comte’s sociological concepts to economics, Mill (2004: 177) characterizes the ‘Statics’ of political economy as the ‘theory of equilibrium’ dealing with the ‘economical laws of a stationary and unchanging society’, and describes the ‘Dynamics of political economy’ as the ‘theory of motion’ relating to the laws of changes in the ‘economical condition of mankind’. In this connection, Mill (1873: 82) subscribes to Comte’s sociological premise that social phenomena exist in action and reaction to one another (and so ‘cannot rightly be understood apart’) within the social system as the realm of social statics and that any generalizations about the ‘material and industrial phenomena of society’ should be in relation to ‘a given stage of social advancement’ as the domain of social dynamics. Later classical sociologists such as Spencer and neoclassical economists like J. B. Clark and others rediscover or reinvent these ideas of social-economic statics and dynamics mostly independently and almost simultaneously. Spencer (1970: 367) advises that sociology ‘may be aptly divided (as political economy has been) into statics and dynamics’, with the first studying the ‘equilibrium of a perfect society’ and the second the ‘forces by which society is advanced toward perfection’. In passing, this statement may bemuse sociologists in that Spencer apparently overlooks that sociology has been divided into statics and dynamics by Comte prior to political economy to which Mill has introduced the Comtean sociological division. Following or echoing Comte and Mill, J. B. Clark (1899: 203) presents a ‘natural arrangement’ of pure economic theory into the ‘theory of Economic Statics’ and the ‘theory of Economic Dynamics’, together with ‘universal economic theory’. Curiously, Marshall (1961: 556) holds that economic ‘Statics is really but a branch of Dynamics’, given that the ‘hypothesis of a Stationary state’ and generally ‘economic rest’ is ‘merely provisional’, and thus seemingly agrees with or echoes Comte’s view of the ‘dynamic part’ of sociology as being the ‘most interesting’ and the ‘fittest’ in consideration of the ‘laws of interconnection’ in relation to the ‘static part’. Marshall’s follower J. N. (father) Keynes (1955: 145–148) uses the notions of economic statics and dynamics as ‘branches of enquiry’ constituting the ‘main body of economic science’ and especially notes that the second branch is the study and theory of ‘economic progress’ and hence ‘more subordinate than are other portions of economic doctrine to general sociology’, thus implicating Comte’s definition of social dynamics as the theory of ‘social progress’. In Austrian economics, Wieser (1967: 51–52) allows that static conception is ‘useful’ to economic theory by stressing the ‘unity’ of economics but warns that it may lead to introducing the ‘methods of mathematical physics’ which he regards as ‘not suited to the subject-matter of economics’ and suggests turning attention away from ‘economic equilibrium’. Early contemporary sociology and economics continue this pattern by reinventing and restating social-economic statics and dynamics in multiple and various ways and to that extent rediscovering, even if unwittingly, Comte and Mill, respectively. Parsons (1951: 535) defines by implication a la Comte statics in terms of an emphasis on social process within a ‘stabilized system’ and dynamics as emphasizing the ‘problems of changes’ or the ‘processes of action’. Schumpeter (1954: 416, 964) considers Comte single-handedly or via Mill the inventor of the ‘concepts of statics and dynamics’ by introducing them to the social sciences, including economics, 58 and notes that ‘static
Introduction 35
theory’ (also, Haberler 1943; Hansen 1953) historically always precedes ‘dynamic theory’, as in their Comtean or Millian exposition through such precedence. Knight (1958: 180) notes that the ‘root idea’ of economic statics consists of the ‘notion of equilibrium’ and thus implicitly applies (without referring to) Comte’s conception of social statics in terms of the theory of societal equilibrium to economics. Similarly, Harrod (1956: 3–4) characterizes ‘static economics’ by a ‘static equilibrium’ and Tinbergen (1950: 102–103) specifies economic statics by the assumption of a ‘stationary position’ versus economic dynamics as the theory of the ‘process of adaptation and successive movement’, which is also reminiscent of Comte’s social statics and equilibrium. Furthermore, Samuelson (1983: 20, 350–354) seemingly a la Comte’s social statics and equilibrium characterizes ‘comparative statics’ in economics as the ‘study of the responses in our equilibrium unknowns to designated changes in parameters’ and ‘comparative dynamics’ as the examination of the effects of change ‘on the whole motion or behavior over time of the economic system’ (also, Backhouse59 2015). Finally, the new economic sociology and modern economics—ironically, first more rarely or by implication and the second more frequently or explicitly—rediscover, restate and thus mostly replicate Comte’s and Mill’s ideas of social-economic statics and dynamics, including comparative statics and dynamics, so it suffices to mention few examples in light of replication and the emphasis on original discovery in this respect. Following neoclassical economics’ (Samuelson’s) adaptation of Comte’s statics, some modern economic and other sociologists use ‘comparative-statics methods’ in the sociological theory of markets for deriving ‘formulas’ for firms and market aggregates (White60 1981), while others adopt a ‘dynamic model’ in theorizing economic and other social organizations (McPherson 1984). Furthermore, some contemporary economists adopt and develop the concept of ‘social dynamics’, including ‘institutional dynamics’, understood either in the sense of a type of theory of society or as dynamic social change, and thus implicitly rediscover and replicate Comte’s discovery (Durlauf and Young 2001; Greif 1998; Kimbrough, Smith and Wilson 2008). Other modern economists embrace and operate with the concepts of economic statics and dynamics, especially comparative statics and dynamics, in their analyses, and to that extent unwittingly follow or evoke Comte’s sociological ideas via Mill’s and Samuelson’s appropriation and adaptation (Acemoglu and Jensen 2015; Chow 1997; Heckman 2000; Immorlica et al. 2017; Van Den Steen 2004).
Summary To summarize briefly the preceding, multiple independent, including nearsimultaneous, discoveries and rediscoveries (in Merton’s sense) of theoretical ideas and empirical findings by both sociologists and sociologically minded economists appear as a modus operandi through which economic sociology develops and proceeds within sociology and certain parts of economics. This tendency is relevant and striking in that such theoretical and empirical discoveries and rediscoveries occur not in a single science (as usually occurring in Merton’s framework), but within or across several disciplines (including to some extent anthropology as well, as Polanyi demonstrates). They thereby make and shape economic sociology as a profoundly interdisciplinary endeavor overlapping and crossing into sociology and sections of economics (what Schumpeter describes as ‘every man’s land’ or ‘no man’s land’) between the two fields of social science. And economic sociology as such sustains, stimulates and reinforces these multiple
36 Milan Zafirovski
independent discoveries and rediscoveries of its theoretical concepts and empirical findings, as well as probably predicts more of them for the future, in sociology and sociologically minded economics alike. Consistent with the pattern of multiple independent, including near-simultaneous, discoveries of the ideas and findings of economic sociology in sociology and economic alike, the present handbook of economic sociology includes topical contributions from both contemporary sociologists and sociologically minded economists. In this sense, such interdisciplinary contributions do full justice to the historical development, present state and likely future trajectory of economic sociology. And each of these contributions speaks for itself so that their summary or interpretation seems redundant, unnecessarily delays their reading, debating and enjoying, and even may not do full justice to them in their original arguments, findings and statements. With this in mind, the reader is invited and welcome to immediately proceed to reading, debating and hopefully enjoying the chapters of this international volume of economic sociology that follow.
Notes 1 This refers to the Journal of Economic Literature ( JEL) classification system that includes ‘economic sociology’ under ‘Special Topics’, along with its anthropological equivalent ‘Economic Anthropology’, as well as ‘Social and Economic Stratification’. 2 Boulding (1969: 8) suggests that ‘economics imperialism’ is ‘an attempt on the part of economics to take over all the other social science’, including (economic) sociology (see also Granovetter 1985; Hodgson 1998; Smelser and Swedberg 2005). This implies that the ‘economic approach’ to social action or ‘rational choice theory’ in its extreme form of economics imperialism amounts to an implicit negation or depreciation of economic sociology as an autonomous, original and distinct sociological theory and study of the economy. The essential and seemingly unresolvable problem is the ‘economic approach’ or ‘rational choice theory’ that reduces all human behavior to utility-maximizing and construes society as a market, while instead economic sociology considers economic behavior a special case of social action and the economy/market an integral element of society, which appears a more plausible consideration at least from the prism of sociologists and sociologically minded economists. So long as the ‘economic approach’ or ‘rational choice theory’ does this, it appears profoundly contradictory to and incompatible with economic sociology. Yet, an application of a ‘rational choice perspective on economic sociology’ is attempted by Coleman (1994) and, relatedly, a combination of the economic approach/rational choice theory with social economics by Becker and Murphy (2000). Curiously, Marxist economist Lange (1945–1946: 19) prefigures these attempts by describing economic sociology as the ‘science of the effect of economic actions upon social actions’—which seems contrary to its typical descriptions from Durkheim and Weber to Schumpeter and Parsons by the influence of social structure on economic activities—and thus equates it with (besides Marxian historical materialism) what later has become the ‘economic approach’ to human behavior. And some degree of equation or conflation of economic sociology, as well as social economics, with the ‘economic approach’ and rational choice theory persists in parts of contemporary sociology and economics, perhaps resulting from the seeming but dubious equation or conflation between ‘economic’ in economic sociology and ‘economic’ in the ‘economic approach’. In essence, ‘economic’ in economic sociology signifies that the economy, including the market, is conditioned by and thus a function of society, while ‘economic’ in the ‘economic approach’ means the opposite, that society is determined by and so the dependent variable of the economy/market and in that sense economic determinism. While allowing for an interconnection, interaction and interdependence, the first treatment seems more plausible for most sociologists and sociologically minded economists, because economic action is a particular form of social action as a broader category and the economy/market is a part of society as a whole that typically tends to impact more its parts than conversely, as Comte, Durkheim,
Introduction 37 Pareto and Parsons explicitly argue, and Schumpeter implies. In short, the economyas-part-of-society view is holistic and so preferable for most sociologists and sociologically minded economists to the society-as-the-market view as unacceptably reductionist. 3 Parsons (1935b: 649–650) comments that ‘instead of being mere habits’, as presumably viewed in Veblenian institutional economics, institutions are ‘normative rules ultimately dependent on common ethical values’, as treated in Durkheim’s sociological ‘institutionalism’. 4 Merton (1968: 9) defines ‘multiple independent discoveries in science’ as ‘substantively identical or functionally equivalent ideas and empirical findings set forth by two or more scientists, each unaware of the others’ work’. He elaborates that when these occur at about the same time, they are called ‘simultaneous independent discoveries’, noting that there are no ‘generally accepted criteria of “simultaneity,” but in practice, multiple discoveries are described as simultaneous when they occur within the span of a few years’ (Merton 1968: 9). Merton (1968: 9) adds that ‘when longer intervals separate functionally interchangeable discoveries, the later one is described as a rediscovery [and] the earlier [as] prediscovery’. As an instance from economics, Merton (1968: 11) notes that ‘R. G. D. Allen and J. R. Hicks, who had independently brought the modem economic theory of value to a culmination in 1934, took special pains to call public attention to their later uncovering of a prediscovery by the Russian economist, Eugen Slutsky, who had published in an Italian journal in 1915, a time when war took precedence over the ready circulation of ideas (‘Slutsky’s equation’)’. Partly related, Jones (2022: 2228) stresses the ‘discovery of new ideas by a relatively small number of people’ not in economics and economic sociology but in economy and society and invokes this innovation as the rationale for drastically reducing the taxation rate of capitalist entrepreneurs (to 9%!)—even if there is no conclusive evidence that taxes greatly impact entrepreneurial activity, as Schumpeter (1949: 92–93) implies in his economicsociological theory of entrepreneurship as primarily motivated by ‘non-hedonistic’ and to that extent non-profit or non-utility motives—which is reminiscent of medieval scholastics’ rationalization of the taxing and related privileges of ‘innovative’ aristocracy, as it is with respect to ideas (as Pareto, Tocqueville and others suggest, observing that aristocrats while morally decadent are intellectually creative). 5 Merton (1968: 10) cautions that ‘for the typically less precise formulations in much of the social sciences, it becomes even more difficult (than in the more exact disciplines, such as mathematics) to establish the substantive identity or functional equivalence of independently evolved conceptions’. 6 Yet Stigler (1950: 320) remarks that ‘at least two of the founders’ of marginal utility theory, namely Menger and Walras, with Jevons an exception, ‘knew much less about economic life than a dozen of predecessors such as Smith and Babbage’. 7 Schumpeter (1949: 60) identifies the ‘economic sociology of Adam Smith’ and Reisman (1987) points to Smith’s “sociological economics”’. Relatedly, Galbraith and Parker (2017: 126) imply some implications or proxies of Smith’s sociopolitical economics by remarking that Smith ‘observed that while there were no laws against combinations by merchants or employers to assert their collective strength, there was no such tolerance of combinations by the workers’. Still, Smith does not have an explicit idea of the social economy in Comte’s sociological sense of the economic system of society and even in Say’s and Mill’s epistemic terms analogous to political economy as a theory. Smith (1937), charitably interpreted, comes most closely to Comte’s social economy by such expressions as ‘political economy in every country’ and a nation’s ‘political economy’ and more often to Say’s and Mill’s ‘social economy’ in ‘theories of political economy’, the theoretical ‘system of political economy’, ‘political economy considered a branch of the science of the statesman or legislator’ and ‘a fundamental maxim’ in political economy. The bottom line is that Smith never uses the term social economy either in the sociological sense of Comte or in the epistemic meaning of Say and Mill and is thus impertinent to the discovery of this concept and fact. The preceding about Smith holds true for his chief successor Ricardo (1975), who also lacks the idea of the social economy in the sociological sense and even hardly ever uses the word ‘social’ expect when citing the expression the ‘social state’ (from ‘Mr Buchanan’ via ‘Colonel Torrens’). Also, Senior (1951) does not reach the notion of the social economy despite using terms like the ‘social condition of every community’, a ‘social rank’, ‘social improvement’ and ‘social eminence’.
38 Milan Zafirovski 8 ‘Social economy’ in the epistemic meaning is understood by analogy to ‘theories of political economy’ as a ‘branch of the science of the statesman’ in Smith (1937), an ‘inquiry’ in Ricardo (1975), ‘principles of political economy’ in Malthus (1968), the ‘science of political economy’ as the science of the ‘Nature, Production and Distribution of Wealth’ in Senior (1951), the ‘logical method of political economy’ in Cairnes (1965), as well as a ‘theory of political economy’ in Jevons (1965), ‘laws of political economy’ in Wicksteed, (1934), ‘pure political economy’ as a ‘theory’ of prices and wealth in Walras (1926), political economy as ‘economic theory’ in J. B. Clark (1899) and so on. 9 Mill (1968: 136) remarks that to the science of social economy Say ‘has chosen to give the name Political Economy. And, indeed, this large extension of the signification of that term is countenanced by its etymology. But the words “political economy” have long ceased to have so large a meaning’, overlooking that Say also uses the name ‘social economy’. More precisely, Say’s (1964: 1–2) states that the ‘political economy is no other thing than the economy of the society. The study which has been made of the nature and function of different parts of the social body has created an ensemble of notions, a science to which we have given the name of political economy, and which we perhaps have done better to name social economy’. What is relevant in the present context is that Say hence understands ‘social economy’ as social economics (Forget 1999) or the economics of society—which prefigures the economic approach to human behavior or rational choice theory—rather than in Comte’s sociological sense of an economic part of the social system. Similarly, Cournot (1960: 14) remarks that ‘from a standpoint of mere etymology, whatever appertains to the organization of society belongs to the field of Political Economy; but it has become customary to use this last term in a sense much more restricted [as] being occupied principally with the material wants of mankind’. 10 For illustration, Mill 1873: 82) basically restates Comte by stating that ‘social phenomena acting and reacting on one another, they cannot rightly be understood apart; but this by no means proves that the material and industrial phenomena of society are not themselves susceptible of useful generalizations, but only that these generalizations must necessarily be relative to a given form of civilization and a given stage of social advancement’. 11 In other words, for Pareto (1963: 500–512) the economy is the domain of ‘appetites, tastes, inclinations, interests’ and ‘logical’ actions and society is the realm to both of these and of ‘sentiments or instincts’—whose manifestations are ‘residues’ and their ‘derivations’ as rationalizations or justifications—and ‘non-logical actions’. Pareto (1963: 512) adds that the ‘sentiments or instincts that correspond to residues, along with those corresponding to appetites, interests, etc., are the main factors in determining the social equilibrium’. 12 Granovetter and Swedberg (1992: 4) suggest that, overall, ‘Weber’s ideas were ultimately closer to those of Comte and the Historical School than to those of the other side [i.e.] the abstract-deductive approach of Ricardo and Menger’. 13 Knight (1958: 18–19) identifies ‘sociological economics’ in Max Weber (and Werner Sombart) and ‘economic sociology’ in France, implicitly Durkheim, during the 1900s–1920s. 14 Cournot (1960: 127) proposes that the economic system is a ‘whole of which all the parts are connected and react to each other’ but comes short of Comte’s sociological position that the economy is a part of a larger whole such as the social system/society. 15 In this connection, Schumpeter (1950a: 7) estimates that ‘J. S. Mill devoted about one-third of his Principles [of Political Economy] to Economic Sociology’. 16 Parsons (1932: 346) concludes that considered as economic and related sociology, Marshall’s ‘work represents in some respects an improvement on that of his predecessors’ in neoclassical or orthodox economics. Further, Schumpeter (1941: 238) identifies in Marshall’s main work (Principles of Economics) ‘an economic sociology of 19th century English capitalism which rests on historical bases of impressive extent and solidity’. Relatedly, Reisman (1990) identifies elements of ‘sociological economics’ in Marshall’s works, just as in those of Smith. 17 Cassel (1929: 81) objects that this ‘purely formal [utility] theory, which in no way extends our knowledge of actual processes, is in any case superfluous for the theory of prices. [T] his deduction of the nature of demand from a single principle [marginal utility], in which so much childish pleasure has been taken, was only made possible by artificial constructions and a considerable distortion of reality’.
Introduction 39 18 Phelps (2013: 78) remarks that Weber’s The Protestant Ethic and the Spirit of Capitalism ‘must have been read by every sociologist ever since and by Schumpeter, who is wrongly credited with coining ‘the entrepreneurial spirit’. Yet this treatise was not the high point of Weber’s social thought. His big book, Wirtschaft und Gesellschaft (Economy and Society), 1922, offers first drafts on several basic problems in the social sciences: the state, companies, bureaucracy, rationality, legitimacy, and more—topics that went on to enliven social (science). By contrast, Phelps in this work hardly ever mentions or emphasizes marginal utility theory and its multiple independent and simultaneous inventors Jevons, Menger and Walras. 19 Jevons uses the term economic sociology twice, in the preface and introduction to the second, 1879 edition of The Theory of Political Economy. Relatedly, Jevons (1965: xvi) reluctantly allows that Economics may become ‘one branch of Mr. Spencer’s Sociology’. 20 Wicksteed (1934: 1) cites and even uses as an opening line and credo for his main economics work Comte’s statement that ‘economic analysis proper must not be ultimately conceived nor cultivated, be it theoretically or historically, apart from the whole of sociological analysis, be it static or dynamic’, and moreover citing it in the original French and providing no English translation. 21 Moreover, Rutherford (2001: 189) refers to the ‘socioeconomics of Schmoller, Durkheim and Weber’. 22 Schumpeter (1949: 1) posits that generally the ‘social process is really one indivisible whole’ and especially that economic sociology comprises the ‘institutions that characterize [and influence] the economic organization of the societies to be studied’, showing in both cases apparent Durkheimian influences or implications. Even more visibly, Schumpeter (1951: 203–204) states in an apparent Weberian manner that ‘by “economic sociology” (the German Wirtschaftssoziologie) we denote the description and interpretation—or “interpretative description” —of economically relevant institutions, including habits and all forms of behavior in general, such as government property, private enterprise, customary or “rational” behavior’. 23 Boulding (1969: 8) elaborates that a ‘profitable line of study lies in economic sociology, in the analysis of the way in which organizational structure affects the flow of information, hence affects the information input into the decision-maker, hence affects his image of the future and his decisions, even perhaps his value function’, while casting doubt on the economic approach to society (e.g., the economic theory of democracy) as ‘economics imperialism, which is an attempt on the part of economics to take over all the other social sciences’. 24 In his introduction to Weber’s Economic and Social Organization, Parsons (1947: 31–32, 53) points to ‘Weber’s “economic sociology” which he implicitly defines in terms of the ‘specific connexion of economic rationality with settled routine conditions points to a peculiar connexion between institutional patterns, backed by moral sentiments, and the “self-interest”’. 25 Merton (1998: xii) remarks that by preferring ‘methodological individualism’ as ‘long established’ in orthodox economics and by implication imitating the economic approach to all social phenomena, ‘sociological neo-institutional analysis stands in striking contrast to Durkheim’s classical institutionalism’. Granovetter and Swedberg (1992: 14) note that ‘as opposed to the “old” institutionalists like Veblen et al. the “new” (ones) regard what they are doing as complementary to rather than as a substitute for conventional (economic) analysis’. In turn, Trigilia (2002: 223, 229) seems to view ‘sociological neo-institutionalism’ as mostly Durkheimian stating that it, unlike the network approach of the new economic sociology, ‘pays more attention to the cognitive and normative features of culture that are reproduced in social interaction [i.e.] the cognitive and normative embeddedness’ of economic action and thus manifests ‘a strong contrast with the theory of rational choice’. 26 Veblen (1934: 72) states that ‘it is as elements of social structure—conventional facts—that leisure and ownership are of interest’, thus, especially the terms ‘social structure’ and ‘conventional facts’, apparently echoing (although he is probably still, while writing the Theory Of The Leisure Class, unfamiliar with) Durkheim who makes or implies similar statements around the same time or slightly before. On this account, Veblen is not as original and relevant from the standpoint of Durkheimian economic sociology as is for institutional and other heterodox economics, compounded with his seemingly reductive conception of institutions as especially habits, overlooking other social norms or rules and their underlying values, as Parsons (1935a) objects.
40 Milan Zafirovski 27 Stinchcombe (1997: 2) suggests that ‘new institutionalist economic sociology is Durkheimian in the sense that collective representations manufacture themselves by opaque processes, are implemented by diffusion, are exterior and constraining without exterior people doing the creation or the constraining’. 28 Boulding (1957: 4–5) incorporates into institutionalism both early Veblenian institutional economics and classical economic sociology represented by Durkheim, Pareto, Simmel and Weber. 29 Schumpeter (1950a: 144) characterizes economic sociology as the analysis of social institutions or of ‘prevalent social habits’, thus apparently by the last phrase referring to Veblenian institutionalism and adds that the ‘subject had become dry and unprogressive at least in (the US) when under the influence of Veblen, Mitchell attempted to infuse new life into it’. 30 Moreover, Piore (1996:) thinks that ‘Durkheim is in a sense the father of economic sociology’. 31 For example, Coase (1998: 72 ) states that the ‘new’ institutional economics ‘was intended to differentiate the subject from the old institutional economics. They (the old institutional economists) were anti-theoretical, and without a theory to bind together their collection of facts, they had very little that they were able to pass’. Coase (1998: 73) adds that ‘we should use these analytical tools (of rational choice or the economic approach) to study the economic system’, albeit not all human behavior in the style of Becker and other exponents of what Boulding (1969) names ‘economic(s) imperialism’. Still, Williamson (2005: 2 ) concedes that the ‘study of governance was prefigured by Commons, who was one of the leaders of older-style institutional economics in the US’. Overall, Williamson (1998: 75) recognizes that the ‘proposition that institutions matter is embraced by institutional economics of all kinds, old and new’. 32 Coase (1998: 173) proposes using the analytical tools of rational choice theory or the economic approach to ‘study the economic system’, and not all human behavior a la Becker et al. Williamson (2002: 171) warns that the ‘prevalence of the science of choice approach to economics has also been an obstacle. But the science of choice is not the only lens for studying complex economic phenomena, nor is it always the most instructive lens’. North (2005: 4) cautions in his later works that the ‘rationality assumption has served economists (and other social scientists) well for a limited range of issues in micro theory but is a shortcoming in dealing with the issues central to this study. Indeed, the uncritical acceptance of the rationality assumption is devastating for most of the major issues confronting social scientists and is a major stumbling block in the path of future progress’. Hodgson (1998: 189) suggests that ‘leading economists such as Smith, Ricardo, Marx, Keynes, Hayek, Simon, and Coase, all failed to incorporate the standard picture of rational economic man in their writings or expressed profound misgivings about his behavior’. 33 Williamson (1998: 75) adopts the ‘condition of societal embeddedness’ of the economy as one of the ‘two background conditions’ of the new institutional economics (along with the ‘attributes of human actors’). 34 Comte’s (1983: 276) full implied societal embeddedness statement is as follows: ‘For, as the various functions of the social economy are naturally implicated in relations of greater generality, all must be subject to the direction of the most general function of all, which is characterized by the constant action of the whole upon the parts’. Granovetter and Swedberg (1992: 4) implicitly acknowledge Comte’s original relevance for the embeddedness conception or economic sociology generally remarking that ‘Weber’s ideas (on the economy) were ultimately closer to those of Comte’ (and the Historical School) than to those of orthodox economists like Ricardo (and Menger). 35 Mill (1873: 82) also embraces or evokes Comte’s implicit embeddedness proposition by agreeing with the previously quoted statement that ‘social phenomena acting and reacting on one another, they cannot rightly be understood apart’, including the ‘material and industrial phenomena of society’ separate from ‘a given form of civilization and a given stage of social advancement’. 36 More broadly, Weber (1975a: 97) in a polemical statement (with reference to his colleague from the Historical School Knies) states that the ‘freedom of the human will—in the form of “personal” action—is embedded in the human economy’ seemingly understood in the extended sense of society or at least the social economy.
Introduction 41 37 Relatedly, Parsons (1967: 453) suggests that Marshall holds ‘essentially the same view’ that ‘is also very prominent’ in Durkheim and Weber, namely that ‘an “individualistic” society is not concretely to be understood exclusively or even predominantly in terms of utilitarian want satisfaction. It involves rather as a basic element certain common values, among them freedom as an end in itself and as a condition of the expression of ethical qualities’. 38 Fligstein (1995: 500) objects that not ‘everything that is social is about embeddedness. The term embeddedness does not tell us anything about history, politics, culture or institutions. Whether interfirm relations are networks, interlocking directorates, alliances or joint ventures, we must consider the structuring of the relations in their institutional contexts to understand how they came into existence, what they mean, and how they might structure economic interactions’. Also, Portes (2005: 1) deplores the ‘disturbing return’ to ‘embeddedness’ as if it were everything the new economic sociology had to offer as a theoretical contribution. 39 Comte (1983: 171) notes the ‘most elementary ideas of value, utility, production, etc.’ by referring to the ‘illustrious philosopher’ and the ‘master’ relative to his lesser ‘successors’— Adam Smith’s economic doctrine. 40 In addition, Tönnies (2001: 174) suggests that ‘scarcity value’ deriving from the exclusive possession and intense desire of goods, such as that of grain is actually social value because of the actions of grain dealers, especially if they are joint in the sense of what Smith (1937) already deplores as their ‘conspiracy against the public’. 41 Durkheim (1965: 381–382) also proposes that exchange value represents the expended ‘quantity of labor’ producing ‘useful social effects’ through goods and services that satisfy ‘normal needs’, thus representing social value. 42 Weber (1975b: 33) also hints at the concept of economic value as social value by stating that the ‘heuristic significance’ and the origin of marginal utility theory of exchange values and prices rests on the ‘cultural-historical fact’ of capitalism as a social system, ‘but not on its supposed foundation in the Weber-Fechner law’ of diminishing physical-psychical sensitivity. In this connection, Stigler (1950) describes Weber’s as a ‘famous essay’ that definitely proved that economic and by implication sociological theories of value can disregard the ‘Weber-Fechner law’ and its underlying psychology. 43 Merton (1968: 11) invokes Allen and Hicks as early contemporary economists independently bringing the ‘modem economic theory of value to a culmination in 1934’. However, Hicks-Allen’s (1934: 52–55) solution is mostly impertinent for economic sociology, as well as social economics, because it remains within the ‘pure theory of exchange value’ and continues to be based on a ‘utility function’, ‘marginal utility’ and ‘indifference curves’ and fails to realize and reach the social origin and concept of economic value, never using the word ‘social’, let alone ‘sociological’, unlike their contemporaries Parsons, Schumpeter and Myrdal. Moreover, as a redundant search and ‘discovery’ of the absolute in the form of ‘marginal utility’ déjà vu slightly redefined (or rather without ‘any precise definition’), it appears as a regression, step backward even within the pure economic theory of value compared to Marshall’s integrative and so more sensible cost-marginal utility solution, as well as Comte-Durkheim’s analogue in economic sociology. In passing, Hicks-Allen’s method (1934: 54) state with reference to Pareto that his ‘ordinal’ conception of utility ‘by transforming the subjective theory of value into a general logic of choice, [it] extend[s] its applicability over wide fields of human conduct’, which anticipates rational choice theory qua the imperial economic approach to ‘all human behavior’ that thereby implicitly negates or devaluates economic sociology and social economics as the sociological or sociologically minded analysis of the economy. But this seems an incorrect interpretation, because Pareto (1932: 1442–1443) instead admonishes that a science resting on the hypothesis of universal rationality ‘would yield a general form of the social phenomenon having little or no contact with reality—it would be a sociology like a non-Euclidean geometry’—and thus suggests that rational choice theory would be a non sequitur. This rational-choice misinterpretation of Pareto parallels what Burgenmeier (1994) identifies as the rationalist or pure economic equilibrium, market and perfect-competition ‘misperception of Walras’ in much of contemporary economics.
42 Milan Zafirovski 44 For illustration, Samuelson (1983: 263) adopts ‘Marshall’s long-run (cost of production) theory of normal price’ combined with the short-run (marginal utility) theory of prices, a combination that Marshall likens to a ‘pair of scissors’. 45 However, Comte (1983: 422) warns that since wealth is amenable to ‘extreme concentration in individual hands’ and ‘soon acquires a personal character’, its ‘power often becomes tyrannical, for it has the control over those costly products that are constantly in request to sustain life’, a warning that at the time (the 1830s) seemed both diagnostic of the past and prescient of the future. 46 For instance, Durkheim (1994: 80) includes ‘serfdom, tenant farming, corporate organization, production in factories, in mills, at home’ in ‘institutions relating to the production of wealth’. 47 Parsons (1935a: 427) refers to that ‘vague but none the less important factor invoked by Ricardo to fill in some of the gaps left open by his economic analysis, the “habits and customs of the people”.’ Parsons (1967: 18) adds that ‘the habits and customs of a people’ are an instance of ‘residual categories’ in Ricardo’s theory. North (1915: 774) laments the minor ‘sociological implications of Ricardo’s economics’ stating that the ‘assumption that the economic factors of society could be discussed independently of their relations to other factors is in itself a sufficient ground for the indictment of Ricardo’. 48 Tönnies (1955: 65–66) states that ‘informal contracts with this [calculating, competi tion-limiting] intention are constantly being made, and all the time many are being pushed out of the race by the fortunate and powerful few’. 49 A la Walras, Perroux (1960: 76) proposes that the ‘market is maintained only by a State; it reflects a structure of social groups, and of the relations of their forces’. 50 Generally, Tönnies (1955: 76–77) observes that in capitalism ‘everybody is by himself and isolated, and there exists a condition of tension against all others [whose] spheres of activities and power are sharply separated [and] intrusions are regarded as hostile acts’. Especially, Tönnies (2001: 190) states the impersonality or anonymity of competitors in stating that in market and other competition ‘it is not individuals who are ranged against each other, whether they are selling something or merely bestowing a gift, but the calculable or incalculable vagaries of fate or luck, which for known or unknown reasons reward the industry or audacity of one man, but let another come to nothing’. Perhaps considering these statements, Phelps (2007: 543) remarks that ‘Tönnies writes of the anonymity of transactors in Gesellschaft, that is, capitalism. That is a fair observation of classical perfect competition’. 51 In passing, Myrdal (1953: 206) observes that during the 1920s–1930s ‘next to Russia and Italy, the United States of America practices most consciously political indoctrination [so that] there is hardly another nation in the world, with the exception of Russia and Italy, where, in spite of great differences of cultural heritage and of large geographical distances and social gulfs, the young grow up with more uniform and standardized convictions and attitudes. At the same time adult opinion is also worked upon’. A possible interpretation of Myrdal’s observation is that capitalist-conservative America in the 1920s–1930s, contradicting ‘American exceptionalism’, was convergent and similar to communist Russia and fascist Italy in this respect, just as the ‘American regime’ since Reaganism and under conservatism (the Southern ‘Bible Belt’, etc.) through the 2020s is reportedly closer to the ‘theocratic regime’ of Poland and Iran, Saudi Arabia, Turkey and other Islamic countries than to the ‘secularization regime’ of Western Europe (Bénabou, Ticchi and Vindigni 2015; also, Bauman 1997; Bazzi, Koehler-Derrick and Marx 2020; Mueller 2009). 52 Even a pure economist like Rosen (1997: 146) includes competition into ‘social and legal arrangements’. 53 Tönnies (2001: 42) describes a monopolist as someone, typically within Gesellschaft, ‘waiting for the need of the buyers to become more pressing so that demand will increase and he can extract the highest possible price’. 54 Like Tönnies, Weber (1968: 638) inferring that capitalists seek the ‘continuous expansion of the free market, but only to the point at which some of them succeed in obtaining for themselves monopoly and thus closing the market on their own part’ thus suggests that market structure or industrial organization in modern capitalism ultimately moves away from competition and toward monopoly.
Introduction 43 55 Tönnies (1955: 84) observes that a market ‘equilibrium is reached, as though the entire supply were in the hands of the same person; thus, power is unified and the power of each commodity (and of each brand of that commodity) is determined by the power of the overall supply’. Tönnies (1955: 84) elaborates that a ‘price war among monopolists would [consist in] that every brand would defend itself against all the rest by going energetically on the offensive’, which looks like a proto-typical definition of monopolistic competition a la and prior to Chamberlin (1933). 56 Invoking some recent instances of multiple independent and almost simultaneous discoveries, Goyal (2019: 684) suggests that the ‘concept of social capital was originally proposed by Pierre Bourdieu and James Coleman in sociology and by Glenn Loury in economics’. In this regard, Sobel (2002: 145–146) views Bourdieu’s as ‘a more valuable contribution’ (than Coleman’s) in that ‘Bourdieu’s approach is consistent with an economic (individual optimizing subject to constraints) view of social interactions’. Relatedly, Akerlof (2007: 15) implicitly attributes the discovery of the concept of cultural capital to Bourdieu by stating with reference to the latter that ‘people’s consumption of cultural goods—the literature they read, the music they hear, and the art they buy—reflects not just their individual tastes. The upper class should not make lower-class choices. Correspondingly, the lower class should avoid appearing above their station’. 57 Comte (1983: 263) adds that the ‘dynamic part of social science is the most interesting, the most easily intelligible, and the fittest to disclose the laws of interconnection’, although the ‘static part’ must not be passed over’. 58 Hayek (1950: 17) thinks ‘it is questionable whether the introduction of the terms statics and dynamics into economics (by J. S. Mill following Comte’s similar division in sociology) was beneficial’, but what is significant in the present context is that he admits that classical political economy and in extension economics rediscovered and restated these concepts by borrowing them from classical sociology. Also, Hicks (1979: x) advises that ‘static’ and even ‘dynamic’ are names to be ‘better avoided’, because both in their original meanings are branches of mechanics, yet the problems of their putative economic analogues are not mechanical, inferring that as economics moves beyond ‘statics’, it appears less like hard science and more like history. 59 Backhouse (2015: 347) comments that in Samuelson’s economic analysis such as comparative statics ‘for problems involving aggregates where optimization was not involved, comparative statics results could be derived by assuming that the equilibrium was stable’, which hence unwittingly or unknowingly echoes Comte’s idea of social equilibrium as ‘harmony’ and thus stability. 60 What White (1981: 517–518) denotes ‘production markets’ are in economic theory and practice commonly denoted product markets coexisting and co-functioning with labor and capital markets to form the market system. In a way, because product markets are actually markets for consumer goods, they are more accurately termed ‘consumption markets’ rather than ‘production markets’. Alternatively, labor and capital (including capital-goods) markets are markets for production factors and hence more correctly denoted ‘production markets’ but White does not analyze them. In addition, the term ‘production markets’ conflates or compounds production and exchange or distribution (in the sense of product allocation via marketing and other distributive channels) as distinct, even if interrelated, economic spheres. Taken together, this makes ‘production markets’ an inaccurate or imprecise term for which product markets is a better alternative and which can only be used with reference to labor, capital and other production-factor markets contrary to White’s intention and use, thus being a redundant terminological invention in economic sociology. Overall, this shows that some basic knowledge of or familiarity with conventional economic theory, notably that of markets, is necessary and useful to economic sociology (or socioeconomics, as Weber classically suggests) and that its lack may lead to superfluous and confusing terminological ‘inventions’, despite the reference to ‘economists’ neoclassical theory (White 1981: 518). Simply, if one was familiar with the neoclassical economic theory or basic classification of product, labor and capital markets, the concept of ‘production markets’ conflating these market categories probably would not have been redundantly invented for economic sociology.
44 Milan Zafirovski
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Part I
Theoretical foundations and relations of economic sociology
2 The conception and definition of economic sociology Alberto Martinelli
The double differentiation of modernity and the creative simplification of classical political economy Economic sociology can be conceived lato sensu as a bridge between sociology and economics, and more specifically as a branch of sociology that describes, interprets and analyses the relationships of interdependence between economy and society, as for instance in the case of the reciprocal influences between economic growth, social development and cultural modernization. In order to provide a more articulated definition of the scope and method of this discipline and contextualize its emergence as an autonomous field of study, I will critically review the main conceptions developed by social science classics – Marx, Weber, Durkheim, Schumpeter and Polanyi. This appraisal will introduce the discussion of the various themes of economic sociology in the following chapters. The general premise of any disciplinary definition is the process of double differentiation which characterizes the revolution of modernity. Great historical changes as those characterizing the journeys of different countries towards and through modernity usually imply major changes in the organization of knowledge as well. Classical economics was born in the second half of 18th-century England, when a new interpretation of economic phenomena was required by new social, political and institutional conditions that were converted into the general assumptions on which modern economic theory was built. With the advent of market industrial capitalism, bourgeois revolution and representative democracy, a double process of differentiation took place: 1 the growing differentiation of economic structures from other social structures such as extended family, local community, church, absolute monarchy, thus making them more visible and accessible to study (examples: the differentiation between economy and state in the early, laissez-faire stages of capitalistic development; the dissociation of kinship from economic production under the factory system; labour force freed from feudal and corporatist constraints; agrarian rent transformed into commercial and industrial capital; the values of rationalism, individualism and utilitarianism freed from religious and political control). 2 This separation permitted the development of a culturally separated field of social sciences, within the more general differentiation of the scientific mode of inquiry from existing philosophical, theological, historical and literary thought, carrying forward some of the themes of that thought but simultaneously emulating the logicalexperimental methods of the natural sciences in the study of man and society.
DOI: 10.4324/9780367817152-3
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Classical political economy was the first social science that made a coherent and systematic attempt to understand economic and social relations in a scientific sense, thus achieving the autonomous status of a modern science. Adam Smith’s political economy is based on the postulate of homo oeconomicus: a simplified set of assumption about human action, seen as the result of the behaviour of isolated individuals, each pursuing her/his own interest and making free and rational choices after having calculated the prospective costs and benefits (the economic actor is an exceptional statistician, according to Arrow’s ironic definition). On the basis of a further set of assumptions and deductions, Smith came to regard the equilibrium of the market and social order as the spontaneous outcomes of the profit-maximizing activities of individuals. The specific characteristics of market industrial capitalism were presented as the natural laws of economics, applicable not only to early capitalist society but over a wide historical and comparative sweep. Although in The Theory of Moral Sentiments (1759) Smith argues that the pursuit of self-interest is disciplined by shared moral values and norms and by social approval, in his later more famous work An Inquiry into the Nature and Causes of the Wealth of Nations (1776), his theory takes a more individualistic bent through a process of creative simplification of human psychology that conceives individuals as instrumental, rational, maximizing materialists. This creative simplification of human action and social relations was justified on theoretical and methodological grounds as necessary for creating an analytical model for scientific analysis (and it was a ‘model’ in a second sense, for it contained a set of idealized criteria for evaluating the correctness or incorrectness of existing economic arrangements and for guiding social policy). But this creative simplification had a price; by focusing more or less exclusively on economic motivation, behaviour and interaction, other features of social action and social structure were left out of sight or reduced: collective action was expressed as an aggregation of atomized individual actions, without an internal social dynamic; cultural values were frozen into fixed tastes and preferences; the polity was represented in unproblematic terms with little attention to the processes of political conflict and negotiated policy-making; and aspects of personal interchange other than the economic were left out of account. Within the confines of such an extreme formulation it is difficult to say much about the interplay of economy and society, because so many aspects of that relationship were resolved by simplifying assumptions. The evident unreality and limited applicability of classical economic theory – limited, that is, to a given model of capitalist society – has been addressed and in some ways overcome by developments along two lines: first, economists themselves have later altered the specific assumptions of the classical school and extended its applicability. Second, as time went on, other social sciences like sociology – dealing directly with those aspects of the society that the economists had neglected or taken for granted – began to develop, as well as more specific disciplines within them, like economic sociology. The way to more clearly visible objects of study and to new theoretical paradigms of social sciences other than economics was opened by the scope and complexity of social changes caused by the industrial revolution and the capitalist market and the related new institutions resulting from structural differentiation that produced – the modern family, the urban community, new agencies of social control such as the police. In addition, the urban and industrial changes produced a whole new range of social problems – poverty, crime, addictions, broken families – which demanded explanation in order to cope with them. But above all, the pace of change, the instabilities, the
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strains and contradictions of the economic revolution led to the erosion, if not destruction, of many traditional integrative institutions, such as the monarchy, the church, the local community, the artisan guilds and the extended peasant family. Much of the agenda of the emerging new social sciences was thus concerned with the problems of social order and social integration or, in other words, with Simmel’s fundamental question: how is society possible?
Different ways to define the object of economic sociology Given the basic premise of its relation to economics, a first way to define the object of economic sociology is focusing on questions neglected or considered non-problematic by classical political economists, like those of social conflict and social order and of other forms of action than rational utilitarian. Scholars looking critically at the already established economic science adopted a range of new concepts and theories in relation to it. Marx incorporated most of classical political economy’s theoretical insights, but developed a radically alternative paradigm of historical change, as the foundation of revolutionary praxis. Weber focused on the genesis of capitalism and laid out the ideal-type institutional conditions underlying its formation (as well as its failure to appear), first of all the rational mentality of modern society. Pareto took economic explanations as more or less adequate to analyse one kind of social action, logical action, and worked out other theoretical constructs (‘derivations’, ‘residues’) to deal with other aspects of reality, first of all non-logical actions. Polanyi addressed questions about phenomena like society self-defence against the market, environmental exploitation, political instability, that were outside the analytic realm of classical political economy. The most synthetic and clear-cut definition of economics and economic sociology as having quite distinct objects was formulated by Schumpeter in the introduction to The History of Economic Analysis: “economic analysis deals with the questions how people behave at any time and what the economic effects are they produce by so behaving; economic sociology deals with the question how they came to behave as they do” (Schumpeter 1954:21). And in order to explain human behaviour one has to take into account not only actions, motives and propensities but also the social institutions that are relevant to economic behaviour such as government, property inheritance and contract. This approach is similar to that of Pareto, who criticizes the very common error of dismissing a theory because it does not explain every aspect of a concrete phenomenon and argues that the only appropriate conclusion one can draw from the complexity of social phenomena is not substituting economic theory with other theories that explain the non-economic aspects, but adding the latters to the former. A second approach to define the object of economic sociology is conceiving it not in terms of a different object (thus focusing on questions neglected or unproblematic for classical political economy), but rather in terms of a different method and theoretical apparatus. According to this conception economic sociology applies the concepts, theories and methods of sociology to the study of economic structures and processes. As a standard textbook writes, ‘economic sociology is the application of the general frame of reference, variables and explanatory models of sociology to the complex of activities concerned with the production, distribution, exchange and consumption of scarce goods and services’ (Smelser 1976:58). I would say more specifically that economic sociology transforms postulates and theses of economic theory – such as the rationality of the economic actor and the market as a natural spontaneous order – into
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research questions. Just to give a few examples, Durkheim did not explain the industrial division of labour in terms of productivity, but of the greater intensity of interpersonal exchanges and communications. Weber did not take rational economic action for granted but linked it to religious values. Schumpeter considered the formation of entrepreneurship a research problem that does not stem naturally from resource mobility and investment opportunities. Parsons and Smelser made a more ambitious proposal: in Economy and Society (1956) they went as far as considering economic theory a special case of a general theory of action, where economic structures and processes constitute the parametric constraints for other bodies of theoretical and empirical investigation, and vice versa; but their attempt to synthesize the economic and sociological perspectives was not widely accepted as those of the classics. As we see, there are several different ways to conceive the object and scope of economic sociology in its relation with economics and sociology (Martinelli and Smelser 1990, 1992). Distinguishing different approaches is an analytically useful exercise, but in reality they often coexist in the work of the same scholar.
Marx as a forerunner of economic sociology Marx can be considered a forerunner of economic sociology, because, although there is no place in his thought for single separated disciplines – not to say of sub-disciplines – key aspects of his analysis of capitalism can be considered key aspects of economic sociology as well, first of all his conception of capital as a social relation and the fact that the economy must be studied in the context of society. Marx’s theory is a radically alternative paradigm to classical economics. His aim is neither revising classical economics from within, nor complementing it with sociological insights, but generating a new theory of society, as the foundation of revolutionary praxis. While he incorporated most of Ricardo’s theoretical contributions, he historicized them by regarding the ‘natural laws’ of political economy as applicable only to a specific phase – that of bourgeois capitalism – in the sequence of historical phases through which human society passes. Political economy is the anatomy of society since in each epoch – and the more so in capitalism – social relations depend on a specific, dominant mode of production. Two pairs of concepts are key: productive forces versus social relations of production and structure vs. superstructure. The structure of society is the complex of productive forces (labour, machines, technical knowledge) and the corresponding social relations (property rights, forms of authority, class relations) and determines (in the last resort) the superstructure, constituted by legal, political and cultural institutions. Marx writes: ‘In the social production of their existence, men inevitably enter into definite relations, which are independent of their will, namely relations of production appropriate to a given stage in the development of their material forces of production. The totality of these relations of production constitutes the economic structure of society, the real foundation, on which arises a legal and political superstructure and to which correspond definite forms of social consciousness. The mode of production of material life conditions the general process of social, political and intellectual life. It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness’ (Marx 1859:1). Marx’s theory of revolutionary change is rooted in his conception of dialectical materialism, replacing the naturalistic materialism of classical economics, which assumes the existence of an immanent natural order higher than any arrangement produced by
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human beings (that requires to minimise political interferences with natural economic forces). Marx regards societies as never being static but as totalities in the making and identifies the engine of historical change in the contradictions between the structural and the superstructural forces. He argues: At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an era of social revolution. The changes in the economic foundation lead sooner or later to the transformation of the whole immense superstructure. (Marx 1859:1) The fundamental type of contradiction – analysed most completely with reference to capitalist society – is the changing division of labour, which generates inequalities and asymmetries of power and fosters class conflict (Marx and Engels 1848). Applying the method of dialectical materialism means identifying the primary contradiction – or the vital rupture – in society and the forces that are rising to negate the existing social relations. Marx considers the crucial contradictions as structural, not cultural. This is what is meant by the famous dictum that he wanted to turn Hegel upside down: economically based class interests and conflicts, not ideas, as the driving force of civilization. Capitalism is like all other phases of history in that it contains the germs of its own destruction. But in capitalism the process is particularly accelerated: The bourgeoisie cannot exist without continuously transforming the means of production, hence the relations of production, hence the whole of social relations… The continuous revolutionizing of production, the unceasing shaking of all social conditions, the eternai uncertainty and movement distinguish the bourgeois epoch from all previous ones… Everything which is solid melts into the air. (Marx and Engels 1964:7) The basis for this dynamism – and the resulting precariousness and ephemerality of capitalism – is found in the mechanisms that propel it forward; it is driven by an intense competition between firms in the market, which makes for an accelerating process of improvement of the bases of productivity, mainly by the application of superior technology to the means of production. This process of improving technology, moreover, is simultaneously a means of exploiting the labouring class further through an accumulation of greater surplus value; as such it intensifies the inequality of owners and workers and increases the conflict between them. Through this complex process involving the intensification of contradictions, increasing competition and capital concentration, the falling rate of profit, overproduction and recurrent crises, capitalism speeds towards self-destruction. This is realized through the process of increasing worker class consciousness and ultimately worker revolution, which serves to destroy the capitalist system and replace it with the future classless society (Marx 1867–1894). Marx widened in many ways the scope of classical political economy. First, instead of taking its basic character as a given, he developed a theory of social change that gave an explanation for its historical appearance. Second, he took as his starting point the
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analysis of exchange relations; but instead of taking these as given, he moved ‘behind’ them and attempted to account for them not in terms of their internal laws (supply and demand) but in terms of the double significance of human labour as a good and as a source of economic value, outlining a much criticized labour theory of value. Third, he regarded some of the consequences which the economists regarded as the ‘end of the line’ (for example distribution of the shares of income) and treated them as a phenomenon (a class system) with an entire dynamic (class conflict) and outcome of its own. Capitalist societies have developed in a more complex way than predicted by Marx’s sociology of class formation and class action, and for that reason the fate of capitalism as a whole has differed, too. The social composition of capitalist societies has become more and more complex; the very instruments that would be regarded as arms of the proletarian struggle – unions and parties – have been often bases for integrating workers into the system and dulling the revolutionary impulse; the development of other institutions as capitalism moves forward – specifically, extensions of the democratic franchise and the development of systems to safeguard the security and welfare of workers – have had the same kind of effect. But in spite of the unfulfilled prophecy about rapid capitalist collapse, Marx identified key contradictions of industrial capitalism, reintroduced the economy into the social system developed an alternative conception to classical political economy, and laid the groundwork for a sociology of classes and class action. For all these reasons he can be considered the main forerunner of economic sociology.
The emergence of economic sociology as an autonomous field of study Economic sociology develops at the end of 19th century, when the cultural and institutional context is mature for the discipline to emerge. The first scholar to use the term economic sociology was an economist, Jevons (1879), but the term was soon taken up by Max Weber (Wirtschaftssoziologie) and Emile Durkheim (sociologie economique) and it was within sociology that gained a proper meaning and defined a new field of study. The emergence of the new discipline took place in the German cultural milieu, mostly with the works of Weber, Sombart (1902), Simmel (1900–1904) and Schumpeter, in order to fill the void left by the success in the Methodenstreit, of Menger’s marginalist school (1883) over Schmoller’s economic-historical school (1900). The neo-classical marginalist perspective ‘solved’ the vexed question of value with a paradigmatic shift that reduced value to the determination of market prices through the law of demand and supply and the rational allocation of scarce resources. In this perspective individuals can choose between different alternatives and the aim of their decisions is to maximize their own utility. Thereby, they act following the principle of rationality (also called ‘economic principle’) according to which an output is maximized for a given input or an input is minimized for a given output. In order to reach an optimal outcome, economic subjects base their decisions on a comparison of costs and benefits whereby marginal units – pursuant to the postulates of marginalism – serve as important factors. The term ‘marginal utility’ refers to the marginal increase in utility due to an extra unit; and the term ‘marginal costs’ describes the marginal costs of this additional unit. A rational decision maker, i.e. an ideal individual who acts rationally, i.e. is utility maximizing, while focusing on his/her personal utility (homo economicus) only decides to take a certain action if the marginal utility of the action is bigger than the marginal costs. By aggregating all the individual utility functions, aggregate
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demand can be derived. On the market, the latter meets aggregate supply. By means of the price mechanism supply and demand converge towards an equilibrium where supply equals demand and where the market is cleared. This property makes the price mechanism an optimal instrument of allocation. In the marginalist perspective the study of economic activity – based on the concepts of scarce productive resources, marginal utility, costs and benefits, supply and demand – is separated from that of institutions and has an analytical character. The key independent variables are the supply and demand scheme and the formation of prices in competitive markets. The key postulates or givens are the mass of atomized actors, each rationally pursuing his/her interest, endowed with perfect information on the costs and benefits of alternative choices. Marshall (1890) – who combined the classical understanding that the value of a commodity results from the costs of production with the new findings of marginalism, stating that the value is determined by individual utility – made neo-classical theory hegemonic in economics. And the paradigmatic core of this theory still forms today’s ‘mainstream’ in economic research and education. But it is the target of significant criticism. For instance, Hirschmann (1977) points out that this view portrays a mass of autonomous buying and selling who are fully informed about prices interact in a situation of perfect competition, where there is neither room for social bargaining, negotiation or recurrent social relations. And, in the same vein, Granovetter remarks (2017) neo-classical perspective amounts to an ipo-socialized one, where there is no room for the impact of social structures and social relations on the production, distribution and consumption of goods; a perspective that is the opposite of the iper-socialized one in which individual action is totally subordinated to the social control of internalized norms and values and dependent on the approval of others; although opposed, the ipo-socialized and the iper-socialized perspective share the same conception of the atomized individual. The key differences between neo-classical economics and economic sociology can be summarized as follows: the former conceives itself as the study of the optimal allocation of scarce resources for alternative uses through the rational pursuit of selfinterest by atomized individuals in competitive markets and adopts an analyticaldeductive method leading to the formulation of universal laws; while the latter conceives itself as the study of how human beings produce, distribute and consume goods through a mix of utilitarian and non-utilitarian actions in various (market and non-market) institutional contexts and adopts a comparative-inductive method leading to historically determined generalizations (Trigilia 1998). Let’s review the key contributions to economic sociology in the works of Weber, Durkheim, Schumpeter and Polanyi, with the qualification that this choice does not mean denying the relevant contributions given to economic sociology by other classics like Pareto, Sombart, Simmel and Veblen.
The interdependence between economic and socio-cultural phenomena Weber’s definition of economic sociology as the analysis of the relations of interdependence between economic and socio-cultural phenomena is the most comprehensive and most influential yet. While economics focuses on the formation of market prices in the modern exchange economy, economic sociology focuses on two types of phenomena: on the one hand, phenomena which are ‘economically relevant’, i.e. those
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non-economic factors like religious and political institutions that influence economic behaviour; on the other hand, phenomena which are ‘economically conditioned’, i.e. all the various aspects of social life – even those which appear very remote from the economy – that are influenced in some way or another by economic factors. This conception of economic sociology is clearly outlined in the formulation of the research program of the Archiv fur Sozialwissenschaft which consists in the study of the general cultural meaning of the socio-economic structure of the human community and its historical forms of organization. It is in the Archiv that Weber published, between 1916 and 1919, his great works on the economic ethics of the major world religions (later gathered in Gesammelte Aufsatze zur Religionssoziologie, 1920–1921). Weber’s definition of economic sociology must be qualified with reference to his methodology, which argues that the formulation of ideal-typical generalizations is a legitimate goal of sociological theory but within specific space-time limits and at a lower level degree of generalization than economic theory. Moreover, economic sociology is in constant dialogue with economic history, although it clearly differs from it on the basis of the distinction between nomothetic and idiographic types of knowledge, i.e. between the interpretive understanding of historical phenomena (Verstehen), and the establishment of causal relations between them, regarded as two separate but essential complementary forms of investigation and verification. The key methodological device by which Weber analysed the relations between economy and society – and social relations in general – is the ideal type (1922a). By this device Weber was able to construct generic concepts (bureaucracy, patrimonialism, pietism, etc.) which were built in large part on inductions from historical study but at the same time were represented in such a way as to move a distance away from historical particularism and thus to permit statements of sociological relationships of a fairly general order. Weber’s methodological approach is different both from Marx’s and Durkheim’s insofar as he rejects any fully fledged model of explanation of societal dynamics or historical evolution. Weber’s studies of the mutual interaction between economic and socio-cultural phenomena are wide-ranging in content, dealing with the relations between capitalism and bureaucracy, the relations between economic class and other forms of stratification, the link between market freedom and the growth of cities, the tension between formal and substantive rationality in economic action, all questions explored in Wirtschaft und Gesellschaft (1922) and in Wirtschaftsgeschichte (1923). But the most important thread in these writings is the link between religious ethics, economic mentality and economic action, which is also central to the understanding of rationalism and capitalism in the West. Modern capitalism is a great complex of interrelated institutions, including the market economy, business corporations, free and voluntary labour, public credit, a stock exchange and so on. Each institution has its own history and its own relations with other institutions. However, first of all in his famous essay The Protestant Ethic and the Spirit of Capitalism (1904–1905), but also in his more general comparative religious studies, Weber’s core argument is that this complex of institutions is tied together by a common mentality, the spirit of capitalism, which is in turn related to the ascetic ethic of Calvinism and Puritanism. There is no need to reproduce in detail Weber’s controversial thesis, suffice to say that the advent of ascetic Protestantism provided an especially fruitful breeding ground for the mentality of the economic actor’s Zweckrationalitat, defined in terms of a systematic relationship between preferred goals and the best means to reach them, with the related aspects of systematic, calculated pursuit of economic gain, extension of trust
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through credit, and subordination of consumption in the interests of accumulation. Rational action becomes possible when human beings postulate a natural reality free from magical and ritual elements and a religious faith posited on the absolute transcendence of God, as in ascetic Protestantism. In this religion humanity stands alone before God, without the mediation of rites and ceremonies of repentance and absolution; the sacred is not immediately apparent as it is in primitive religions, and salvation is not possible through sacraments, as in Catholicism. Rather, each individual’s state of grace is determined (predestined) by God’s inexorable choice. Defined as such, the problem of salvation is a painful one. Each person must consider himself or herself as chosen and reject lack of self-confidence in this as a sign of insufficient faith. The critical link in Weber’s reasoning is that unceasing, planned, methodical work and the rational organization of life are seen as ‘evidence’ of this self-confidence and, ultimately, the possession of grace. When this viewpoint is applied to profane economic activity, it is translated into the notion of worldly success, because of its evidence of planning and self-control. By this complex formula Weber arrives at the final irony: that material success is a sign of ascetic realization. Weber made clear that he considered the Protestant Ethic as only one – though a central one – of the phenomena which contributed to the rise of rationalism in western civilization, others being the development of experimental science, rational law and rational government administration, and that he was not building a general theory. The specific investigations into Protestantism and capitalism are part of an ambitious comparative research project studies on world religions (Gesammelte Aufsatze zur Religionssoziologie, 1920–1921), where Weber explores the linkage of the religions of classical China and India and ancient Palestine in terms directly comparable to his studies of the modern west. From these studies it is seen that the specific western relationship between Protestantism and capitalism is only a single instance of the relationship between the origins of an economic mentality and the specific contents of religious beliefs. The aim is to analyse those contents of religion that can either favour or obstruct the rational conduct of life that is typical of capitalism (such as magic, ritualistic conservatism, the great rational prophecies, mysticism, and the two kinds of asceticism). There are three types of relationship between religion and economy: (a) religion can be indifferent or even adapt to the existing economic structure, sanctioning them as part of the cosmic order (like in Confucianism); (b) religion can condemn mundane economic pursuit as an obstacle to redemption, while praising poverty and charity (like in Buddhism); (c) religion transforms economic action according to religious criteria (like in Calvinism). The Sociology of Religion is a maturation of the Protestant Ethic thesis in the sense of analysing the mutual conditioning between religion and economy: on the one hand, religious ethic conditions economic life, on the other, economic structures (the interests and aspirations of given social strata) condition religious life. Profetism allows to overcome both the magical link between charisma and things and conservative ritualism; but profetism increasingly conflicts with worldly values and assets, opening the way to the differentiation of the different spheres of human activity and to the contradiction between economic activity and religious life (mostly in religions of redemption). The two ways to overcome the contradiction between religious values and economic logic are mysticism that means breakout from the world – and asceticism, which in its turn is differentiated in asceticism of the virtuous (which however remains limited to monastic orders) and worldly asceticism (the ‘paradox of the puritan’ that regards material success as a sign of ascetic realization and proved the fittest type of ethic and conduct for the
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emerging capitalism). Not only Calvinism but all Protestant denominations foster the generalized diffusion of a rational economic ethic. Man must work in the world for God’s glory, but should not enjoy the ensuing richness, if does not want to lose God’s grace. Hence, an implicit legitimization of the entrepreneurial role and capitalist social relations, that, later, with the fading away of the protestant ethic, will contribute to class conflict. While in his comparative studies of religion the problem of modern capitalism and western rationalism is dealt with directly, in his theoretical work on economy and society Weber dealt with the problem more indirectly, as a systematic analysis of the typical relations between forms of economic action (and in particular the rational economic action which is typical of capitalism) and the two basic modes of social organization, community (based on affectivity and a subjective feeling of belonging, which is typical of traditional society) and association (based on rationality and identity of interests, which is typical of modern capitalist society). Weber’s systematic exploration of multiple possibilities of relationships – often specifying their positive or negative implications for capitalist development – supplies a larger theoretical base for a sociological understanding of the unique historical phenomenon of rational bourgeois capitalism. Weber’s interpretation of capitalism bears both affinities and differences with Marx’s. As for affinities, they both succeeded in widening the view of the relations between economy and society from that of the classical economists. Second, they both ‘historicized’ capitalism through their historical and comparative studies. Third, they took as contingent rather than fixed the relationship between economic and social forces – Marx regarding that relationship as dialectical and Weber as mutually conditioning. And finally, they both stressed the intrinsically contradictory and conflictual character of all social systems, including above all that of rational bourgeois capitalism. But differences are even stronger: Marx aims at explaining the laws of functioning of capitalism, seen as the most advanced form in a general theory of historical development, while Weber remains always hostile to general models of explanation. While for Marx the economy is the anatomy of society, Weber aims at detecting certain correlations and congruences between the values of western rationalism and the structure and process of the capitalist economy. In Marx, the scientific explanation of the downfall of capitalism is closely linked with revolutionary politics, whereas Weber rigorously separates value judgements and factual judgements.
The critique of utilitarianism and the organic solidarity of the division of labour Durkheim’s attitude towards economics takes, first of all, the form of a critique of utilitarianism – a basic aspect of the economic paradigm – on four grounds: first, utilitarianism conceives society as deriving from individuals, whereas society comes historically first; second, exchange relations are seen as only based on the will of negotiating parties, whereas contracts have a normative foundation and cooperation has an intrinsic morality; third, the role of the state is underestimated, since is limited to avoid that the exercise of one’s own rights infringes upon the rights of others; fourth, a society the members of which pursue their self-interest is bound to disintegrate since it does not allow the formation of durable bonds and identities. The last critique is particularly important since it puts into question the view that both the equilibrium of the market and the social order are spontaneous outcomes of the profit-maximizing activities of
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rational individuals (the metaphor of the ‘invisible hand’). Durkheim argues, on the contrary, that exchange relations are not enough to guarantee integration, but other integrative mechanisms are needed, like collective sentiments and representations that can influence individual action from outside and build shared identities and solidarities. It is the task of a different social science from economics to identify these mechanisms, and this is precisely what Durkheim intended to do in his research. As Marx goes beyond the superficial reality of exchange relations to explain the dynamics of capitalism, so does Durkheim in De la division du travail social (1893) in order to explain how society functions. And he finds the explanation in the social division of labour, that is not caused by the quest of increased productivity through greater role differentiation as in classical economics, but by the growth of the material and moral density of society, i.e. the intensity of exchanges and communications among human beings who are conscious of their individuality; the social division of labour is the ‘softened epilogue’ of the struggle for life, since human beings are no longer rivals forced to eliminate each other but can coexist and cooperate since the specialization of larger groups of people, aware of their mutual dependence, guarantee the survival of society. This solidarity based on interdependence, which derives from an enhanced division of labour, is called organic and is typical of modern societies, in contrast with mechanical solidarity, typical of premodern societies, whose members are subordinated to the undifferentiated collective conscience of an homogeneous segmental society.
Economic cyclicity and social crisis of capitalism As I remarked above, Schumpeter formulated a most synthetic clear-cut distinction between the object of economics and economic sociology and at the same time showed a remarkable capacity to integrate economic and sociological analysis in his own work, both in predominantly economic studies like those on economic development and business cycles, and in predominantly sociological ones like those on social classes, imperialism and capitalism, socialism and democracy. Whereas Marx, Weber and Durkheim declined to work within the traditions of classical political economy, each relativizing it and attempting to account for its subject matter in the context of a larger scheme, Schumpeter worked mainly within that scheme. He did not attempt to substitute a different general theory of social relations for economic theory but used categories and theoretical constructs from cognate disciplines, mainly economic sociology, to complement the economic core of his thought in various ways. First, sociological insights (as well as psychological and historical) are employed to make economic analysis more realistic, as in the case of entrepreneurship, that is the key variable in Schumpeter’s analytical model of explanation of economic development (1912). Entrepreneurship is defined in functional terms as innovation that breaks into the static equilibrium of the circular flow of economic life and raises it to a new level; it changes the conditions of supply, combines existing resources in new ways, and thereby sets up a new production function. However, in order to emphasize his revolutionary role, the entrepreneur is also regarded as a certain type of personality and conduct which differs from those of the rational economic man. Schumpeter draws on a range of socio-psychological concepts to outline a portrait of the extraordinary qualities of the entrepreneur, who is essentially a leader, willing to break through ordinary constraints; this sets him off from the routine manager. Leadership, moreover, involves the capacity to think the new, to grasp the essential, to set the incidental aside, to act quickly, to
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understand by intuition. The entrepreneur acts through his will and personal authority; must be willing to forgo the criticisms that always arise when new and innovative behaviour is regarded as deviant and dangerous. He is a leader in a rational and antiheroic civilization, and as a result does not excite the charismatic feelings and collective enthusiasm of those who make or defend whole civilizations. The entrepreneur operates in a more limited sphere and occupies a more precarious place in society. Entrepreneurship is a specific historical phenomenon: the form of leadership that appears in capitalism and requires the differentiation of a distinct economic sphere separate from others (while in previous epochs the entrepreneurial function was fused with others in the actions of political or religious leaders). Given the importance of innovation and competition in that kind of economy, the entrepreneur is a particularly appropriate and even essential phenomenon for capitalist dynamism. Entrepreneurial conduct involves a mix of rational and emotional elements. On the one hand, it is rational in that it calls for a great measure of forecasting and planning. On the other hand, it is not narrowly utilitarian because it rests on an autonomous drive to achieve and create for its own sake and also rests on a dream on the part of the entrepreneur to establish, ultimately, a family dynasty. The entrepreneur takes advantage of rationally based components of his environment, such as money, science and individual freedom, and he orients his conduct to rational values, but that in a broader framework. Entrepreneurial innovation is basically a creative act, and deviant from the bourgeois culture which defines rationality from the narrower viewpoint of calculating to one’s short-term advantage. The ‘rationality’ of the entrepreneur has an element of profit and gain but in addition is based on the desire and capacity to think of the new and original and to act on those thoughts. In this formulation Schumpeter deviates from the assumptions of both neo-classical economists and the thought of scholars like Weber, Pareto, Sombart and Tonnies, all of whom, in different ways, tended to equate utilitarian rationality with capitalism. A second way in which economic sociology complements economics is by applying a distinct sociological analysis to shed lights on key aspects of economic theory. It is the case of Schumpeter’s theory of social classes that systematizes the insights on leadership present in the theory of economic development in a unique view of social stratification (1927). The class structure is the hierarchical order of families. Individuals belong to classes independently of their own wills. The fundamental factor which explains the mobility of families within classes is the same as that which explains mobility from one class to another: the capacity to adapt to the needs set by the social environment of a specific historical epoch, and to demonstrate those abilities necessary for a leadership role. Social classes change slowly over time, like hotels, occupied by different populations. To illustrate this view of stratification, Schumpeter analysed the relations between functions and rank in the rise and decline of the German aristocracy and in the historical phenomenon of patrimonialism. The core element of class dynamics is the performance of socially important functions that generates social prestige and consolidates society into ranks. Once established, however, the social prestige system tends to acquire a life of its own – the life of social rewards, gratifications, influence and deference – and often survives long after its functional base has eroded. The status of the upper classes in society, and of the leading families in those classes, is consolidated through the solidarity ties between their members and the transmission of social privileges from one generation to another. In capitalist society, the bourgeoisie is the leading class because they have performed the innovating and leadership functions in the economy and because
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they acquire, consolidate and transfer prestige, power and wealth to future generations. At the same time, this process helps explain the decline of the bourgeoisie as well, as the entrepreneurial function tends to fade and bourgeois institutions such as private property and contract are weakened (an argument fully developed in the later work Capitalism, Socialism and Democracy). Schumpeter’s theory of class is fundamentally different from that of Marx, which is based on the relations of production. It also differs from the theory of elites as propounded by Mosca (1916) and Pareto (1923), based as it is on the performance of socially important functions rather than the protection of power positions in society. Although it has a functionalist flavour, Schumpeter’s theory differs from classical functionalist formulations as well, because it regards the class system at a given time as a mix between socially relevant and important roles, on the one hand, and the preservation of an inherited class legacy, on the other. A third way in which economic sociology complements economics in Schumpeter is to search for non-economic, predominantly sociological, variables when economic theory does not seem to yield an adequate explanation of a given phenomenon, as in the analysis of the crisis of capitalism, where he goes beyond the study of economic cycles and raises questions of its social and political contradictions (1950). Schumpeter’s analysis of the crisis of capitalism is basically sociological. He pays great attention to economic failures such as the Great Depression of the 1930s and recognizes the indirect impact in the crisis of monopoly capitalism – capital concentration and giant firms – on eroding the institution of private property and weakening the role of the innovating entrepreneur (as Schumpeter dramatically put it, ‘the forerunners of Socialism were not the intellectuals and political activists who preached it, but the Vanderbilts, the Carnegies and the Rockefellers” (1950:134)). But his explanation relies more on ‘non-economic’ considerations: the decline of social institutions, changes in the class structure, ideological opposition. Late capitalism tends to generate a deep social crisis, involving the decline of that central institution that is the bourgeois family, the destruction of intermediate and protective strata, and the worsening social climate that is due to the corrosive critique of bourgeois values and capitalist institutions moved by intellectuals. The actual prospective performance of the capitalist system does not support the idea of its breaking down under the weight of economic failure; on the contrary, it is its very success that undermines the social institutions which protect it, and ‘inevitably’ creates conditions in which it will not be able to survive. Therefore, it is essentially a social, not an economic crisis. Capitalism is certainly ridden with social contradictions, but Schumpeter’s prediction of collapse has actually not materialized. His wrong forecast can be traced to the overstressing of some causal factors, like the progressive decay of the entrepreneurial function by virtue of the routinization of innovation in large organizations and the related undermining of bourgeois dominance and melting down of key institutions of property and contract; and this overemphasis is largely due to his belief that the competitive economy of the individual innovative entrepreneur is the only brand of capitalism. In reality, different varieties of capitalism have developed through time – also as a result of the process of creative destruction – and some have proved compatible with the existence of very large firms and with state controls and intervention in the economy. Another thesis to be questioned is whether the destruction of ‘protective social strata’ is always a liability for capitalism. Schumpeter argues that the alliance of the British bourgeoisie with surviving aristocratic elements added to its vitality, because it played a key
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political role in government; but this view has been challenged by scholars like Moore Jr (1966) who argued that the alliance between the bourgeoisie and the traditional estates is an obstacle, rather than a facilitating condition, for capitalist development. A third thesis that can be criticized is the leading role played by intellectuals in discrediting bourgeois values and institutions. Schumpeter asserts that capitalism tends to breed social unrest because it simultaneously holds out the hope for growth and improvement and generates a high level of personal insecurity. The expression of the resulting dissatisfaction is facilitated, furthermore, by the existence of political freedom and tolerance of dissent, another hallmark of bourgeois capitalism. In this context the role played by an expanded group of economically unemployed and politically dissatisfied intellectuals can be decisive. Sound in some respects (like the nexus between intellectual unemployment and political radicalism in advanced capitalist societies), this argument underestimates the stabilizing influence of political tolerance and welfare policies in complex and diversified societies. Schumpeter’s assertions appear to be overdrawn also with regard to the deterioration of the bourgeois family and household, as a consequence of the diffusion of utilitarian values and the spread of consumption patterns that undermine the reproduction of bourgeois wealth and power from one generation to the next. Once again, he appears to neglect the adaptability of institutions and groups in capitalist society. To a large degree it is still the case that marriage ties, family solidarity and cultural affinities generated by common experience in educational institutions continue to operate in various ways in different countries to sustain the bourgeoisie as a class with a leading if not an altogether dominant role. To conclude, Schumpeter seems sometimes to underestimate a key characteristic of capitalist crises, that he himself pointed out in his account of Marx in Capitalism, Socialism and Democracy (1950), i.e. that of creative destruction. Schumpeter’s view of capitalist crises bears some affinities to Marx’s conception of capitalist breakdown and Weber’s conception of bureaucratization and the routinization of charisma as hallmarks of late capitalism. There are important differences, however. Whereas Marx identified the contradictions of capital accumulation as the root cause of crisis, Schumpeter looked to the obsolescence of the entrepreneurial function and the decay of capitalist institutions. And while Weber’s views of social change envision a variety of escapes from the ‘iron cage’ of capitalism through the renaissance of old values and the rise of new charismatic prophets, Schumpeter foresaw, fairly straightforwardly, the inevitable decline of capitalism and strongly point to socialism as the heir apparent.
The embeddedness of the economy in society Karl Polanyi developed one of the most radical critiques of political economy, denouncing what he calls the ‘economistic fallacy’. He identifies two distinct features of economic life: the ‘substantive’ aspect, which defines the institutionalized relations between human beings and their social and natural environments and aims at satisfying human needs; and the ‘formal’ aspect, which rests on the notions of choice between alternatives, scarcity of means, and logical relationship between means and ends (Polanyi, Arensberg and Pearson 1957:297). The ‘`economicist fallacy’ is mistaking the second aspect for the whole of economic life and the historically specific formal market economy as being a natural feature of any society. Economics concentrates on studying the formal aspect, whereas economic sociology (and other social sciences, anthropology, history, political science) focus on the substantive aspect and study economic activity in its human and
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natural context. Polanyi’s research developed accordingly to this intellectual division of labour. Besides offering an articulate critique of the paradigm of political economy, he contributed to the analysis of the interplay of economic and social phenomena, the role of different institutional modes of regulating economic activity, and the contradictory tendencies in market industrial capitalism. Polanyi’s central thesis, drawn from a broad comparative historical perspective, is that the economy is ‘embedded’ in the larger society; immersed in social relations, economic agents do not act to maximize their material interests but rather to safeguard their social positions, status pretences and social advantages. Although the relation of economy and society varies over time, as a general rule the latter has priority and control over the former. Market industrial capitalism is ‘exceptional’ in this regard, because the economy has freed itself from societal controls and subordinated all other aspects of social life to its needs. So pervasive has been this process that students of modern industrial society have tended to forget its exceptionalism – its unique place in human history – and to think of it instead, and mistakenly, as manifesting universal, general laws. Polanyi’s first and best-known book, The Great Transformation (1944), is a vast and ambitious attempt to trace the origins and causes not only of the collapse of the ‘19th-century civilization’ (as he defines modern industrial capitalism), above all the crisis of the self-regulating market, but also of the gold standard and international finance, constitutional democratic government and the balance of power among the great powers. Polanyi’s central thesis is that the self-regulating market – the key institutional mechanism of economic regulation in capitalism – implied a great utopia, since it could not exist for long without annulling the human and natural substance of society, i.e. physically destroying human beings and transforming the environment into a desert. The economy, structured on the basis of the self-regulating market, transforms land and labour into ‘fictitious commodities’ and constrains the rest of society to function according to its laws, radically separating itself from other social institutions. The defensive strategies that have been attempted – such as regulating the market from a political centre – have generated in their turn further contradictions. Much of Polanyi’s critique, in fact, is based on the analysis of what he defined the ‘double movement’ stemming from the attempt to control the intractable conflicts between the expanding market economy and society’s self-defence, i.e. the attempt to permit the coexistence of the free, self-regulating market with the set of controls on the transactions of labour, capital and natural resources that should guarantee social stability and integration. The conflict between economic liberalism and social protection is distinctly sociological, insofar as it deals with the classical sociological question of the foundations of solidarity in an individualistic society dominated by utilitarian values, still a central question in current debates on the interaction between state, market and community, on the reform of the welfare state, on the tension between equality and efficiency. Polanyi ‘tested’ his central thesis by drawing on historical materials from the early industrial revolution in Britain and from the 20th-century period of international instability. For the earlier period Polanyi analysed not only market forces but also a number of social policies, including social and labour legislation (like the 1795 Speenhamland Law), union strategies, tariff policies and central bank activities. Throughout the work, moreover, Polanyi’s analysis is complicated by a running critique of the philosophical principles of utilitarianism and the theory of classical economics, against which he juxtaposed his own alternative conception of the economy as an institutional process.
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Polanyi’s thesis can be criticized on various grounds, I just mention two. First, he implicitly adopts a fundamentally holistic – and to some extent organic – view of society, in which all individual and collective action and social policies are inserted into one single structural context, according to various modes of institutionalization. In so doing he underplays the complex relationship between structure and action in the analysis of the crisis of market capitalism. Second, Polanyi seems to view capitalism in such exceptionalist terms that he treats its rise almost as the artificial result of exogenous factors, rather than as developing from any internal dynamic of its own. He dismisses the economists’ attempts to treat the laws of the capitalist economy as universal but commits the similar error of regarding capitalist society as a deviation from the generalized subordination of the economy to society. Polanyi’s general point about the limited validity of the model of rational economic action echoes the points made by scholars in the German historical school, Weber, Pareto, and American institutionalism (Veblen 1899, Commons 1924). It is an ongoing debate that continues to this day. Those who stress the non-universality of economic assumptions are correct. But Polanyi’s strict division of economic activity into its ‘substantive’ and ‘formal aspects’ seems likely to suggest that formal economic analysis is some kind of historical anomaly, that it is useless in studying economies other than that of liberal capitalism in a limited historical period. This position, if pressed, risks to discourage the development of a general economic theory and a systematic comparative analysis of capitalism and other socio-economic systems, and also of the varieties of capitalism itself. Another major contribution of Polanyi’s economic sociology and anthropology concerns the problem of institutional regulation; more specifically, the question of what kinds of principles and devices – other than the market-money-exchange model of formal economics – regulate and integrate the constant flow of people, material means, capital and technical knowledge, the mobilization of resources and the distribution of product around the society? In what kind of institutional realities, such as religion and government, are these processes embedded? Based on their own anthropological researches, Polanyi and his associates formulated a typology of three principles of economic integration: reciprocity, redistribution and exchange. Each type entails different forms of distribution in space: reciprocity indicates correlated transactions between symmetrical groups (like gift exchanges); redistribution indicates appropriative transactions to and from a ‘centre’ (administratively organized distribution of food, taxation, philanthropy); and exchange refers to transactions between ‘hands’ in a market system (purchase and sale). A corollary is that in societies which possess those kinds of structural groupings (for example, symmetrically organized kinship), the mode of economic transfer will be shaped accordingly. A number of critical questions can be raised about this typology. In the first instance, it seems incomplete, since it does not cover, for example, political mobilization of economic goods and services for collective action (such as the conduct of war). Second, the typology is a basically static, classificatory scheme with no sense of economic and social dynamics or no clue to the transformation from one form of integration to another. An attempt to make the topology more dynamic is found in the work of the transaction-cost economists (North1987), who argue that when costs exceed benefits when exchanging in a market-money-price system, alternative modes of exchange and distribution will be devised (informal bartering, administered distribution of public goods). Third, because of his radical anti-market orientation, Polanyi tends to overestimate the disruptive and disintegrative aspects of the market principle and underestimate
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the negative possibilities of the others (as the one-sided exploitation in a reciprocative system and arbitrary despotism and autocratic centralism in a redistributive system). Despite these shortcomings, Polanyi’s general critique seems valid in several respects; he offers helpful guidelines for developing a comparative economic sociology of the institutional contexts in which economic activities are embedded; and he was a path-breaker in the study of environmental disruption.
Contemporary developments of economic sociology The evolution of economic sociology is related to the evolution of both sociology and economics, which is in its turns related to changes in the societal context. The classics of social science I have discussed have been all concerned with the development and crisis of capitalism that both the late 19th-cebtury crisis and the Great Depression of the 1930s seemed to certify. In the decades after the Second War World (les trentes glorieuses) the capitalist economy was regenerated as a result of the successful combination between growing liberalization of international trade in the shadow of American hegemony with active government role in sustaining growth and employment that could rely on the ‘historical compromise’ between capital and organized labour (i.e. the exchange of workers’ cooperation and wage moderation with employment stability and welfare services); a combination that can be summarized by the formula ‘Smith abroad and Keynes at home’ (Martinelli and Cavalli 2020). The government policy regime shift towards a larger role of the state in the economy and changes in the relationships between market and state – that was a basic component of the post-war ‘glorious’ growth – was favoured by the paradigm shift in economic thought, i.e. the intellectual hegemony of Keynes (1936) and scholars like Robinson (1933) and Chamberlin (1933) who criticized the basic assumptions of neo-classical economics, first of all perfect competition, laissez faire equilibrium. These paradigmatic changes had among other effects that of reducing the space for the alternative view provided by economic sociology, since this had been fostered by the ipo-socialized neo-classical perspective, where there was no room for the impact of social structures and social relations on the production, distribution and consumption of goods. The legacy of the classics with their emphasis on macrosociological phenomena and general theories tended to fragment itself and to give way to a greater specialization of research topics and a division of economic sociology into subdisciplines, such as industrial sociology, the sociology of organizations, sociology of work and industrial relations, the sociology of modernization and development. The cultural and political context changed again in contemporary globalization and the advent of the digital society, and with the paradigm shift of the 1970s from demandside to supply-side economics, in which the ipo-socialized perspective of economics seemed to prevail once again, together with policies of privatization and deregulation; and the scope and focus of economic sociology changed once again accordingly, with new approaches emerging, sometimes summarized under the label of ‘new economic sociology’. Taking into account these developments, Zelizer’s entry in the International Encyclopedia of the Social & Behavioral Sciences (2001) distinguishes three distinct approaches to economic phenomena in recent economic sociology: the extension approach, when theorists apply relatively standard economic models to social phenomena economists themselves have not treated extensively or effectively, like household behaviour or sport activities (according to my view, this approach rather than economic sociology could be
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defined social economics as a branch of economics). The second is the context approach that identifies features of social organization that work as facilitators or constrains on economic action. Economic phenomena, first of all firms and markets, are embedded in social processes and are studied through the network analysis (it is an approach that clearly resounds Weber’s economically relevant factors). In the third, the alternative approach, sociologists propose competing accounts of economic transactions. Rather than expanding the economic approach or complementing it, this perspective argues that in all areas of economic life people are creating, maintaining and transforming meaningful social relations. It is the most comprehensive approach that gives explicit attention to combinations of culture, interpersonal ties and networks, structural categories as class, gender, ethnicity and nationality. Zelizer’s topology, although it leaves what Weber defines economically conditioned phenomena, helps classifying the more recent literature in economic sociology that has developed around concepts like White’s social network (1992), Coleman’s interest, social capital and trust (1990), Granovetter’s embeddedness and social construction of economic institutions (2017), Powell’s and Di Maggio’s institutional isomorphism (1991), Fligstein’s corporate control (2001), Zelizer’ social meaning of money (1994), Bourdieu’s habitus and champs economique (2000), among others. All these more recent approaches, which will be discussed in the next chapters of this volume, have been influenced, in different forms and to varying degrees, by the great works of the classics, and therefore require the critical assessment that has been the specific object of this introduction.
Bibliography Bourdieu, P., 2000. Les structures sociales de l’economie. Paris: Seuil. Chamberlin, E., 1933. The Theory of Monopolistic Competition. Cambridge, MA: Harvard University Press. Coleman, J., 1990. Foundations of Social Theory. Cambridge, MA: Harvard University Press. Commons, J., 1924. The Legal Foundations of Capitalism. New Brunswick: Transaction. Durkheim, E., 1893. De la division du travail social. Paris: Alcan. Durkheim, E., 1897. Le suicide. Paris: Alcan. Durkheim, E., 1912. Les formes elementaires de la vie religieuse. Paris: Alcan. Fligstein, N., 2001. The Architecture of Markets. Princeton, NJ: Princeton University Press. Granovetter, M., 2017. Society and Economy: Framework and Principle. Cambridge, MA: Harvard University Press. Hirschmann, A., 1977. The Passions and the Interests. Princeton, NJ: Princeton University Press. Jevons, S., 1879. The Theory of Political Economy. London: Macmillan. Keynes, J. M., 1936. General Theory of Employment, Interest and Money. London: Macmillan. Marshall, A., 1890. Principles of Economics. London: Macmillan. Martinelli, A. and Cavalli, A., 2020. European Society. Leiden-Boston: Brill. Martinelli, A. and Smelser, N., (eds.) 1990. Economy and Society: Overviews in Economic Sociology. London: Sage. Martinelli, A. and Smelser N., 1992. A sociological perspective on strategies of dealing with exogenous complexity in economic analysis. In U. Himmelstrand (ed.) Interfaces in Economic and Social Analysis. London: Routledge, 177–187. Marx, K., 1913 [1859]. A Contribution to the Critique of Political Economy, Preface. Chicago, IL: H.Kerr. Marx, K., 1990–1992 [1867–1894]. Capital. London: Penguin Classics. Marx, K. and Engels, F., 1964 [1848]. The Communist Manifesto. New York: The Monthly Review Press.
The conception and definition of economic sociology 75 Marx, K. and Engels, F., 2016 [1845–1848]. The German Ideology. London: Penguin. Menger, C., 1883. Investigations into the Method of the Social Sciences with Special Reference to Economics. New York: New York University Press. Moore, Jr. B., 1966. The Social Origins of Dictatorship and Democracy. Boston, MA: Beacon Press. Mosca, G., 1923. Elementi di scienza politica, 2nd edn. Bari: Laterza. North, D. C., 1987. The Economics of Public Issues. New York: Harper. Pareto, V., 1964 [1916]. Trattato di sociologia generale. Milano: Comunità. Parsons, T. and Smelser N. 1956. Economy and Society. London: Routledge and Kegan Paul. Polanyi, K., 1957 [1944]. The Great Transformation. Boston, MA: Beacon Press. Polanyi, K., Arensberg, C. and Pearson, H. 1957. Trade and Markets in the Early Empires. Glencoe, ILL: The Free Press. Powell, W. and Di Maggio, P., 1991. The New Institionalism in Organizational Analysis. Chicago, IL: The University of Chicago Press. Robinson, J., 1933. The Theory of Imperfect Competition. London: Macmillan. Schmoller, G., 1900–1904. Grundriss der allgemeinen Volkswirthschaftslehre. Leipzig: Duncker & Humblot. Schumpeter, J., 1934 [1912]. The Theory of Economic Development. Cambridge, MA: Harvard University Press. Schumpeter, J., 1939. Business Cycles-A Theoretical, Historical and Statistical Analysis of the Capitalist Process. New York: McGraw-Hill. Schumpeter, J., 1950. Capitalism, Socialism and Democracy. New York: Harper. Schumpeter, J., 1954. The History of Economic Analysis. New York: Allen &Unwin. Schumpeter, J., 1965 [1927]. Social Classes in an Ethnically Homogeneous Environment. Cleveland, OH, Meridian Books. Simmel, G., 1978 [1900]. The Philosophy of Money. London Routledge. Smelser, N., 1976. The Sociology of Economic Life. Englewod Cliffs: Prentice Hall. Smelser, N. and Swedberg R. (eds.) 1994. The Handbook of Economic Socology. Princeton, NJ: Princeton University Press. Smith, A., 1759. The Theory of Moral Sentiments. London: A. Millar. Smith, A., 1937 [1776]. An Inquiry into the Nature and Causes of the Wealth of Nations. New York: The Modern Library. Sombart, W., 1902–1927. Der moderne Kapitalismus. Leipzig: Duncker und Humblot. Trigilia, C., 1998. Sociologia economica II. Bologna: Il Mulino. Veblen, T., 1899. The Theory of the Leisure Class. Boston, MA: Hughton Mifflin. Weber, M., 1920–1921. Gesammelte Aufsatze zur Religionsoziologie. Tubingen: Mohr. Weber, M., 1922a. Gesammelte Aufsatze zur Wissenschaftslehre. Tubingen: Mohr. Weber, M., 1922b. Wirtschaft und Gesellschaft. Tubingen: Mohr. Weber, M., 1930 [1904–1905]. The Protestant Ethic and the Spirit of Capitalism. London: Allen & Unwin. White, H., 1992. Identity and Control: A Structural Theory of Social Action. Princeton, NJ: Princeton University Press. Zelizer, V. A., 1994. The Social Meaning of Money. New York: Basic Books.
3 Economic sociology and sociological theory Christian Papilloud
Introduction Economic sociology is a discipline that applies sociological reasoning to phenomena in the economic world (Swedberg 2010). Having made rapid progress since the mid1980s, economic sociology has become a discipline that plays a major role in reflections about contemporary societies (Beckert 1996). In its relationship to sociological theory, economic sociology has taken many directions, be it in the context of the critique of capitalism with the work of Karl Marx, the profit-making economy (Erwerbswirtschaft) discussed by Max Weber, the economy as a social system by Talcott Parsons and Niklas Luhmann, or the financial economies of advanced capitalism. Even if economic sociology has been mostly situated in the continuity of the Weberian paradigm (Kalberg 1996; Swedberg 1998), which has contributed to giving it its theoretical consistency, it has integrated new developments coming from innovations in sociological theory over the years. The most important of these innovations are rooted in the critique of the actor’s rationality, in the corresponding consideration of economic action as embedded in social relations (Lepsius 1989), and in the attention devoted to non-human and non-institutional/organisation actors in the economy, such as technological infrastructures and devices, numbers or algorithms, money and e-currencies. In this chapter, we first return to the work of major founding fathers of sociology having underlined the importance of the economy for sociology. Their contribution was not limited to making the economy one of the major fields of sociological reasoning. They also have contributed to questioning the rationality of the homo oeconomicus as understood by classical economists, whose emblematic figure has been Léon Walras and his theory of the rational actor (Walras 2012). According to Walras, the actor is said to be rational in the sense that he maximises his utility under the constraint of limited resources. This rationality is not the product of socialisation, it cannot be learned. It is innate and makes the individual actor independent of other actors. The questioning of this rationality, which has often been called instrumental rationality, is the starting point for a series of works on the integration of the economy into society and on the forms of organisation of the economy going at the same time beyond the assessments of the founders of sociology. The most typical example of such an endeavour is the work done by Talcott Parsons and Neil Smelser, who open up new directions fostering the sociological view on the economy and the relations between economic sociology and sociological theory (Parsons and Smelser 1956b). For Parsons and Smelser, while the founding fathers of sociology showed that the economy is not a sphere separated from society, they failed
DOI: 10.4324/9780367817152-4
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to offer a convincing view of the way in which the economy is integrated into society. Parsons’ theory of social action and its reformulation within the framework of the theory of social systems show that economy is primarily a form of social action which differs from other forms of social action by virtue of the function that it fulfils in society. If theory has contributed to giving economic sociology its importance as a sub-discipline of general sociology in the academic world, it has been in competition with another way of understanding the relationship between economy and society made famous by Karl Polanyi. In his theory of the great transformation, Polanyi investigates the progressive autonomisation of the economy from societal controls and particularly from the control of the state which, according to him, creates the market economy to regulate economic markets (Polanyi 1944). In Polanyi’s view, the economy is not normalised as a particular form of the structure of social action. It is a creation of politics that escapes society and eventually dominates it. Polanyi’s theory has stimulated much debate about the moralisation of economic life, but it is nevertheless the reaction against Parsons’ sociological theory that has led to new developments in economic sociology, in particular by introducing a new way of conceiving social and, therefore, economic action as embedded in a network of interactions. This conception of action has been initiated by Harrison White and a few of his graduate students, among them Mark Granovetter and Michael Schwartz (Granovetter 1973, 1985; Romo and Schwartz 1995; Schwartz and Mintz 1985; White 1981a), reviving the question of the embeddedness of economy in society, and leading economic sociology beyond a sociology of economic markets and economic inequalities. It has contributed to opening up new perspectives on topics such as the relationships between the state as an economic actor and the economy, the social responsibility of economic actors, the material and symbolic actants in the economy, as well as on the role of the technological infrastructure of economic organisations and their embedding in economic mediations. At the end of this chapter, we address these new orientations in economic sociology by using the example of the sociology of money and of financial markets, which show the effort of contemporary economic sociologists to strengthen the sociological approach to the economy through the intertwining of normative and analytical assessments on the basis of the discipline.
Economy in the view of the founding fathers of sociology Among the thinkers who have most influenced the sociological approach to the economy and economic sociology we have to mention, in addition to Karl Marx, the famous contributions of Max Weber, Emile Durkheim and Georg Simmel. Karl Marx and Friedrich Engels undoubtedly contributed in the most direct way to giving the economy a major role in society by recalling that the economic basis determines the superstructure (Marx 1961). This thesis culminates in the highlighting of the circulation of capital (in its simplified formula: W – G – W’, where W is the commodity, G is the capital and W’ is the commodity with added value) and the critique of capitalism understood as the domination that the bourgeoisie exerts over unprivileged social classes. In Marx’s theory, however, there is strictly speaking no analysis of the link between economy and society, as can be seen while examining how Marx understands the relations between the state or the law and the economy (Kühl 2008). It is as if the state and the law would merely be the regulatory agents of an immutable relationship of domination within society, a relationship of domination that the state and the law
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would represent at the same time. While acknowledging Marx for having established that the economy is a product of society or a societal construct, the first sociologists try to support a view on economy and society beyond Marx’s economic determinism. In this context, Max Weber is undoubtedly the first sociologist whose detachment from the Marxian critique of capitalism and, at the same time, whose predominant influence on economic sociology, both past and present, should be noted. Unlike Marx, Weber does not speak of capitalism as a whole. Rather, he distinguishes between different forms of historically situated capitalism, from which he derives the three types of capitalism, political, traditional and rational, in homology with his theory of domination and power (Weber 1972: 95 ff.; cf. also Swedberg 2008). Weber distinguishes between the two basic categories of economic action, householding and profit-making (ibid.: 47). While householding is oriented in the short term towards consumption and in the long term towards wealth growth, profit-making assumes a short-term orientation towards profitability which, in the long term, should perpetuate the accumulation of capital. These two fundamental categories of social action are also distinguished by the method of calculation that supports the development of this kind of action. Household-building is part of an economy of planning and asset management, while profitmaking involves capital accounting. The institutionalised forms of economic action are also different. Households are a direct emanation of the family economy, of the ancient oikos, whereas profit-making presupposes the existence of enterprises recognised de facto and de jure as subjects of economic action and therefore as a type of full-fledged actor in society with their own rights and duties. However, there is no impermeability between these two categories of economic action. This is why Weber does not see firms as an original historical phenomenon, but rather as an emerging form of householding which, with the emergence of rational capitalism, plays a dominant role in contemporary societies and gives their economy their meaning of profit-making economy (see, for example, Weber’s passage in Wirtschaft und Gesellschaft where he defines the firm as a trade association or Wirtschaftsverband; ibid.: 26, 38). This view on the profit-making economy as an emanation of the householding economy is part of Weber’s more general thesis on the development of capitalism emerging from the development of the Protestant ethic. In France, Emile Durkheim proposes similarly to make religion the matrix of social facts, and to use it to explain economic phenomena (Steiner 2005). To Durkheim, private property has religious origins which he investigates in relation to the concept of consecration. Consecration as a way of appropriating (Durkheim 1958: 149) singles out the actors and their mediations of exchange, separating them from the collective as the law of property does by giving an inalienable character to the owner of a thing and to his thing (ibid.: 165). Consecration is therefore a way to transfer the collective property of the family from the family to its individual actors. The family does so to preserve itself, to avoid the domination of the land that makes up as well as dissolves the family. In doing so, the family transmits a part of its sacredness to one of its members, who becomes the head of the family. As head of the family, this member gains a position of exclusiveness within the family in comparison to other family members. According to Durkheim, this explains how the patriarchal family was formed (ibid.: 168). The head of the patriarchal family becomes the one who exclusively possesses the patrimony because, as if it were sacred, everything the head touches becomes his property, and this property becomes taboo (ibid.: 144). However, the head of the family has a certain legitimacy that does not come from his sacred character alone. He is also legitimated because by owning the property of the family, he guarantees the preservation of
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the family, keeping that property inside the family. From there come the different rules of the cessation of the patrimonial property, particularly those that set the conditions of inheritance. The important point here is that the legitimacy that an institution (in this example, the family) gives to a particular actor (the head of the family) does not come at the same time as the consecration, but only after the consecration. The head of the family is legitimated because he preserves the family in applying the family’s principles to all things likely to enter the framework of domestic activities. As Durkheim observes, this refers not only to land. An important quantity of movable things gravitates around such land property and because these things are not real estate property they are less sacred than the land property. Therefore, they can be appropriated by other members of the family, provided the head allows it, i.e. that he does not appropriate them for himself, making them sacred and, therefore, taboo. With the progress of trade and industry, the personal or movable property took on greater importance, becoming an autonomous factor in economic life (ibid.: 167). Thus, the transition in the regimes of solidarity and the division of labour leading to our contemporary economy is the result of the generalisation of the institutional religious principles of the family to other mediations of exchange, to other fields of activities, and to other actors, all the more so as property expands to objects that do not belong to a family, and are therefore less sacred, or less taboo. Another view on economy which tends to understand the relationality of economic exchange – rather than economic action – regarding economic value has been outlined by Georg Simmel in his work Philosophy of money (Simmel 1989). This understanding of economy as a special case of exchange is connected to Simmel’s intention to write his Philosophy of money not in the sense of an economic science of money (ibid.: 10) or an economic contribution to money. Simmel seeks to understand the role of money and the meaning of economic life in society. On the one hand, Simmel does not only propose a shift in perspective compared to Weber and Durkheim which involves investigating the embeddedness of economy in society through the prism of religion. His writings also contrast with those who assume that the economy is a constituted field with fixed mechanisms existing in society – such as in the liberal tradition of Adam Smith and Jean-Baptiste Say, in the Marxist tradition or in neoclassical economics. Simmel wants to develop a very different way of investigating the questions of money and economy in society. Similarly to Marx, Simmel states that the economy consists in a real abstraction from the comprehensive reality of value processes (ibid.: 57). But, unlike Marx, he thinks that economic processes are not developed on the back of the actors but become concrete through exchange in front of them. In this respect, the economy is not a fixed or organised instance of social life. It has to be understood as a form of doing (ibid.), which – here we recall Simmel’s relativist perspective – can be described as being like a relational game. If one knows how this game is played, one also understands how the economy functions and what importance it gains for the actors as part of their action, even if the actors are not aware of all the subtleties of economic life. Therefore, the economy is interaction, but not just any kind of interaction. It is interaction in the specific sense of sacrificial exchange (ibid.: 60). Sacrifice is the relational attribute of economic exchange and it has time, space and material dimensions. The time dimension is understood according to the chronological chain “not-having – having – not-having-anymore”. The space dimension is shaped according to the usefulness and rarity of objects that enable separation and linkage operations in the economy, thereby giving rise to spheres of activities such as economic markets. The material dimension
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or causality of the economy corresponds to the determination of a price for the objects that are exchanged, whereby the price constitutes the link between the usefulness and the rarity of those objects. These dimensions are the components of economic values which reflect the structure of economic exchange. In addition, Simmel distinguishes two essential meanings of economic values, which in turn correspond to two major forms of exchange and two major regimes of the economy in modern societies. On the one hand, there is the economy as a purely regulatory activity associated with sacrifice: what we bring into an exchange is compensated by something else that we obtain from another exchange. On the other hand, the economy is a speculative business where economic values (have to) generate more values – also in the sense of added values. This last area of speculative and abstract economy is developing at a quick pace in modernity leading to a more abstract social life, and to an individualisation of lifestyles making up the plurality as well as the fragility of social life and identities in modern societies. Despite their differences, the founding fathers of sociology converge around a conception of economic action as not being solely rational. Economic action is embedded in a web of social relations whose evolution in the history of societies has to be reconstructed in order to understand the meaning and the role of the economy in modern societies. In this regard, the founding fathers of sociology paved the way for a critique of the rationality of economic actors as understood by classical economy with its construct of the homo oeconomicus.
The rationality of economic action and the age of systematisation Because the founding fathers of sociology understand the economy as a social fact and economic action as embedded in social relations, their assessments clearly differ from Léon Walras’ neoclassical economics (Walras 1988). Walras proposes a completely formalised economic theory, i.e. one that explains economic phenomena on the basis of mathematics, disregarding the material conditions of economic phenomena that sociologists highlight. The view on the rationality of economic action whereby each actor constantly seeks to maximise the utility of his goods and services is an example of this. By conceiving the economic actor on the basis of this instrumental rationality, which assumes that each actor is independent of the others, economic action can be reduced to two fundamental categories, namely that of the demander of goods and services looking for the ever greater utility of his goods and services, and that of the supplier of goods and services concerned with offering them at an ever lower price. Since the actors are independent of each other, they are in direct competition with each other, and this competition determines the price of the goods and services exchanged without this price being decided by any specific actor or group of actors – it is imposed on them. Walras’ tour de force is to demonstrate that this mechanism of supply and demand which establishes the price of goods and services produces the equality or equilibrium of supply and demand which, by virtue of the interdependence of economic markets, is imposed on any economic market except for stock market values, e.g. speculative values which have not yet found their price and, therefore, remain uncertain until the deals are concluded. For Joseph Schumpeter, this theory of equilibrium outperforms any kind of economic sociology, the application of which should therefore be limited to explaining the context in which economic actors make decisions, thereby assigning economic sociology to dealing only with the biographies of these actors and the social contexts of their economic careers (Schumpeter 1954). In Schumpeter’s view, economic sociology
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should be sociology of the vision of the economic actors, particularly of the entrepreneur, the emblematic figure of the economic actor whose modes of action and decision must be explained (ibid.). The reception of Schumpeter’s proposal has led on the side of the economists to game theory, which provides a methodology to deepen instrumental rationality combining the maximisation of the utility of the rational actor and his interactions with other actors (Neumann and Morgenstern 1944). Game theory considers that the economic actor’s decisions aimed at maximising its utility are not without costs (of information, of opportunity). Taking these costs into account enables us to define three main categories of strategic action by the economic actor, namely conflict, cooperation and coordination. Since cases of conflict leading to the annihilation of another actor are rare in practice, most of the strategies developed fall within the category of the coordination of cooperation (Hardin 1998). One development of game theory, known as the prisoner’s dilemma, has shown not only the complexity of these coordination games between actors (Flood 1954; Tucker 1983), but also that the exercise of individual rationality regularly produces irrational collective results (Rapoport and Chammah 1970). Or in other words: the maximisation of the utility does not necessarily lead to the satisfaction of the actor’s needs. For Robert Axelrod (Axelrod 1981, 1984), economic rationality is surpassed by give-and-take, e.g. tit-for-tat strategy, which takes into account the complexity of social action. It is this objective that Talcott Parsons and Neil Smelser are aiming at when they propose to consider economic action not as a rational action cut off from the context of social interactions, but as a form of social action that asserts its specificity because of the role that the economy plays in society, i.e. the function that it fulfils. This assessment is related to Parsons’ attempt at providing a general theory of society on the basis of the discussion of the founding fathers of sociology, one of whose important areas is economy, thus indirectly supporting the renewal of economic sociology and its recognition among sociologists as an academic discipline in its own right. After his scholarly journey in Germany (1930), which Parsons undertook like many American sociologists before him (e.g. Edward Ross, Arthur Bentley, Robert Park), and having spent time in Heidelberg reading Max Weber’s works, he returned to Cambridge, Massachusetts in 1931 to Harvard University. At Harvard, the sociology department was headed by the Russian migrant and sociologist of social mobility Pitirim Sorokin, a famous Weber specialist who claimed to be continuing and extending Weber’s work. From his contact with Sorokin, Parsons notes above all the difficulty of linking Weber’s social action not only to the structure of individual dispositions motivating the actor’s actions and his interactions with others, but also to the structure of society. He was to make this problem the focus of his doctoral thesis on The structure of social action (1937) where he proposes an alternative view on action in comparison to the founding fathers of sociology (Parsons 1968). Social action is not over-determined by society as Durkheim thought, and Parsons followed Weber in arguing that it is not adequately picked up by the methodological individualism supporting a view on instrumental rationality living in a societal vacuum (f. ex. Parsons 1968: 60; see also Parsons 1991: 10). It is voluntarily performed by the actor (Parsons 1968: 62), Parsons proposing to consider social action as a system composed of four subsystems dealing with personality, the biological and psychic functions of individuals, the communication between actors and the social orientation of action. This system of action which Parsons functionalises within the scheme of the AGIL theory means that personality has the function of achieving goals, that the biological and psychic functions of individuals allow their adaptation to
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the physical environment, that communication has the latent function of guaranteeing the maintenance of the regularity of the (re)production patterns of action, while the social integrates individual action into the social and institutional environment (see also Katz and Kahn 1978 for an extension of the AGIL theory; also Luhmann 1988 for an attempt to reconceptualise economy within a renewed systemic sociology). Economic action is therefore a species of social action. It is a voluntary action produced by actors in order to adapt to their physical environment and to achieve their objectives. Economic action is produced as an act of communication socially integrated in norms, values, collectives, and transformed into behavioural roles. This view on economic action underpins the systemic generalisation proposed by Parsons in The Social System (1951), where the economy appears as a subsystem of society that performs the function of adaptation (Parsons 1991). In this sense, the economy has the function of producing the general means for the social system to meet social needs. The emergence of modern capitalism contributed to the relative autonomy of the economy towards society, an autonomy which is marked by a mode of organisation specific to the economy with its firms, its industries, its banks (ibid.: 127). It is therefore possible to break down the four subsystems of action within the economy in order to better understand the subsystems of the economy on the basis of the structure of action, which is what Parsons and Smelser do in their book Economy and Society (Parsons and Smelser 1956a: 33–38). This book, which aims at bringing economics and sociology closer, puts the major aggregates of economics back into Parsons’ systemic theory. The production system ensures that the economy adapts to its environment and the financial system ensures that the economy achieves its goals. The household guarantees the maintenance of regularity in the production of economic action, while entrepreneurship inscribes the economy in social norms, values and collectives in the form of social roles. Parsons’ theory is an unprecedented attempt to systematise the sociological views on economy. The economy is a social subsystem whose action and mode of action are determined by the specific function that it fulfils for society. This theory, which should have brought economics and sociology closer within a shared formal framework devoted to the study of economic phenomena, did not, however, have the desired effect. Economists fail to understand Parsons’ point, which for them remains abstract and relatively vague. Nevertheless, the efforts of Parsons and Smelser, particularly following the publication of Smelser’s Readings in Economic Sociology (Smelser 1965), which was a great success in sociology, were not in vain. Economic sociology is gradually becoming the common denominator of a series of sub-disciplines in sociology (sociology of work, industry, the city, etc.), whose integration with each other it promotes. The Parsonian theory of economics provides a systematisation of the sociological views on the economy in an attempt to strengthen the relationship between economic sociology and social theory. At the same time, it has also stimulated controversial views on the economy, as on social and economic action, which have fostered a moral and a methodological turn in economic sociology.
The moral turn in economic sociology The moral turn in economic sociology was initiated by Karl Polanyi’s work The Great Transformation (Polanyi 1944), which contrasts with Parsonian sociology from the viewpoints of both form and content. The Great Transformation is not a theoretical, abstract book when compared to Parsons’ works. Polanyi gives a history of the economy based
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on a thesis which is fairly easy to understand: by liberalising economic markets, the state allowed the economy to free itself from the socio-cultural controls that kept it embedded in society, which in the 20th century resulted in economy transforming all kind of societal fields into an economic market (see also Gemici 2008). On the one hand, Polanyi’s thesis can be seen as a way of explaining the transition from an economy completely based on production and the satisfaction of needs, as Marx theorised it, to a profit-making economy in the Weberian sense. On the other hand, The Great Transformation situates the beginning of the disengagement of economy from society with the liberalisation of markets in the 17th century. This does not only mean that the liberalisation of the economy and its capitalist modus operandi is a recent historical phenomenon (against Marx). It also means that the economy has taken a central place in society only quite recently, with the expansion of the industrial revolution in the 19th century, and that it earned its status in large part thanks to the state. If the state, by liberalising economic markets, has fostered the relative autonomisation of the economy from society, at the same time it has tried to limit this autonomisation by producing new instances of control of the economy – e.g. political economy at the scientific level, trade unions on the labour market – which also legitimise the action of the state and its agenda in economic matters. Thus, there is a double movement of empowering the economy while structurally impoverishing society on the one hand, and on the other hand of setting up means of protection in society to protect society from an economy that is becoming overpowerful and likely to subject the whole of social life to its laws (Polanyi-Levitt 2013). Polanyi’s work has resonated all the more in sociology because it recalls other works that suggest a similar vision of the embeddedness of the economy in society, following the intuitions of Durkheim’s nephew Marcel Mauss in his essay The Gift (Mauss 1999). In The Gift, Mauss succeeds in synthesising his research results regarding the operations related to the gift, putting them at the same time in an historical and intercultural perspective. The gift is an exchange formed by the obligations to give, to take and to return the given things. Two words are critical for Mauss. First, the “given things” are not only presents, but every possible thing, as well as human beings, services, magic/religious rituals or offerings. Second, the gift always means a “mutual obligation” shared by all actors in society. It is not a mechanical give-and-take. It involves all actors in societies in broad exchanges taking place in the long run. Finally, the gift retains the ambivalent property suggested by its name, meaning at the same time “present” and “poison”. The giving and taking of the gift place the actors in a cycle of obligations to return it in a certain manner and within a given time. If these manners are not respected, the actors are likely to lose face, or even to die. Thus, the gift is not a generous sacrifice only, or the expression of gratitude. It challenges the actors who should show that they can give, take and return gifts in an appropriate way. Reviewing the works of Franz Boas, James Frazer and Bronislaw Malinowski among many other investigations on gift practices in ancient societies, Mauss has been ultimately convinced that something like a “rock” (ibid.: 264) of all social practices exists in all the known cultures. This “rock” is the gift as universal principle of exchange leading to the peaceful association of the human beings through the mutual obligations to give, take and return presents. What motivates the actors to do so? There are two forces which Mauss describes using the Melanesian terms mana and hau. The mana is the force at the core of the magic and the religion which denotes the sacral character of the objects embedded in gifts (Firth 1940). The hau is the spirit of the giver belonging to the thing given which forces the
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return of the thing to its owner – an interpretation which will raise many controversies in ethnology (e.g. Lefort 1950: 1402; Lévi-Strauss 1999: XXXVIII; Weiner 1985: 211–215). However, according to Mauss, the mana and the hau are mythical expressions used by the Melanesian societies to describe the power of practical actions embedded in the gift. These actions are powerful because they regulate the entire society, i.e. they enable society to return to a balanced state where the power relationships as well as the properties are best distributed among the actors. Mauss’ gift has stimulated many works which take the gift as a total social phenomenon against the modern economic market, i.e. for a moral economy – a statement which was brought to modern society in the 1980s by the interdisciplinary M.A.U.S.S. group around Alain Caillé (Mouvement Anti-Utilitariste en Sciences Sociales – Anti-Utilitarian Movement in Social Sciences). Alain Caillé and the authors affiliated to his programme support the view that the gift is linked to honour, prestige and nobility, describing another kind of rationality. This rationality is not supported by any kind of calculation, and it is not the veil hiding the logic of interests transforming all our social exchanges in power relationships. The gift does not describe another market economy. It supposes radical anti-utilitarian practices which are not compatible with the economy in the modern sense of the term (Anspach 2002: 76; Caillé 2000; Testart 2001: 723). According to Caillé, anti-utilitarianism is not only the radical criticism of the hegemony of economic rationality framing our daily lives as well as the theoretical narratives of social sciences. It is not about to spend effort and time solely in criticism of the economic semantics. It is rather a matter of delivering a perspective able to rank all social practices, and among them economic practices, within the gift. The gift as a paradigm, to Caillé, is the reintegration of the market and the state in a social order made of gift exchanges which make sense for all social actors (Caillé 1994). Pushed to the extreme, it is a cosmological principle and axiom of social theory, the origin of the unique paradigm which can be conceived and legitimated in the social sciences, and which can be used to investigate economic phenomena with a sense of social and ethical responsibility in mind.
The methodological turn in economic sociology Parallel to this moral turn, economic sociology encounters a methodological turn based on the understanding of social action as a network of interactions. This methodological turn which had remained dormant since the suggestions of the founding fathers of sociology has been revived and reshaped mainly by Harrison White’s works in the field of social mathematics of micro-interactions or personal relations (Azarian 2003; White 1981a, 1981b, 2002), and it has been made famous by his PhD. students, among them especially Mark Granovetter. The methodological turn fostered by White has generally been called the New Economic Sociology, which is based on a network sociology which involves investigating where economic action is mainly supported by collections of actors – or collectives – and how it impacts on the societal life in which it is embedded. White takes economic theory as the starting point for his research, questioning the modelling of neoclassical microeconomics (White 1981a). In neoclassical microeconomics, assumptions are made regarding the independence of actors developing their own actions rationally, but White shows in his terms-of-trade model (ibid.: 15) that there is no such independence between economic actors. Rather, economic actors are to a greater or lesser extent interdependent, constantly observing each other, developing
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strategies to gain information about others around them in order to develop their own economic actions. Despite the originality of his model, White’s views on economic actors and economic markets have often been considered as a broadening of the neoclassical view on markets on the one hand, while on the other hand they have been criticised because of his lack of a proper sociological explanation of the economy (Rojas 2006). Mark Granovetter has taken up White’s investigation of economic markets and, at the same time, delivers a more detailed conception of the embeddedness of social structures in economic behaviour based on the investigation of the social relations involved in economic behaviour. Following White’s observations on the conception of “atomized actors” supported by neoclassical economic theories (Granovetter 1985: 485), Granovetter observes that sociological theories tend to support the opposite view, of oversocialized actors whose actions are mainly determined by social norms and rules. Both kinds of explanation are missing a proper conceptualisation of economic and social actions “embedded in concrete, ongoing systems of social relations” (ibid.: 487), with which Granovetter aims at bringing back the “Weberian program” to economic sociology (ibid.: 507). In Granovetter’s view, economic sociology not only has to explain economic action beyond atomised actors. It should also deepen the investigation of the rationality of economic actors by broadening the conception of rationality and by taking into account other concepts related to rationality (for example trust and social capital), which eventually should contribute to a broader discussion about economics and society between sociologists and economists. This kind of relational view on economic action and actors has been approached differently by other scholars coming from the same methodological background, i.e. supporting a relational view on economics. For example, a colleague of Granovetter, Michael Schwartz, has supported a Marxist viewpoint on American business (Schwartz and Mintz 1985). Ronald Burt has proposed his conception of “structural holes” in networks of personal relations which foster the success of economic actors supporting alternative ways of thinking and behaving (Burt 1992). Walter Powell and Brian Uzzi have made famous the analysis of companies maintaining “arm’s-length ties”, i.e. impersonal and shifting exchange ties with other economic actors (Powell 1990; Uzzi 1997). These works have underlined the complexity of social ties in networks, leading to the investigation of alternative ways of structuring economic action beyond the opposition between stable and unstable networks, strong and weak ties (see f. ex. Standing, Stockdale and Love 2007). If economic sociology understood on the basis of a sociology of networks undoubtedly represents one of the major methodological advances in the field since the Parsons’ systematisation, and has also seen numerous extensions, as for example in the framework of Bruno Latour and Michelle Callon’s Actor-Network-Theory (ANT) (Callon 1998, 1999; Latour 1986), as well as in the economic sociologies inspired by John Law or Mark Harvey (Harvey 2000; Law 1999), it has also seen the affirmation of new trends outside of a reticular conception of the economy and society. Among these trends, the one supported by Neil Fligstein, who considers economic markets as politics, should be noted. According to Fligstein, the social structure of economic markets can be conceived as a field, this term being understood less in the sense of White and the network sociologies, meaning field as a collection of similar economic organisations typical of a sector of economic production (see DiMaggio and Powell 1983). Following Fligstein, a field is an organised social space that brings together economic actors with a common interest in the field, tied to each other in ways that are determined by the culture of the
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field (Fligstein 1996; Fligstein and Calder 2015). This understanding of field, as a “field of force”, is close to the concept of field developed by Pierre Bourdieu, who sees it as a space structured by the exertion of symbolic power to the benefit of the conservation of the positions occupied by the actors of the dominant classes in this field (Bourdieu 1987, 1996, 2019). In a similar way, Fligstein indicates that the dominant actors in a field impose their control over it by institutionalising the means of this control (e.g. by supporting certain forms of business organisation, through price formation mechanisms, by playing on the modes of distribution of economic market-shares, etc.), thereby maintaining their domination over the field. Among these actors, the most powerful is the state, and this is one of the leading topics in the work of Frank Dobbin, who considers that the economy in all its markets is dominated by the political culture of a state, this state contributing to give its shape to the economy (Dobbin 2004, 2009). This is also one of the directions taken by Marion Fourcade-Gourinchas in her historical investigation describing how the thought of economists has been influenced by cultural and political ideas of their times (Fourcade-Gourinchas 2009). More generally, this descriptive-reconstructive and political-normative perspective on the economy can be found in the works on corporate social responsibility (CSR), whose tradition dates back to the 1950s and 1960s (Campbell 2007). In this area, sociologists do not only question the social and ethical responsibility of economic actors towards the major social and now ecological issues faced by contemporary societies (see, e.g., Aguilera et al. 2007; Maignan and Ralston 2002; Matten and Moon 2008). They also investigate how CSR strengthens the role of the economy in society. Since the 1990s, with the development of neo-institutionalist assessments emanating from organisational sociology, this perspective has evolved towards an argumentation close to the network sociologies, in which economic action is conceived as being embedded in networks of personal relations that drive it and give it concrete forms. In recent developments, the neo-institutionalist view on CSR takes the interest of actors more into account (see the observations of Stinchcombe 1997), i.e. the instrumental rationality of action, along with an attention paid to the changes that economic institutions and organisations undergo (Dorado 2005; Lee 2008; Seo and Creed 2002). Would we say that the methodological turn in economic sociology has led to a revival of the moral and political turn? Let us take as an example the work of Luc Boltanski (Boltanski and Thévenot 1987; Boltanski, Chiapello and Elliott 2005) and Laurent Thévenot (Thévenot 2001), who merge assessments of both network sociologies and the “Économie des Conventions” in the frame of a critical sociological pragmatism able to address the meaning of capitalistic economics in contemporary societies. In these works, conventions have been defined in the broad sense of the stable outputs of a process accumulating the evaluation of situations, the resulting coordination of actors’ actions in those situations and the re-evaluation or reinterpretation of existing conventions throughout this process (see Storper and Salais 1997). They provide the basis for an investigation into the typical modus operandi of economic actors and, more generally, of institutions. Moreover, they foster the merging of different theoretical frameworks to better understand the mechanisms that these actors put in place in order to build an ecosystem or a world of actions locally structured by conventions (see also Diaz-Bone 2015). As this example shows, the moral and the methodological turns in economic sociology are not taken as concurrent tendencies. Rather, since the 1980s economic sociologists have been working at their integration to enable a stronger sociological approach to the economy. This attempt can be seen most clearly when we consider some
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of the important topics of economic sociology beside the traditional themes of economic markets and socio-economic inequalities, such as money and financial markets.
Money The sociology of money refers directly or indirectly to Simmel’s interpretation of money in modernity, which he develops in his Philosophy of Money (1900). According to Simmel, money is to be understood as a socialisation instance of modernity, as an end in itself and as an ambivalent object. Money is and has relation (Simmel 1989: 131). This statement means that money does not only symbolise the value of objects but also acquires a value as an object that is independent of the value of other objects. In its historical development, money becomes more and more independent of actors and of society, until it stands for everything that acquires value. In this sense, the value of money no longer springs from its substance but from its function, and in modern society, money behaves in a context where it can develop this function to its full extent. In a similar way, Simmel argues that money in modernity is linked to a practical faith, which Simmel understands as the basis of trust (Simmel 1992). The fact that, according to Simmel, money fundamentally symbolises relations in terms of relations that do not have to be realised in order to be compared with each other does not only explain the power of money in rationalising capitalism. It does not only mean that money is particularly well suited for planning actions, measuring their effects, or anticipating the actions of third parties. By saying this, we have – following Simmel – understood money from the viewpoint of economics only, and not yet from the viewpoint of a sociological theory. If we want to understand money from the viewpoint of sociology, then we have to see it as means and end of a personal and social distance from society, as a kind of reserve or of restraint that simultaneously give us an incomparable control over the practical world and a fantasising over its possibilities. This makes up the ambivalence of money as relations of relations, as an instance which gives us a freedom of action towards our societal environment, while maintaining our distance from it, which makes the society in which we live as well as the social life of individual actors more abstract once it develops through the mediation of money. Viviana Zelizer’s famous work on “multiples monies” (Zelizer 1994: 19) criticises Simmel’s thesis about the levelling character of money, because, Zelizer argues, the meaning and the importance of money is not exclusively related to the sphere of economic exchange. Outside this sphere, money is an object of social and cultural appropriations and attributions, which embeds money within society socially and at the same time culturally. Zelizer focuses on the different uses of money and she reconstructs their origin, showing, for example, that money given as a gift is spent on different things than money earned or even stolen. For this reason, too, she does not support the Parsonian view of money as a generalised media in society, because money should also be understood as the impersonal money circulating on economic markets, as this specific money that is related to our specific place and role in society: “People earmark different currencies for many or perhaps all types of social interactions, much as they create distinctive languages for different social contexts” (ibid.: 18). Thus, one cannot speak of a levelling or homogenisation of money like Simmel does, because this levelling character of money is not happening at the level of our personal relations to money, at which we are not only using monies but also “transforming them to fit a variety of values and social relations” (ibid.: 204). Zelizer’s view has been criticised for claiming to
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place on the same level a historical development of rationalisation and dematerialisation of money and the appropriation of money by actors who use it among micro-strategies in local contexts of action (see, e.g., Kraemer and Nessel 2015). For example, the use of money in these local contexts of action may well be linked to the social and cultural values that money represents for those actors using it in these contexts. However, as money circulates beyond these contexts once it has broken free from the actors who owned it, it does not usually retain the social and cultural values with which it was endowed. Money constantly escapes the origin and meaning that we try to assign to it. As soon as it emerges from the impersonality to which the economy devotes it, money returns to it by the very fact of its circulation. This circulation scheme of money has been the focus of investigation by other sociologists of money who, while renewing the link to Simmel, depart from Zelizer’s multiple monies thesis without rejecting Zelizer’s intention to understand money from a social and cultural perspective in the frame of a proper sociological investigation of money (Ingham 1998, 2001). Aldo Haesler has pointed out in a manner reminiscent of Polany that money in the course of its dematerialisation in history gradually escaped the control of economic and political institutions and developed its own circulation, a circulation that is no longer shaped by these institutions but shapes them (Haesler 1995). Extending Simmel’s thesis, Haesler shows that money in late modernity does not only become a function guiding social divisions and the corresponding allocation of socio-economic resources at each level of the social hierarchy. Money is also information; it records the personal characteristics of actors and the social characteristics of their exchanges in order to self-produce and thus fuel its circulation outside the socio-cultural controls of our modern societies. In doing so, money fulfils its telos, which consists in structuring society according to the participation of social actors in this circulation. Among these actors those who contribute the least to this circulation are inevitably subject to the failures of the circulation of money without being able to influence this circulation. Those who participate the most in the circulation of money can protect themselves from such failures, which supposes that they are able to exert strict control on their socio-cultural practices (Haesler 2011). Haesler’s thesis – the dual thesis of money disappearing materially and becoming only information, and of late modernity being entirely structured by money – is near to that of Christoph Deutschmann and to the more Weberian thesis of Heiner Ganßmann (Deutschmann 2008; Ganßmann 1996, 2012), who see money as a means of domination and, in an analogy with Bourdieu’s symbolic power, as an instrument for maintaining socio-economic inequalities to the benefit of a dominant elite sheltered from economic needs. For Deutschmann especially, money in late modernity, as an object of infinite desire that fuels the capitalist dynamic, becomes a function analogous to that of religion in ancient societies – money provides a means to deal with uncertainty and becomes an object of belief, as if it were god, generating social cohesion around it (Deutschmann 1999, 2009). However, according to Axel Paul, Deutschmann’s thesis reaches its limits, because the belief in money as a means of overcoming the hazards of existence does not exist without the actors’ trust in the economic system, and in particular not without their trust in the power of central banks to manage the circulation of money (Paul 2012, 2017). For Paul, central banks have not completely lost control over the circulation of money, quite the contrary. They organise it for the benefit of their own stability, which means that if money escapes their control, it is not because money has a modus operandi that would ultimately escape all social and institutional control. Money escapes the control of central banks because these banks
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do not always manage to stabilise the way they organise its circulation. The sociological problem of money is therefore not that of a reversal of social control, where money controlled by society would end up controlling it. It is first and foremost a problem of the economic sociology of banking organisations and their technological infrastructures, a message that also shows up in the literature on banking payment systems (see, e.g., Freeman 1999; Lammer 2006; Rochet and Tirole 2006) and on new digital mediations of payment or e-money (see also Maurer 2012; Maurer, Nelms and Swartz 2013).
Financial markets If the economic sociology of money remains a field divided between an emphasis on micro-relationships which remains close to a sociology of networks and personal relationships, and an emphasis on the moral character of money within the capitalist dynamics of modern societies, the consideration of electronic currencies and the openness to the variety of networks and payment systems in which it circulates contributes to bringing the economic sociology of money closer to the sociology of finance. From the outset, the sociology of finance has underlined the importance of technologies and technological infrastructures surrounding financial markets, and it is not by chance that its theoretical inspiration is drawn from the Social Studies of Science and Technology (SSST) –particularly Latour and Callon’s ANT – and the Social Studies of Science (SSS). More specifically, the economic sociology of finance proposes, through the examples of Karin Knorr Cetina and Donald MacKenzie, a viewpoint on the world of finance as a place of knowledge production, as well as of knowledge representation of immaterial and often subtle or invisible financial phenomena. The central idea of the sociologies of finance is to consider the financial markets as a scientific laboratory (Knorr Cetina 1984), while privileging a microsociological perspective on the phenomena of finance, a perspective that takes a different meaning depending on the authors (Kalthoff 2009; Kalthoff and Vormbusch 2012). For Knorr Cetina, this microsociological perspective should lead to the identification of global micro-structures of financial markets, i.e. structures growing in local contexts of interactions between financial market actors, that are at the same time recurrent in all financial markets and that contribute to differentiating these markets from the usual economic markets (Knorr Cetina and Bruegger 2002; Knorr Cetina and Preda 2005). It therefore appears that financial markets do not respond to the same mechanisms as the usual economic markets (Knorr Cetina 2007). They are distinguished by the emphasis placed on assessing the risks of investing in them in terms of the added value that this investment can bring. They are fundamentally speculation-driven, not exchangedriven, markets which, at the level of the actors, result in action being based on promises exchanged between them, rather than being based on supply and demand. MacKenzie radicalises this microsociological perspective by using the concept of performativity taken from the philosopher John Austin by the supporters of the ANT Theory (Austin 1962), especially by Michel Callon (Callon 1998). Unlike Knorr Cetina, MacKenzie considers the actors, actants, materialities and symbols that circulate in financial markets on the same level, focusing on the role of numbers and mathematical models in the promotion of global financial markets (MacKenzie 2005; MacKenzie and Millo 2003). Rather than seeing these artefacts as passive recorders of the activities that take place in financial markets, MacKenzie shows that, on the contrary, numbers and mathematical models are real actors that contribute to
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creating the realities they symbolise (MacKenzie 2006). They are therefore not descriptive artefacts, but performative artefacts that produce and – in the sense of Callon – format a reality, that organise it so that it resembles the image they give of it. MacKenzie’s works contribute to changing the idea of the economy as an organised field whose technical infrastructure consists of maintaining the structure and order of that field. This conception of the economy, which is not unrelated to the one supported by the sociology of conventions, is reversed in MacKenzie’s works, for whom the economy, and in this case the financial markets, come to concrete existence as numbers, statistics and algorithms developed by the technical infrastructure underlying them. The work of Daniel Beunza and David Stark on arbitrage practices in financial markets (Beunza and Stark 2004, 2005), which borrows from the theoretical framework of Knorr Cetina and MacKenzie, and the contributions of Elena Esposito and Jens Beckert on the imaginary, the search for the new and the shaping of expectations about the future in economics (Beckert 2016; Esposito 2010), extend these perspectives. They show how the financial markets in particular, but also the economies at large, are divided into multiple hierarchies that correspond to multiple ways of looking at the economy, underpinned by multiple technologies for formatting economic activities. The important point raised by the sociology of finance in relation to economic sociology is that if we take the financial markets as a field that could provide the path along which the economies of the industrialised countries are developing, as Knorr Cetina suggests, then we realise that this kind of economy is not riveted to a particular order, nor to a particular technology, nor to a precise ideology. On the contrary, it is a matter of varying perspectives, multiplying points of view and changing points of view in order to give the economy a different shape each time, guaranteeing the economic novelty itself which, like everything new in economics, can potentially generate value, and value chains through which this value will be put into circulation. In this sense, the sociology of finance, in a similar way to the sociology of money, offers a fascinating field of work through which to renew the dominant Weberian paradigm in economic sociology, in particular the elements which characterise the instrumental rationality of which Weber speaks, for example calculation, anticipation and planning.
Concluding remarks In this chapter, we have highlighted the main theoretical frameworks mobilised by economic sociology. We began by observing that among the various major theoretical frameworks proposed by the founding fathers, the dominant paradigm in economic sociology remains the work of Max Weber. However, based on this shared reference to Weber, economic sociology has undergone numerous reorientations since the attempt at systematisation proposed by Parsons and Smelser. First, it has moved away from an abstract conception of rational action, whether this is understood in the sense of neoclassical economics – the atomised actors mentioned by Granovetter – or in the sense of a system, as in Parsons’ AGIL-scheme. The so-called rational economic action must be contextualised in networks of personal relations, in the interactions between economic actors. Second, it has also moved away from an abstract vision of the relationship between the economy and society, where economy is a sub-field of society, to take better account of the way in which the economy is embedded in society and influences this society in its structure and changes. In doing so, economic sociology has developed well beyond
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the analysis of economic markets and economic inequalities to include other topics indirectly linked to the economy, such as trust, social capital, the role of the state, as well as the social and ethical responsibility of the economic actors. Finally, economic sociology has integrated a perspective that does not only take into account individual human actors or collective actors such as institutions and economic organisations, but also the different material or symbolic actants and infrastructures that the economy mobilises to develop, of which we have shown some examples through the topics of money and the sociology of financial markets. From this overview of the relationship between economic sociology and sociological theory, it appears that economic sociology is evolving towards a firmer integration of the two main turns – the moral and the methodological – that have characterised its history, thus guaranteeing the renewal of the Weberian paradigm from which it claims to derive its strength, a renewal that is marked by an increasing attention to the relational character of economic action.
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4 Economic sociology and institutional economics Geoffrey M. Hodgson
1. Introduction Although the term economic sociology has a longer history (Swedberg 1991), it was in the 1980s that it emerged as a prominent label under which some sociologists could pursue their interest in the analysis of economic phenomena. Sociologists have produced major contributions to the study of economic institutions, including markets (Baker 1984; Fligstein 2001; Beckert and Dewey 2017), money (Zelizer 1997; Ingham 2004) and business enterprises (Powell and DiMaggio 1991; Dobbin 1994; Scott and Meyer 1994; Fligstein and Freeland 1995; Scott 1995; DiMaggio 2001). Their work makes a vital contribution to the study of institutions in the economy. But both economic sociology and institutional economics are categories with contested meanings (Zafirovski 1999). Comparison of the two named fields is also made difficult by their locations in two separate academic disciplines – sociology and economics – between which there is relatively little dialogue (Pieters and Baumgartner, 2002; Fourcade et al. 2015). This disciplinary compartmentalization is detrimental, especially because the two fields share major objects of analysis and research questions. They are both concerned with the nature and role of institutions in the economy. By the economy scholars typically refer to the structures and processes concerned with the production and distribution of wealth. The definition of an institution has been debated, but there is a near consensus on its meaning, where institutions are systems of shared rules that govern human interactions (Hodgson, 2006, 2019a). So far so good. But things get more muddied when we consider the disciplinary labels – economics and sociology. Their meanings are often taken for granted. But they are problematic. Economic sociology is often defined as ‘the attempt to analyze economic phenomena with the help of sociology – that is, with the help of sociological concepts and theories’ (Swedberg, 2005, p. ix) or that it ‘offers a sociological account of economic phenomena, more specifically, the production, consumption, distribution, and transfer of assets, goods and services’ (Zelizer 1991, p. 4128). But the meaning of ‘sociological account’ and the distinctive nature of ‘sociological concepts and theories’ are unclear. Robert Gibbons (2005, p. 3) defined economic sociology as ‘the sociology of economic actors and institutions’. But he defined neither ‘sociology’ nor ‘economic’. Other than its de facto location in departments of sociology, how is economic sociology differentiated from (at least some strands of ) institutional economics? Neither sociology nor economics has a monopoly on methods or key concepts. Both disciplines make extensive use of statistics. Sociologists have followed economists to make use of mathematical tools such as game theory. Many economists and sociologists
DOI: 10.4324/9780367817152-5
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adopt the term capital, with liberal application to almost any asset, including the prominent notion of social capital (Bourdieu 1986; Coleman 1990; Dasgupta and Serageldin 1999; Hodgson 2014a). A minority of sociologists have adopted the mainstream economists’ notion of rational choice (Coleman 1990). So, with these shared ideas, how are the two disciplines distinguished from one another? Sociologists can be forgiven for assuming that economics is defined in terms of ‘the economic approach’, entailing assumptions such as utility maximization and equilibrium analysis. Contrary to David Colander et al. (2004, p. 485) and others, some evidence suggests that mainstream economics has not moved away from these assumptions (Hodgson, 2019b, ch. 3). But while the notion of utility-maximizing rational choice remains characteristic of much of economics, its adoption within that discipline is not universal. In the first half of the 20th century, the original American institutional economists either rejected or severely qualified the assumption of utility maximization. Similarly, Herbert Simon (1957) replaced the Max U idea with his concepts of satisficing and bounded rationality, and he won a Nobel Prize in economics. Other winners of the Nobel Prize in Economics include Amartya Sen (1977) and Vernon Smith (2013), who were also critical of utility maximization. But despite these prominent dissenters, proselytization of Max U and ‘the economic approach’ is still ubiquitous within economics. On the other side of the divide, as noted above, some sociologists such as James Coleman have adopted similar ideas. Accordingly, Herbert Gintis and Dirk Helbing (2015) argued that sociology should adopt game theory and rational choice approaches. So the ‘economic approach’ and utility maximization are imperfect criteria to demarcate these two disciplines. The natures of both economics and sociology are malleable and contested. At best, we can agree that the ‘economic approach’ and utility maximization are dominant in one of these disciplines and a minority pursuit in the other. Nevertheless, the disciplinary boundaries are fuzzy and there is a pressing need for much greater interdisciplinary dialogue. Nevertheless, the study of economic institutions prospers in both disciplines. This is another reason for more conversation across disciplinary frontiers. As noted above, economic institutions such as markets and firms are prominent in economic sociology and organizational sociology. The study of institutions was central to the work of the original American institutional economists such as Thorstein Veblen (1899) and John R. Commons (1924). The ‘new institutional economics’ emerged in the 1970s, with leading figures such as Ronald Coase (1937, 1960, 1988), Douglass North (1977, 1981, 1990), Oliver Williamson (1975, 1980) and Elinor Ostrom, (1990), all of whom received Nobel prizes in economics. The remainder of this essay is organized as follows. Section 2 outlines the original institutional economics. Section 3 gives a summary of the new institutional economics. Section 4 turns to economic sociology. Section 5 concludes the essay.
2. The original institutional economics The original institutional economics was developed in several leading departments of economics in the US by Thorstein Veblen, Wesley C. Mitchell, John R. Commons and others. For a while, this earlier tradition was pervasive in economics in leading American universities and research institutes (Rutherford 2001, 2011; Hodgson 2004). Even after the Second World War, the original institutionalism retained some influence for a while. For example, the popular and prolific writer John Kenneth Galbraith
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synthesized original institutionalist and Keynesian views. The economists Simon Kuznets (originally from Belarus and became a US citizen) and Gunnar Myrdal (from Sweden) were aligned to the original institutionalism and they won Nobel Prizes in 1971 and 1974, respectively. The American Nobel Laureates Elinor Ostrom (2004), Herbert Simon (1979, p. 499) and Oliver Williamson (1975, pp. 3, 254; 1985, pp. 3–5) all reported that they were influenced by Commons, among others. A shared theme pervades the original institutionalism, from the writings of Veblen in the 1890s to those of Galbraith in the following century – the notion that the individual is not given but can be affected fundamentally by institutions or culture. Individual tastes and preferences are context dependent. This contrasts with a prominent approach in mainstream economics where individual tastes and preferences are taken as given or fixed through life. Instead, original institutionalists emphasize how people are affected by culture and institutions: they can develop different preferences. For instance, Veblen (1909, p. 629) wrote of the ‘wants and desires, the end and aim, the ways and the means … of the individual’s conduct’ being affected by changing institutional circumstances. Similarly, the American institutional economist Clarence Ayres (1944, p. 84) explained: ‘“wants” are not primary. … They are social habits. For every individual, their point of origin is in the mores of his community’. The idea that individual tastes and preferences are not given, but are shaped by institutional or cultural circumstances, and by influences such as advertising, is also a major theme in the writings of Galbraith. For instance, Galbraith (1969, p. 152) insisted that individual ‘wants can be synthesized by advertising, catalysed by salesmanship, and shaped by the discreet manipulations of the persuaders’. Advertising is often more than mere information: it can subtly alter our preferences. This does not imply a neglect of individual power or agency. Veblen and Commons recognized that individuals create and change institutions, just as institutions mould and constrain individuals (Hodgson 2004). The original institutionalism is not confined to a ‘top down’ view where every individual is seen simply a reflection of cultural or institutional circumstances. Veblen and others recognized that individuals differ from one another, even in one culture, and that they are active and creative agents. The original institutionalism was internally diverse, harbouring a number of different assumptions and approaches. Its practitioners worked on a variety of topics and areas, from microeconomics to macroeconomics, influencing labour economics, industrial economics, agricultural economics, development economics, public policy, the study of business cycles, national income accounting, macroeconomic policy and much else. Compare, for example, the work of Veblen and Commons. Veblen (1898) argued that economics should become an ‘evolutionary science’, coining the term ‘evolutionary economics’ for the first time in that essay. He argued that the Darwinian revolution in the natural sciences should be extended to the social sciences. By this Veblen did not mean that social phenomena should be explained solely in biological terms. Instead he wanted the broad, unteleological, Darwinian approach to analysing change to be adapted and applied to socio-economic phenomena. Veblen (1899, p. 188) wrote, for example, of ‘the natural selection of institutions’. In this manner he broke decisively from the orientation towards equilibria in mainstream economic theory. Veblen (1907, p. 304) also criticized Marxism, emphasizing that, by contrast, ‘in the Darwinian scheme of thought, the continuity sought in and imputed to the facts is a continuity of cause and effect. It is a scheme of blindly cumulative causation, in which there is no trend, no final term, no consummation’. Veblen’s work is also notable in the
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attention he paid to contemporary psychology, particularly the work of William James (1890). Like other original institutionalists he rejected the idea of utility-maximizing ‘economic man’. Commons is notable for his work on labour relations, the role of law in the economy and on institutional theory. He became President of the American Economic Association in 1917. Commons (1931, pp. 648, 652) saw an institution ‘as collective action in control, liberation and expansion of individual action’. For him, ‘the smallest unit of the institutional economists is a unit of activity – a transaction, with its participants’. His notion of a transaction was broad enough to include ‘bargaining transactions, managerial transactions and rationing transactions’, where the first referred to contracts of exchange, the second to management interventions, and the third to taxation and redistribution by the state. This conceptual taxonomy influenced Williamson (1975, 1985). Ostrom (2004) was particularly influenced by Commons’ (1924) Legal Foundations of Capitalism. The contribution of Commons, particularly to the interface of economics and law, is still highly relevant today (Commons 1924; Samuels 1989; Hodgson 2015; Deakin et al. 2017). There were several other important institutional economists, including Clarence E. Ayres, John Maurice Clark, Morris A. Copeland, Walton H. Hamilton and Wesley C. Mitchell. There is not the space to review their contributions here. Karl Polanyi is worth mentioning as a major linking figure between the original institutional economics and economic sociology. Completed in the US while he had contact with American institutionalists, Polanyi’s (1944) major work on economic history challenged some of the assumptions of mainstream economics and was later an inspiration work for economic sociology. The internal variety within the original institutional economics must be emphasized. There was a diversity of political and policy views as well. While Veblen gave cautious support to socialist ideas, others such as Commons, Clark, Copeland and Mitchell defended a reformed capitalism with a welfare state. They also differed in their attitude to Marshallian economic theory (Marshall 1920), which was prevalent in the Anglophone world in the first half of the 20th century. As the institutional economist Eveline M. Burns (1931) outlined, the original institutional economics extended the analytical scope of the discipline, to cover institutions and structural or technological change, and it was not necessarily incompatible with some orthodox ideas and insights. The maverick institutional economist Frank Knight (1924) also argued that there was some overlap between orthodox and institutional economics, where institutional approaches brought an enhanced view of institutions and socio-economic change. Briefly consider the relationship between the old institutional economics and the rise of mathematics. Before 1930 there was relatively little mathematics in economics. Thereafter economists became increasingly persuaded of the importance of mathematics, to the point where the use of mathematics is now compulsory for any aspiring economist. Mathematics is an important tool, but the kind of mathematics highlighted by economists – at least in the 1945–1980 period – tended to squeeze out institutional analysis. This is one of the factors that contributed to the decline of the original institutional economics after the 1960s.
3. The new institutional economics The term ‘new institutional economics’ was coined by Williamson (1975) to mark the renewed post-war interest by economists in the role of institutions. The word ‘new’
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signalled some separation from, rather than a renewal of, the original institutional economics of Veblen and others. But Williamson acknowledged the inspiration of Commons for his own analysis. Ronald Coase (1937) had pioneered the analysis of the structure and boundaries of the firm, but few built on his work before Williamson (1975) intervened. Others involved in the revival of interest in institutions among economists in the 1970s included Kenneth Arrow (1974) and Douglass North (1971, 1977). The idea of transaction costs – the cost of establishing, negotiating, monitoring and enforcing contracts – was a prominent theme in all these works. All the pioneers named in this paragraph received the Nobel Prize in Economics. In his path-breaking article, Coase (1937) argued that firms exist when the costs of an alternative market-like arrangement are greater than the costs of operating a firm. Instead of organizing production by numerous contracts at every stage of the process, the firm greatly reduces the number and complexity of transactions by placing workers in employment contracts under a single authority. That is why firms exist. But the definition of transaction cost is disputed (Demsetz 1968; Langlois 1984; Allen 1991) and it is difficult to measure transaction costs directly. The many empirical attempts to test various forms of transaction cost analysis have brought mixed results (David and Han 2004; Carter and Hodgson 2006). How does the ‘new’ institutional economics differ from the original version? Mainstream concepts like rational choice and utility maximization are more prominent in the ‘new’, while they were critiqued by the ‘original’ institutional economists. In other words, the new institutional economics fits more closely to what is often described as ‘the economic approach’. But that vastly over-simplifies the picture. There are important exceptions such as Coase. Regarding utility analysis as ‘largely sterile’, Coase (1977, p. 488) wrote: ‘To say that people maximize utility tells us nothing about the purposes for which they engage in economic activity and leaves us without any insight into why people do what they do’. Instead of the assumption of utility maximization, Coase (1984, p. 231) found ‘the assumption that man is a rational utility maximiser … both unnecessary and misleading … in modern institutional economics we should start with real institutions. Let us also start with man as he is’. With his typical wit, Coase (1988, p. 4) remarked: ‘There is no reason to suppose that most human beings are engaged in maximising anything unless it be unhappiness, and even this with incomplete success’. Despite their common focus on transaction costs, Williamson (1975, p. 255) took a different position, emphasized ‘opportunism’ and ‘self-interest seeking with guile’, while also embracing a version of bounded rationality derived from the work of Simon (1957). Accordingly, Williamson modified rather than rejected the rationality assumption, while emphasizing uncertainty and problems of information. Douglass North moved progressively away from mainstream assumptions (Ménard and Shirley 2014). In contrast to Williamson and others, North (1990) eventually embraced the concept of path dependence. Accordingly, a socio-economic system and its entangled institutions can get locked into one of several previously possible paths of development. Individual institutions are unable to search for global efficiency in the entire fitness landscape because they are tied in with other institutions upon which their performance depends. Williamson’s different approach downplayed the context dependence of fitness and efficiency. In contrast, because of context dependence and complementarities, systems can evolve along different tracks (Aoki 2001; Hall and Soskice 2001). Efficiency and fitness are themselves context-dependent concepts.
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Coase criticized Williamson’s version of transaction cost analysis. Coase (1988, pp. 43–44) was ‘sceptical of the asset-specificity argument’ that is central to Williamson’s work. Williamson (1985, p. 184) argued that ‘transaction cost economics’ should address ‘private ordering’ rather than institutions such as courts. Coase (1988, p. 10) thought differently, arguing that ‘the establishment and administration of a private legal system would be very difficult. Those operating in these markets have to depend, therefore, on the legal system of the State’. But in their studies of the firm, Coase and Williamson both sidestepped the legal personality of the firm and the significance of legal incorporation. By contrast, throughout a major volume on the development of modern politico-economic systems, North et al. (2009) gave it major emphasis. They stressed the general role of statutory law and of the legal incorporation of business firms. The development of state-based corporate legislation was, for them, crucial for the development of capitalism. The establishment of corporate legal persons that could outlive their shareholders was both a major means of capital accumulation and a vital source of enduring, countervailing political power (Gindis 2009, 2016; Hodgson 2015; Deakin et al. 2017). Another important name in the ‘new institutional economics’ is Mancur Olson (1965, 1982, 1996). In a number of seminal studies he tackled the problems of collective action and the role of institutions in economic development. In all these cases he emphasized the self-seeking rational individual. Possible altruism and cooperation, emanating perhaps from the reconstitution of individual goals and preferences by circumstances, were neglected. Nevertheless, his theory of institutional sclerosis in macroeconomic systems has received some support from empirical studies (Heckelman 2007). For her pioneering work in institutional analysis, Ostrom (1990) was the first woman to be awarded the Nobel Prize in Economics. Her major study was of common pool resources. Public goods are defined as resources where it is difficult to exclude users and the use of the resource is non-rivalrous, i.e. use does not diminish the resource (Samuelson 1954). Lighthouses are often cited as examples of public goods. (This does not mean that they are necessarily publicly owned.) Similarly, by definition, with common pool resources it is also difficult to exclude other potential users. But in contrast to public goods, with common pool resources the use of the asset is rivalrous: its use can lead to its depletion. The classic example here are the common lands found in medieval England and elsewhere. Contemporary fisheries are other examples. Garret Hardin (1968) depicted a ‘tragedy of the commons’ where open access would lead to depleted outcomes through over-grazing and over-fishing. Against this, Ostrom showed, through detailed study of numerous empirical cases, that communities managing these resources have avoided the tragedy of over depletion. Communities developed rules and enforcement mechanisms to ensure that participants used the resources responsibly. In all her cases, this outcome was achieved through neither central planning nor markets. Contrary to Olson, Williamson and others, she emphasized the importance of trust and cooperation. Other major contributors to the new institutional economics include Daron Acemoglu and his collaborators. Inspired particularly by North’s ideas, they have used sophisticated econometrics to explore the role of institutions in economic development (Acemoglu et al. 2002, 2005; Acemoglu and Robinson 2012). Their work has pushed the frontiers of empirical analysis in this area and much of it has been published in prestigious economic journals. There is no homogeneity in the policy views adopted by new institutional economists. In particular, the reliance on markets varies from case to case. As another
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example, Andrew Schotter (1981, 1985) pioneered the use of game theory in institutional economics. He assumed rational, utility maximizing agents. But he drew the conclusion that the market was an imperfect coordination mechanism. Overall, there is no less variety of policy stances within the new institutional economics than there is in the original tradition. Within both camps, institutional economists disagree on the question of the best amount of state intervention in the economy, and on the optimal extent of market regulation. Neither the original nor new institutional economics can be defined in terms of a particular policy approach. Both original and new institutional economists accept the possible use of mathematics but focus on complex, relational and qualitative phenomena that are often difficult to model mathematically. This means that institutional economics is generally less mathematical than mainstream economics, although some institutional economists now make extensive use of tools such as game theory, agent-based modelling and econometrics. A closer look at both the original and new institutionalisms shows that while they were historically distinctive and products of their times, they have been both highly internally varied and often evolving schools of thought. Importantly, there is some overlap between ideas in the two traditions. Consider Coase’s rejection of utility maximization, North’s challenges to mainstream analysis and Ostrom’s emphasis on the roles of trust and culture. Consequently, the theoretical boundaries between the ‘old’ and the ‘new’ institutional economics have become less distinct (Dequech 2002; Hodgson 2004, 2014b).
4. What is economic sociology? Just as it is impossible to draw a clear line of demarcation between the original and the new institutional economics, it is difficult to find a clear boundary between economic sociology and (the old or new) institutional economics. Doubts have already been raised here about the (insufficiently clear) invocation of sociological methods, concepts or theories to successful demarcate these domains. Even if we ignore the incursions of rational choice approaches within sociology, and use rational choice as the conceptual dividing line, then the work of the original institutional economists, and even parts of the new institutional economics, would end up on the same side of the boundary as economic sociology. What defines economic sociology? A number of economic sociologists have highlighted the role of the concept of embeddedness in economic sociology, as in the classic article by Mark Granovetter (1985). Polanyi is often cited in association with this term. For example, Jens Beckert (2003, p. 769) observed that ‘the notion of embeddedness has served as the crucial counter-concept used by economic sociologists to mark a distinctive approach to the understanding of economic processes’. Similarly (but ultimately more critically), Greta Krippner (2001, p. 775) pointed out that the ‘notion of embeddedness enjoys a privileged – and as of yet, largely unchallenged – position as the central organizing principle of economic sociology’. A problem is that economic sociologists cannot agree on what embeddedness means. Let us start with Polanyi, whose opinions on this matter are more often assumed than consulted. Even close sympathizers have noted some of the conceptual and analytical problems in Polanyi’s work. Gareth Dale (2010, pp. 193, 246) argued that Polanyi’s use of the term embeddedness can appear ‘indistinct, or beset by contradiction’. It ‘tends to drift towards the commonplace that “the economy is embedded in institutions”’. His
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argument concerning ‘how economies are “embedded” in societies … lacks precision’. Fred Block and Margaret Somers (2014, pp. 91, 94) also noted the ‘inconsistencies’ and the ‘ambiguities in his discussion of embeddedness’ in The Great Transformation. The best Polanyi scholars in this area have serious concerns about the meaning of embeddedness. Contrary to an impression gained from many commentators, Polanyi did not use the term embeddedness in The Great Transformation. The word embedded appears only six times in that book. Polanyi (1944, pp. 46, 52, 67, 68) made alternative statements such as the ‘economic system was submerged in general social relations’ and used additional terms such as ‘enmesh’, ‘absorb’ or ‘contain’ to describe the relationship between the ‘economic’ and the ‘social’. But embedded is not a prominent term. Consider the idea of the economic being (dis)embedded in the social. What did Polanyi mean by economic and social? Textual analysis (Hodgson 2017) of The Great Transformation shows that by these words he was referring to different kinds of motivation, where economic was about material gain and social referred to striving for outcomes such as ‘rank … status and security’ within a framework involving reciprocity and redistribution. Hence the picture of an ‘economy being embedded in social relations’ suggests that material production and distribution are entangled with relations and ‘social’ motives such as rank and status. But in a later essay, Polanyi et al. (1957, pp. 243–270) shifted the focus onto the different kinds of institutions that engender the different types of motive. The meanings of economic and social are far too often taken as self-evident. Polanyi’s usage of these terms differs from that of many others. Furthermore, mainstream economists today would claim that there is little problem departing from an exclusive focus on ‘material gain’ and in incorporating such factors as status and culture into their analyses. We may not like the way they do it, but, in their fashion, they can do it nevertheless. It simply means introducing factors such as status and culture into utility functions, as Gary Becker (1996) has exemplified. Becker’s (1981) work, whatever its limitations, also shows that mainstream economists are quite happy departing from ‘the economy’ and addressing ‘social’ issues such as the family. The lack of consensus on the meaning of this crucial word, and consequently on whether institutions such as the family are ‘economic’ or not, has undermined the key concept of ‘embeddedness’ and any role it may have in helping to define economic sociology. Problems with the embeddedness concept are now widely recognized. The leading economic sociologist Neil Fligstein (1996, p. 656) reported that the ‘empirical literature has failed to clarify the precise nature of social embeddedness’. Granovetter himself wrote: ‘I rarely use “embeddedness” any more, because it has become almost meaningless, stretched to mean almost anything, so that it therefore means nothing’ (Krippner et al. 2004, p. 113). Partly because of its dependence on ill-defined terms, the discourse on embeddedness has largely reached an impasse. Another concept that might be held up as a defining concept for economic sociology is network. But, as elaborated elsewhere (Hodgson 2008), this term too has contested meanings. There is also no reason why some kind of network concept cannot be important into economics. Several economists have done this (Kirman 1997; Conlisk et al. 2001; Bowles and Gintis 2004). Fabio Rojas (2006) gave a ‘mixed’ verdict on whether economic sociology can make a distinctive contribution, which is additional to that found in economics itself, to our understanding of business or market phenomena. In sum, if there are defining conceptual and theoretical components of ‘economic sociology’, then it is not clear what they are, and leading contenders have proved both controversial and problematic.
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While a clear and well-defined boundary between economic sociology and economics is lacking, there are evident differences of emphasis and approach. There is a consistent emphasis in economic sociology on the importance of cognitive processes or beliefs, including the study of the meanings that agents attribute to actions and outcomes. Economic sociologists argue that it is important to study the formation of individual preferences and the cultural and institutional contexts of rational deliberation. These are very important points, often expressed with force and sophistication. But while mainstream economics lacks some of these insights, the original institutional economics also emphasized the importance of cognition and the way that culture and institutions shape individual beliefs. Cognitive issues, and concepts such as identity, are now discussed in mainstream economics as well. Much could be gained by interdisciplinary dialogue in these areas.
5. Conclusion I have raised these problems of defining the boundaries between economics and sociology before (Hodgson 2008). No-one has applauded me for raising the difficulty. I can understand that people feel relatively comfortable within their disciplinary locations. Academic incentive structures are largely confined to disciplines, even when these disciplines have difficulty defining their boundaries. Interdisciplinary dialogue is rare in the prestigious journals in economics and sociology. Courses and departments are organized along disciplinary lines. Academic promotion and mobility largely depend on progress within a discipline, typically assessed by disciplinary peers. For all the wishful talk of interdisciplinarity in universities today, the separate disciplines still pull the strings. To a degree, this makes sense. The great polymath Donald T. Campbell (1969) wrote of the ‘ethnocentrism of disciplines’ and the tyranny they uphold over the sciences. But Campbell was also aware that interdisciplinarity was an elusive goal and, when attempted, it often results in shallowness. Interdisciplinary talk is cheap. Specialization is essential to scientific progress. Abandoning it would be fatal. But at the same time, links between otherwise disconnected areas of enquiry have often led to major innovation in science. Disciplinary boundaries can stultify advance. They have led cases where different groups of researchers address the same objects of analysis, often with related research questions, but are unaware of each other’s efforts and findings. Key terms used to describe particular phenomena can be different. Common terms can have contrasting meanings. For these and other reasons, David Colander (2014) has pushed the idea of a ‘transdisciplinary social science’, where blending takes place between different departments in the social sciences and undergraduate courses are organized on interdisciplinary lines. The shared emphasis on institutions within economic sociology, organizational sociology and the new and original institutional economics provide bridging concepts and a common object of analysis in the real world. Institutions are the stuff of social and economic life. Accordingly, the study of the role of institutions in the economy is likely to remain a central topic in the social sciences. In modern economies, the question of institutional design is of major importance. It impacts on government policy and it is vital in the development of business organizations. At least on the question of institutions, there is much to be gained by greater interdisciplinary conversation between economics and sociology.
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108 Geoffrey M. Hodgson Rutherford, M. H. 2001. Institutional economics: Then and now. Journal of Economic Perspectives, 15(3), pp. 173–194. Rutherford, M. H. 2011. The Institutionalist Movement in American Economics, 1918–1947: Science and Social Control. Cambridge and New York: Cambridge University Press. Samuels, W. J. 1989. The legal-economic nexus. George Washington Law Review, 57(6), pp. 1556–1578. Samuelson, P. A. 1954. The pure theory of public expenditure. Review of Economics and Statistics, 36(4), pp. 387–389. Schotter, A. R. 1981. The Economic Theory of Social Institutions. Cambridge: Cambridge University Press. Schotter, A. R. 1985. Free Market Economics: A Critical Appraisal. New York: St. Martin’s Press. Scott, W. R. 1995. Institutions and Organizations. Thousand Oaks, CA and London, UK: Sage. Scott, W. R. and Meyer, J. W. (eds.) 1994. Institutional Environments and Organizations: Structural Complexity and Individualism. Thousand Oaks, CA and London, UK: Sage. Sen, A. K. 1977. Rational fools: A critique of the behavioral foundations of economic theory. Philosophy and Public Affairs, 6(4), pp. 317–344. Simon, H. A. 1957. Models of Man: Social and Rational. Mathematical Essays on Rational Human Behavior in a Social Setting. New York: Wiley. Simon, H. A. 1979. Rational decision making in business organizations. American Economic Review, 69(4), pp. 493–513. Smith, V. L. 2013. Adam Smith: From propriety and sentiments to property and wealth. Forum for Social Economics, 42(4), pp. 283–97. Swedberg, R. 1991. Major traditions in economic sociology. Annual Review of Sociology, 17, pp. 251–76. Swedberg, R. (ed.) 2005. New Developments in Economic Sociology, 2 vols. Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Veblen, T. B. 1898. Why is economics not an evolutionary science? Quarterly Journal of Economics, 12(3), pp. 373–397. Veblen, T. B. 1899. The Theory of the Leisure Class: An Economic Study in the Evolution of Institutions. New York: Macmillan. Veblen, T. B. 1907. The socialist economics of Karl Marx and his followers ii: The later Marxism. Quarterly Journal of Economics, 21(1), pp. 299–322. Veblen, T. B. 1909. The limitations of marginal utility. Journal of Political Economy, 17(9), pp. 620–636. Williamson, O. E. 1975. Markets and Hierarchies: Analysis and Anti-Trust Implications: A Study in the Economics of Internal Organization. New York: Free Press. Williamson, O. E. 1985. The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting. London: Macmillan. Zafirovski, M. 1999. Economic sociology in retrospect and prospect: In search of its identity within economics and sociology. American Journal of Economics and Sociology, 58(4), pp. 583–627. Zelizer, V. 1991. Economic sociology. In N. J. Smelser and P. B. Bates (eds.) International Encyclopedia of the Social and Behavioral Sciences, vol. 6. Amsterdam and New York: Elsevier, 4128–4132. Zelizer, V. 1997. The Social Meaning of Money: Pin Money, Paychecks, Poor Relief, and Other Currencies. Princeton, NJ: Princeton University Press.
5 Marxism or economic sociology David Fasenfest
Introduction Why Marxism or Economic Sociology and not Marxist Economic Sociology? Simply stated, the writing of Karl Marx is an attempt both to critique the existing analyses of capitalism and offer an alternative dialectic in opposition to that which capitalism imposes on any understanding of how that system works. To put it another way, Marxism challenges the system, while economic sociology accepts the universality of market capitalism. Why should we be concerned about how market capitalism operates? Simply put, as Cleaver points out, the capitalist world controls the resources and tools needed to “produce what we need to live (2017: 2)” and in that way has the power to force everyone to work. It is this power that requires that we do more than rationalize the existing structure following Economic Sociology; we must recognize how the system operates, we must acknowledge that the system is a social construct, and to do that we must turn to the only coherent analysis of market capitalism—Marxism. Economic sociology evolved at the end of the 20th Century as an attempt to make sense of the social aspects that confound purely economic understandings of how that system operates. To that end, economic sociology is a study of disequilibrium (as argued by Calnitsky, 2014), while neoclassical economics is a study of equilibrium. In both, the focus is on how the system is stable and what disrupts the system. Therefore, for Calnitsky (2014: 566) economic sociology predicts that “the more ‘society’, the more markets do not clear” and embeddedness is an independent variable that causes this disequilibrium. By contrast, Marxism is predicated on the understanding that disruption, crisis, and inequality are central to how the capitalist system operates, and it is characterized by the search for remedies to promote a more equitable and just economy and society. While classical and neoclassical economists puzzle over how the system operates to derive so-called laws of motion, all the while assuming its historical dominance in providing for growth, economic sociologists can be divided into those studying either markets or consumption, that is, studying how the material conditions of capitalism are reproduced through social processes (Fligstein and Dioun, 2015). It is not the purpose of this essay to offer a detailed analysis of economic sociology. Rather, it is to show that economic sociology is focused on understanding the capitalist market economy after declaring it the best form of economic rationality. By contrast, following Marx is an approach that sees the capitalist market economy as the result of a particular historical process, posits that it is just one type of social economy, and points to how the system operates to produce inequality and negative outcomes.1 For the former, the operational question is how the system produces positive benefits and what can create
DOI: 10.4324/9780367817152-6
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disequilibrium in the system, while for the latter negative outcomes are the result of the normal operation of market capitalism with the goal to construct an alternative mode of production. At the end of the day, these are incompatible approaches to understanding the contemporary political economy.
Economic sociology: an overview and critique Most accounts of the development and rebirth of economic sociology over the past four decades (what many refer to as New Economic Sociology) begin with the publication of White (1981) about markets, and of Granovetter (1985) and later Krippner (2001) on embeddedness.2 As the field began to gel, Swedberg (1991: 258–266) rightly points to a long tradition of prior research on markets, firms, and the economy by both sociologists and other scholars located in Germany, France, and the US. These works prepared the groundwork for what Swedberg referred to as a revival of the field. Fligstein (2015) provides the reader with a detailed roadmap for the establishment of economic sociology as a major force in sociological research. Likening its development to a social movement, Fligstein recounts in some detail how it coalesced as an international field of study around the Society for the Advancement of Socio Economics (SASE), the Economic Sociology Section of the American Sociological Association, and the European Economic Sociology Newsletter of the European Sociological Association. At this juncture, before reviewing the main foci of economic sociology, it is worth considering how the works of Marx and Weber inform the different analytical paths taken to our understanding of the relationship between economy and society. While Marx sought to understand how market capitalism operates and to locate its origins in specific historical circumstances, Weber presented a model of rational organization of society merging the development of capitalism with a modernist project of developmentalism and social evolution. For Marx, the logic of capitalist development was central to the formation of political, institutional, and cultural structures that simultaneously manifested and reproduced social relations within capitalism. Weber, on the other hand, posited a natural evolution of the efficiency of political, social, and economic forces that represented higher stages of development.3 Where Marx allowed for different paths to the present and offered arguments for a better future, Weber presented a path to the development of society that would be a model for all modernizing states. One example can be found on how each saw the relationship between workers and employers. For Marx, capitalism was a system whereby the productivity of labor was appropriated in the form of surplus extraction, enabled by the various legal and social systems that alienated workers. Unless workers organized in opposition to capital, they would never be able to improve their position. By contrast, Weber saw the efficient operation of capitalist firms as the best guarantee of maximum profits and encouraged workers to rely on their role in a rational economic system to ensure fair wages that would result in their sharing in the fruits of their labor. To overgeneralize, for Marx capitalism was a system that, while creating more wealth, did so by exploiting the labor of others to concentrate and appropriate that wealth. For Weber capitalism was the culmination of ever more efficient uses of resources organized around well-managed operations guided by rational decisions. Crisis was endogenous for Marx, a necessary outcome of capitalism as a system, while for Weber crisis was exogenous, caused by irrational decisions and unexplained or unanticipated shocks.4
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In this way, Weber’s work was a direct challenge to Marx’s writing. Whereas a Marxian approach seeks to uncover systemic problems and propose a more egalitarian and utopian transformation, economic sociology seeks answers to an understanding of the social forces at work that both enhance and interrupt the market economy as a model for all societies as they develop.5 The basic premise is that economic sociology emerged because of a general failure of Marxism (as well as a shift in sociological theorizing). According to Fligstein, the …opportunity that produced economic sociology was the collapse of Parsonian theory, and, to some degree, the failure of Marxism in the 1970s…The collapse [of Parsonian theory] provided a legitimate opening for a re-entry of sociologists into the realm of markets. Marxism failed to generate a theory of the economy that matched the dynamism of capitalism and the myriad ways that it came to produce wealth, income, rules and to control social conflict. (Fligstein 2015: 304) At the same time, traditional economics as a field ignored the importance of social structures and relationships that were essential to the way markets particularly and the economy more generally operated. Swedberg (1991: 253–257) carefully recounts the ways classical economists considered both historical and institutional factors to understand the operation of the economy but notes that neoclassical economists lost sight of social forces, in large part because “there was practically no communication between economists and sociologists after the triumph of neoclassical theory (257)” over historical and institutional forms of economic analyses in the latter part of the 20th Century. Richard Swedberg has tried to systematize our understanding of economic sociology as a field of study by laying out various versions of its substantive interests. In his Principles of Economic Sociology (2003), after first providing his list of the major classical and contemporary works in the field,6 he offers an inventory of what he considers to be the key elements of research about economic life: firms, markets, consumption, politics, law and culture, and gender. He outlines both macro and micro concerns and in that way connects economic analysis and sociological perspectives. But to successfully contrast economic sociology with a Marxist approach, it is useful to follow Swedberg’s framing in his outline of the analysis of capitalism (2005). He begins by claiming “Capitalism is the dominant economic system in today’s world, and it is likely to remain so for quite some time. Socialism, its main competitor, has been weakened immeasurably by the collapse of the Soviet Union (Swedberg 2005: 420).” Implicit is the question whether Marxism as we know it is one of many fields within Economic Sociology, or separate and outside posing a direct challenge by rejecting the underlying rationale of Economic Sociology that assess the social (i.e., sociological) dimensions of market capitalism. In Fligstein’s framing, economic sociology investigates “the role of social relationships in market structures (emphasis added, Fligstein, 2015: 314),” whereas for Marx the key is to understand the nature of social relations within market capitalism and how they operate. The distinction between social relationships and social relations makes a difference, for example …in understanding capitalist crises, a focus on social relationships might examine the degree to which financial markets were deregulated, allowing for various kinds
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of manipulative market relationships that expanded the bargaining power of particular financial actors or generated collusive in-group relationships. By contrast, taking seriously the analysis of the social relations of capitalism might direct attention to the underlying and long-term requirements for profitable returns to investment that, when unevenly satisfied, make market level shocks more likely and more destructive. This can play out in terms of the long-term declines in investment opportunities that place the growth of finance as one of a limited set of outlets for a growing surplus…(or) on the unintended consequences of the pressures to remain profitable in the context of internationalized competition. (Calnitsky 2014: 580–581)7 Economic sociology starts with the basic assumption that market capitalism is an economic process where the exchange mechanism of the market lies between a society’s productive capacities and the consumption of those products, a mechanism that creates profits through the market’s operations. Swedberg lays out the basics of economic sociology that sets “capitalism as its center (2005: 424)” in the role of distribution, and for this function to proceed successfully there must be a fundamental establishment of private property. A transition from collective to private property allows the owners of that property to imagine individual gains and encourages engagement in the market for the product of their efforts.8 In other words, “(o)nce private property exists, exchange becomes possible (2005: 427).” At this point, he asserts that money is the best medium of that exchange.9 The sociology of distribution is followed by sociology of production; economic sociology is an analytic frame predicated on the knowledge that “all production involves social coordination—a sociological element (430).” The ensuing elaboration follows traditional neoclassical views on production as functions of the key factors of labor, capital, and technology. Each has both economic and sociological dimensions, and it is the economic sociologist’s task to explore how social institutions and practices shape each factor. Key to economic sociology as distinct from the economic analysis is the addition of organization as a factor, one which lies at the heart of profit-making activities. It is sociologists who have developed “conceptual tools that can be used to analyze the way that the factors of production come together (436)” to enable firms to make profits. This is followed by descriptions of the sociology of consumption and of profits, each demonstrating how neoclassical economic and economic sociology can overlap in any analysis of how market capitalism operates. Finally, significant contributions to understanding capitalism are gained when economic sociologists investigate the role of laws, politics, and culture. It is the role of economic sociologists to place social relationships and an understanding of “what drives social actions, namely interests (444)” at the very center of an analysis of capitalism as the dominant economic system. These additional considerations do not differ from a Marxian approach, with one key difference. For economic sociology these are exogenous factors that emerge out of different logics, whereas for Marx these are endogenous aspects and manifestations of market capitalism that define system-specific social relations. It is precisely the rejection of Marx and the belief that capitalism is the source of all social wealth and prosperity that marries economic sociology and neoclassical economics. There is a conflation of Marxism with the Soviet Union, in this way arguing Marxism did not account for the failure of so-called communist states in creating just and fair societies. But where is the critical edge to a basic understanding that capitalism
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does not just fail to create a just and fair society but in fact, as Marx argues, capitalism’s operating logic demands that outcomes are unfair and unjust?
What distinguishes Marx’s approach to the study of society? Marx studies capitalist society through an analysis that encompasses the economy, state, culture, and ecological transformation by applying dialectical materialism. Marx’s historical materialism is about the production and reproduction of people who have material needs, of the material conditions of production encompassing spatial organization, environmental considerations, technological advances, and of the means of subsistence determined through an interaction with nature under given social relations of production. Key for Marx are: (1) the materiality of society; (2) that objects and individuals comprise an ensemble of multiple social relations; (3) there is a systemic and totalizing social character; and (4) that social change occurs through the emergence of internal contradictions. Marx makes use of abstraction, separating what is essential from what is accidental, His analysis of capitalism departs from one vantage point abstracting from other vantage points, then adjusting the scope of each concept on multiple levels of generality of society, of class history, and of capitalism as a system in the abstract. At the same time, Marx focuses on capitalism as it operates in a particular time and place (see Ollman, 2003). To put it another way, Marx shifts the focus from a single Archimedean point that offers a particular view of socio-economic processes, to a more general approach that allows for multiple perspectives (many points) with each giving another (and deeper) appreciation of political economy.10 This, in turn, offers more Archimedean levers from which one uncovers the workings of market capitalism in its economic, political, and social manifestations. As a result, Marx’s dialectical-materialist perspective allows one to see capitalist society in terms of its various contradictions. Marx emphasizes that categories and hypotheses derived from Western Europe are not to be simply transferred to other societies: Thus, events strikingly analogous but taking place in different historic surroundings led to totally different results. By studying each of these forms of evolution separately and then comparing them one can easily find the clue to this phenomenon, but one will never arrive there by the universal passport of a general historicophilosophical theory, the supreme virtue of which consists in being super-historical. (Marx, 1877) However, that does not mean that one cannot make scientific generalizations based on abstraction about the underlying mechanisms that operate widely within market capitalism: if capitalism is to become a dominant economic system, then separating direct producers from control over the means of production on a large scale is a necessary precondition. For example, what Marx writes about Russia, a relatively less developed country from the perspective of 19th-century England, applies to all other countries at comparable levels of the development of productive forces in society: If Russia is tending to become a capitalist nation after the example of the Western European countries, and during the last years she has been taking a lot of trouble in this direction – she will not succeed without having first transformed a good
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part of her peasants into proletarians; and after that, once taken to the bosom of the capitalist regime, she will experience its pitiless laws like other profane peoples. (Marx, 1877) Clearly, the transition to market capitalism is a historical process contingent on both the level of development and the constellation of political and social forces in place at each era. This is the only way to understand how the development of market capitalist societies varies, both regarding the timing of this transformation and specifically the economic, social, or political formation which may emerge as a result.11 There is not, as presented, a single “best” system of market capitalism evolving over time. Economic sociologists are generally silent when trying to understand why there are many forms of Western market capitalism.12 Human beings, as a part of nature, have material needs (for food, shelter, clothing, etc.) as well as cultural needs, and to satisfy those needs humans must interact with nature and with one another. People combine their labor with the means of production found in nature in the first instance, subject to existing social relations of production. As productive forces develop a surplus is produced creating the potential for struggles over the control and distribution of that surplus. How those struggles are resolved and who ends up with control evolves over time. Wherever a part of society possesses the monopoly of the means of production, the worker, free or unfree, must add to the labor time necessary for his own maintenance an extra quantity of labor-time in order to produce the means of subsistence for the owner of the means of production, whether this proprietor be … a slave owner … or a modern landlord or a capitalist (Marx, 1977: 344) The mode of production simply stated the way we produce our livelihoods, and conditions our social, political, and intellectual life. Once again in Marx: …each particular mode of production and the social relations corresponding to it at each given moment, in short, ‘the economic structure of society’, is ‘the real foundation on which arises the juridical and political superstructure and to which correspond definite forms of social consciousness’ … ‘[T]he mode of production of material life conditions the general process of social, political, and intellectual life’ … [T]he middle ages could not live on Catholicism, nor the ancient world on politics’. (Marx, 1977: 175–176) Human society has evolved through various forms of class society (slavery, feudalism, capitalism). Capitalism, as a historical epoch and in its varied forms, creates new forms of control and mechanisms of surplus allocation. As economic sociologists rightly point out, in market capitalism most things are produced for the market and so they become commodities. However, markets are not unique to capitalism, and in precapitalist societies commodities may circulate mainly to satisfy needs. What distinguishes capitalism is a focus on most production as commodities destined for the market (the exchange function Swedberg identifies). Individuals invest money to produce commodities with the goal to make more money through the market exchange mechanism,
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thereby yielding profits (itself, Marx argues, is the appropriated share of social surplus), which is a defining characteristic of market capitalism.13 For economic sociologists this economic system, mediated by social processes, is the culmination of social evolution. Market capitalism is necessarily embedded in social relations and, unlike neoclassical economists for whom non-market forces are incidental to the workings of a competitive market, economic sociologists seek to understand how social systems influence and facilitate market capitalism. For Marxists, the equation is reversed, and social systems are derived from the existing constellation of the capitalist mode of production insofar as they serve to reproduce and constrain that dominant mode. It is through this tension that productive systems undergo a transformation and therefore market capitalism is neither pre-determined as the best outcome of socio-economic development nor necessarily the endpoint of that development. Marx’s general analysis of capitalist development provides a complex set of changes that transform society: commodification of products and labor, preand non-capitalist relations slowly and unevenly being supplanted by capitalist-market relations, dispossession of the means of production from direct producers, exploitation of laborers, periodic crises, the tendency of workers and peasants to rise in revolt, and so on. When direct producers are subjected to primitive accumulation, i.e., when they are coercively dispossessed of their means of production (or means of livelihood through their employment) then they must work for capitalists for a wage. This results in workers’ exploitation which benefits capitalists, and in an expansion of wealth in its capitalist form. As Marx points out in Capital, the fact that half a day’s labor is necessary to keep the laborer alive for 24 hours does not in any way prevent him or her from working a whole day for the capitalist. Market capitalism is a system that is the result of many competing historical influences taking many possible forms, not a system that represents some highest state of economic activity. For Economic Sociologists, market capitalism is the end-product of a careful march to maximize society’s productive forces and negative outcomes arise because of dysfunctional interventions. For Marxists, negative outcomes are the natural result of an oppressive system of production that takes many forms over time and is not necessarily the only or even the last stage of socio-economic development.
A Marxian analysis of the global South By assigning market capitalism as the pinnacle of development, the analysis of conditions in the Global South14 takes a predictable course. Inequality internationally is often seen either as a failure of self-interest (a cultural deficit when collective goals are not supplanted by private interests), or a result of an inability to capitalize on diminishing returns of efficient production (because of the persistence of so-called traditional values). These reflect dominant positions found in neo-classical economics and inform underlying arguments, if they are made at all, in economic development literature.15 Economic sociology does not readily focus on more than how market capitalism operates within a nation (that is, within a narrowly defined social, political, and economic framework). A Marxist approach considers market capitalism as a complex and ultimately international system with contradictory and interrelated processes. For Marx, commodity production under capitalist social relations results in first, concentration and centralization of productive forces in fewer hands (and fewer areas),
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and second, a constant tendency toward investment in the means of production relative to an investment in wages, causing a long-term fall in the rate of profit (see Roberts, 2016). The results are economic crisis, the expansion of a reserve army of unemployed and underemployed resulting in their immiseration in absolute and relative terms, rising inequality between workers and owners, the proletarianization of independent commodity producers, and concentration and centralization of productive forces. These factors combine in advanced countries toward a drive for a spatial fix (the export of capital), setting up pressure toward inter-imperialist rivalry and imperialist control over relatively less developed parts of the world. In addition, there were massive adverse impacts on nature and human bodies (unsafe working conditions), as well as alienation. The capitalist state’s fundamental role is to protect the property rights of capitalists and to ensure general conditions for profit-making at home and abroad.16 Marx’s general analysis of capitalist development provides a complex set of social changes: commodification, pre- and non-capitalist relations slowly and unevenly being supplanted by capitalist-market relations, dispossession, exploitation, periodic crises, the tendency of workers and peasants to rise in revolt, and so on. Marx’s approach to capitalism was basically global or internationalist. World commerce was the presupposition of capitalism: “The production of commodities, their circulation, and that more developed form of their circulation called commerce [trade], these form the historical ground-work from which it rises (Marx, 1977: 247).” Capitalism dates from the 16th century with its world-embracing commerce and market (Wallerstein, 1974). The world geography of trade is a precondition for the emergence of capitalism as a dominant mode of production, one that is a global phenomenon today. For Marx, the development of capitalism in its heartland was crucially dependent on the interaction with the imperial colonies, with the emerging international division of labor, and with the drain on the colonial surplus being produced: The discovery of gold and silver in America, the extirpation, enslavement and entombment in mines of the aboriginal population, the beginning of the conquest and looting of the East Indies, the turning of Africa into a warren for the commercial hunting of black-skins, signalised the rosy dawn of the era of capitalist production. These idyllic proceedings are the chief momenta of primitive accumulation. On their heels treads the commercial war of the European nations, with the globe for a theatre (Marx, 1977: Chapter 31) The development of European capitalism depended on conquest, genocide, and slavery in the Global South; surplus from colonies, in the context of already-existing capitallabor relations, was converted into capital, and this capital was invested in both industry in England and in agriculture in Scotland (Byres, 2007). By ruining handicraft production in other countries, machinery forcibly converts them into fields for the supply of its raw material. In this way East India was compelled to produce cotton, wool, hemp, jute, and indigo for Great Britain…. A new and international division of labor, a division suited to the requirements of the chief centers of modern industry springs up, and converts one part of the globe into a chiefly agricultural field of production, for supplying the other part which remains a chiefly industrial field. (Ghosh, 1984)
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Imperialism, through exploitation and appropriation, deprived the colonies of their ability to produce and utilize the economic surplus for their own purposes and thereby blocks the economic development of the type that occurred in Europe. …competitive accumulation produces uneven and combined development as it tends to concentrate high-value added production and capital in the system’s most competitive centres, determining a forced specialisation of dependent countries in low-value added sectors, repatriating profits extracted in these countries, and leading to forms of unequal exchange between nations with different productivity levels. (Pradella, 2017: 156) Compared to his earlier analysis, Marx later recognizes that the destruction of the old order by colonialism and free trade does not necessarily lay the material foundation of a new order (Kalmring and Nowak, 2017: 335). Marx identifies external rather than internal causes of delayed or altogether thwarted industrial–capitalist development. Most anti-colonial movements in the Global South were inspired by Marx’s writings (Eagleton, 2011) supporting freedom of movement in colonies like India and Ireland. Marx writes in his Preface to A Contribution to the Critique of Political Economy: At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an era of social revolution. The changes in the economic foundation lead sooner or later to the transformation of the whole immense superstructure…. No social order is ever destroyed before all the productive forces for which it is sufficient have been developed, and new superior relations of production never replace older ones before the material conditions for their existence have matured within the framework of the old society. (Marx 2014: 12) So, what relevance does Marx’s theory of social transformation have for an analysis of the Global South? This can be better appreciated if he is seen as a theorist of both capitalism and of class relations sui generis, and not just as a theorist of capitalism. Once one emphasizes the class character of society, one can see that a given country will have multiple forms of class relations, including capitalism and pre- and non-capitalist relations, and multiple forms of capitalism itself as a class society. In this light, one can make several claims about the way to apply Marx’s conceptual framing to examine the Global South.17 What follows is a set of concepts that both inform and outline a framework for an analysis of developing countries faced with global market capitalism. Multiple class relations Countries of the Global South are not to be merely the location with less income and more absolute poverty. They are fundamentally former colonies now composed of various classes’ interests reflecting former colonial realities, pre-capitalist formations, and emerging capitalist classes. They are sites of aborted or incomplete revolutions against
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the colonial propertied classes, fragmented democratic and agrarian revolutions against feudal relations, and at times aborted or failed revolutions against the interests of international capitalism. The Global South is deeply impacted by imperialism and the capitalism that emerges coexists within a social formation that may contain remnants of prior feudal relationships, experience commodity production other than with wage-labor, and operate according to indigenous-collective traditions; that market capitalism is not like any in advanced countries. Marx’s Tribune articles on India offer “a hint of a broader perspective within which Capital, and the perspective surrounding Capital, has got to be located” (p. lvi), and these articles offer “a perception of capitalism, as existing not in isolation but in the midst of pre-capitalist formations which it dominates and moulds to its own requirements (p. lviii) (Patnaik quoted in Byres, 2007).” Primitive accumulation Marx paid more attention to politically enforced dispossession (primitive accumulation) separating workers from the means of production, less so over class differentiation in a commodity-producing society, by drawing attention to commodity owners going out of business due to concentration and centralization. In the Global South, small-scale farmers are subjected to class differentiation, even as that process may be mediated by government policies providing help to peasants. In many cases, the value of the property peasants own is nominal given their debt levels. For Marx, primitive accumulation was an international process both for the early transition to capitalism and at the same time in colonies subject to imperial control. Direct producers with access to and control over the means of production were a barrier to capitalist development, not only in Europe but also in colonies where producers are owners of their conditions of labor. Colonial capitalists, with the support of capitalists in the home country, struggled with this contradiction of the competing economic systems. Marx conceptualized colonialism and imperialism as constitutive elements of the development of capitalism. Understanding the tensions in society through primitive accumulation helps us understand the contemporary Global South, where small-scale producers are in the process of being dispossessed. Economic and extra-economic coercion Market capitalism employs a combination of economic and extra-economic coercion of direct producers. Once direct producers have been separated from the means of production economic mechanisms of exploitation are usually sufficient to effect compliance, although extra-economic mechanisms are used from time to time. In the early stages of capitalist development, extra-economic coercion, like slavery, played a crucial role. Slavery is an economic category like any other. Thus, it also has its two sides. Let us leave alone the bad side and talk about the good side of slavery. Needless to say, we are dealing only with direct slavery, with Negro slavery in Surinam, in Brazil, in the Southern States of North America…Direct slavery is just as much the pivot of bourgeois industry as machinery, credits, etc. Without slavery you have no cotton; without cotton you have no modern industry. It is slavery that gave the colonies
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their value; it is the colonies that created world trade, and it is world trade that is the precondition of large-scale industry. Thus, slavery is an economic category of the greatest importance’ (Marx, 1847) Slavery did not just happen at that time but continues in many forms in the Global South. Capital can make free labor unfree18 to discipline labor (directly or by example), and in that way the imposition of unfreedom is a form of class struggle from above (Brass, 2011; Das, 2017). Global character of capital-labor relation While Marx’s theory of capital-labor relation appears to operate in a closed system, that it is more about industrial capitalism than about market capitalism more generally, it is a theory of capitalism more broadly and can be applied globally. The capitalist and the working classes are increasingly world-classes, and both the laws of competition or value ultimately and freely operate at the global scale, mediated by national and regional processes. Marx conceptualizes the antagonism between wage-labor and capital as a global tendency, encompassing and reproducing relations of colonial and imperialist exploitation and oppression (Pradella, 2017: 156). His general law of capitalist accumulation (chapter 25 of Capital Vol 1) is applicable to the world-stage and can be used to understand the Global South as market capitalism becomes a global reality. In his Manifesto Marx and Engels (1948) make the point that capital must nestle everywhere, settle everywhere, and establish connections everywhere, with consequences for the Global South and its relationship with the North. Capitalists from advanced countries increasingly shift production to the regions of the Global South to take advantage of the global immobility of labor, and the subsistence (or below-subsistence) wages and despotic/authoritarian working conditions that exist in these regions. The result is a super-exploited working class and generating super-profits for businesses that flow from these less developed to advanced economies. Low-cost imports protect the value of the hegemonic currency, and thus the financial assets of the capitalist class (Patnaik and Patnaik, 2015). Marx’s reserve army has become a global reserve army, forcing income deflation on the world’s workers in all regions as workers are increasingly subjected to neoliberal ‘labor market flexibility’ (Foster et al, 2011). Super-exploitation of workers in the Global South results in low wages and precarity everywhere, and the threat to move jobs to the Global South has disciplinary effects on workers in the North. Marx’s idea of the latent reserve army of migrant labor from poor countries generates conflict within the working class nationally and internationally ( Jonna and Foster, 2016). For Marx, the reserve army or the “surplus population becomes … the lever of capitalistic accumulation, nay, a condition of existence of the capitalist mode of production’, and it ‘belongs to capital quite as absolutely as if the latter had bred it at its own cost (Marx, 1977 in Capital Vol 1).” In the late 1840s, Marx was writing when most of the world’s population worked as small-scale agrarian producers. Today, with the spread of capitalist market relations, most people live by selling their labor power in almost every region of the world. With the rise in total global investment (that is, the expansion in accumulation), there is an increase in capital at one pole and an increase in the proletariat at another pole. In 2016, 180 million Indian workers participated in what is perhaps the largest strike in human
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history. The working class is a far larger sector of the population with far more power partly because of the expansion of the working class in the Global South. Instability and inequality Marx outlines “the tendency of capitalist society to expand, polarize, destabilize, and destroy. These words seem to be drawn from current world experience” (Laibman 2013). Capitalism is not only crisis-prone, but increasingly and at an accelerating pace it is also creating inequality. “With the crisis of 2007–2008, for the first time in recent experience, the two understandings—of capitalism’s effects on economic stability, and of its shaping of the distribution of wealth and power—came together” (Laibman, 2013: 451). Economic crisis emanating in the North affects the Global South (including opportunities for exports from the Global South to the North). When there is a crisis of profitability, advanced capitalism seeks to make use of cheap labor and resources in the Global South to counter such a crisis. Not only is inequality increasing between the poorest and richest countries, but also is it increasing within fast-growing lower-income countries (so-called emerging economies as well as ex-socialist countries). The inequality between countries of the North and Global South, for example, inequalities between businesses of the North and workers and peasants of the Global South, reflects Marx when he states that wealth is in one pole and misery is in another. We now have an integrated world capitalist system, with a global rich and global poor—as Marx predicted. The proliferation of sweatshops and export processing zones are all very much in keeping with Marx’s anticipation of global inequality. Super-exploitation Marx’s view of capitalism as generalized commodity production assumes that all labor is wage-labor, although he makes a distinction between forms of circulation and different forms of property (property based on own labor, and property based on the appropriation of surplus labor from workers). But in the Global South, peasant labor is widely prevalent, coexists with wage-labor, and is integrated into the capitalist exchange, financial relations (usury), and mercantile relations. Some peasants produce for the market and provide cheap wage-labor. Others are paid only for the product of their labor; these products enter the world market at very low prices providing cheap raw materials to be processed and then resold at much higher prices. Marx assumes that wages cover the cost of reproduction of labor power (value of labor power) but he says that for millions of people, wages fall below the value of labor power: Thus, the cost of production of simple labour-power amounts to the cost of the existence and propagation of the worker. The price of this cost of existence and propagation constitutes wages. The wages thus determined are called the minimum of wages. This minimum wage, like the determination of the price of commodities in general by cost of production, does not hold good for the single individual, but only for the race. Individual workers, indeed, millions of workers, do not receive enough to be able to exist and to propagate themselves; but the wages of the whole working class adjust themselves, within the limits of their fluctuations, to this minimum. (Marx, 1977: 27)
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It is the over-supply of labor relative to demand, including that caused by the reserve army of labor produced through technical change. Given the massive and expanding reserve army of labor in the Global South, millions of people work in absolute poverty, and millions more are working poor working under conditions often best referred to as unfree labor.19 Imperialism and underdevelopment For Marx, capitalism is a class relation and exists at multiple scales (city, region, nation, globally). Capitalism seen globally is imperialism, which signifies the exploitation of workers and peasants in the imperialized countries by the businesses of advanced countries, reinforced by national (and racial) oppression. Low-cost access to former colony land and resources and to its workers becomes a means of competitive advantage for capitalists of advanced. Imperialized countries also become dumping grounds for surplus products and over-accumulated capital (not to speak of pollutants and wastes) from imperialist countries and are subjected to exploitation in the sphere of financial capital (e.g., trade; debt; speculative capital). In the Manifesto, Marx and Engels (1948: 4) write: The bourgeoisie cannot exist without constantly revolutionising the instruments of production, and thereby the relations of production, and with them the whole relations of society. … Constant revolutionising of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguishes the bourgeois epoch from all earlier ones. Following primitive accumulation, capitalism evolves in two stages, as Marx discusses in Capital Vol 1. In the first stage (formal subsumption of labor), capital appropriates surplus value in its absolute form, based on long hours and low real wages. In response to the struggle against long hours, capital resorts to labor-saving technical change making workers produce more value for every unit of time, thus appropriating surplus value in its relative form (Marx calls this real subsumption of labor). The transition from formal to real subsumption does not take place spontaneously. England took almost 200 years for the transition to take place, a transition that was mediated by class struggle. Given the massive reserve army in the Global South, partly created by imperialism, the struggle against formal subsumption is not effective enough to enact real subsumption. The on-going drain of surplus (via unequal exchange) deprives the Global South of the capital needed for investment in machinery and improved raw materials. In other words, and in terms of Marx’s own theory in Capital, the South is a site of blocked transition from formal to real subsumption. The result is a backward form of capitalism and so the Global South suffers not only from market capitalism on a global scale, but also from its incomplete development.
Conclusion Economic Sociology and a Marxist analysis of the political economy diverge based on some primary operating assumptions. The former holds that market capitalism is the best and most rational economic system to have evolved, and the task for sociologists is to understand how market capitalism operates within the context of social relationships. Thus, inequality, inefficiency, and general disruptions of market capitalism can
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be attributed to exogenous forces, whether they are public policy, cultural legacies, or other factors outside the control of markets. A Marxist analysis is predicated on an understanding that market capitalism is the product of a historical process, operating on different levels reflecting social relations based on local historical circumstances, and for which its operation is characterized by internal contradictions necessarily producing negative outcomes. The application of a Marxian perspective invites the analysis of capitalism globally, for countries at different stages of development, with a range of possible pathways forward. For example, reflecting on the environmental consequences of the transformation from collective to private property under market capitalism, Satgar (2022) calls for the return to the idea of the commons to craft a democratic eco-socialism as the way forward. There is a truism oft repeated to students of economics: it is a study to determine what is the price of things, not speculation into what should be the price of things. As a result, in this tradition, economic sociology is an investigation into how and why market capitalism operates as it does. The Economic Sociology approach does not appear to consider whether it is appropriate to regard market capitalism as the best economic system possible. The work of Marx at least allows for the possibility that it is not and creates the analytical space to challenge the social shortcomings of market capitalism, and in doing so to consider alternate pathways forward.
Notes 1 Understanding and framing the market economy has a long-standing tradition from both left and right perspectives (see, for example, Böhm, 1979). 2 This notion of embeddedness derives from a reading of Polanyi (2001) as he struggles to make sense of the challenges in the period between the two World Wars, with the rise of fascism and the chaos of the economy. Cardoso Machado (2011) claims that for Polanyi prior to market capitalism all economies were embedded in society (135) and suggests that Polanyi’s “double-movement” is a claim that the social structures of society (and mainly macroeconomic social policies) will serve to rectify those negative impulses is a new feature. It is a failing of New Economic Sociology not to see that the problem for market capitalism is that it is dis-embedded in society because the primary mechanisms of market prices ignore social considerations, motivations, and values. Taking a page from Marx, Cardoso Machado argues that “[i]t is not the economy that is framed by the social system, but rather the social system that is framed by the economy (137).” 3 Reflecting that Polanyi’s work also tackled a tension between democracy and capitalism, Dale (2021) offered that Polanyi had a utopian and somewhat teleological vision that economic liberalism would lead to a self-regulating market system. Market capitalism brought on ruin because it subsumed land, labor, and money (as commodities) so it subjected society to anarchic and perverse laws. It is the severe consequences that would result in an impulse for social policy to correct that market. Ciancanelli and Fasenfest (2017) demonstrate the limitations of expecting a double movement to rectify global market capitalist inequities. 4 To be fair, Weber also was concerned with the tension between bureaucratic technical decision-making that did not lend itself to truly democratic processes. However, this was not a manifestation of his views that capitalism was an efficient system of resource utilization and allocation. 5 The expansion of market capitalism as a global system, and the implementation of neoliberal austerity that protects capital and undermines social supports, is a perfect arena for economic sociology promoting market capitalism as the arrangement that is most effective in providing goods and services. 6 An exhaustive sampling of the state of economic sociological research can be found in Smelser and Swedberg, 2005.
Marxism or economic sociology 123 7 See also Fine (2022) examining the nature of financialization and how to understand it within a political economy perspective, and Saad-Filho (2022) as he outlines how Marx’s theory of value serves as the critique of capitalism as an exploitive, contradictory system of production historically limited and constrained. 8 This is reminiscent of the underlying argument of Weber in The Protestant Ethic and the Spirit of Capitalism. 9 The role of money for economic sociologists and neoclassical economists is an instrumental problem—how much do commodities cost and why. For Marx, while money is the most adequate form of value under capitalism, Ciancanelli (2022: 112) points to Marx’s view that money “provokes, embeds, and reinforces domination (rather than solidarity) in nearly all social-relational spheres.” She further points out that money, in its fetish form, transfers power from society to a “thing.” Money serves a dual purpose under capitalism: what it does via its economic functions (113–116) and what it is as a fetish (118–122). The danger today, she concludes, is when we try to deal with social issues by throwing more money at it, rather than by understanding the underlying processes that create these problems in the first instance—specifically, market capitalism on a global scale. 10 See, for example, Allen 2014, offering what he calls a “new rhetorical humanism” that breaks from examinations that are more traditionally consistent thinking which “were broadly harmonious with other dominant strains of thought in the West (68).” 11 Brenner (1977) offers a complex narrative of how local conditions throughout Europe produced very different forms of early market capitalism. Similarly, Moore (1966) uses the social forces representing alliances within and across superordinate (urban bourgeoisie and rural aristocracy) and subordinate classes (urban workers and rural peasants) to craft a narrative explaining a range of political systems that arise, from dictatorship to democracy and others in between these poles. Both scholars situate their analyses informed by the works of Marx and demonstrate the complexity and historical contingency of the array of possible social, economic, and political arrangements that emerge as a result. 12 Varieties of capitalism literature implicitly understand that variations across contemporary capitalist economies reflect different social histories. Hall and Soskice (2001) assemble a collection of authors who explore the organizational, institutional, and historical conditions that lead to different forms of capitalist societies. They pose the problem of what policy choices, what institutional capacities, and whether there are systemic differences that can account for these varieties. Jessop (2015) offers an understanding of more recent changes by taking “seriously Marx’s six-book plan for Capital, in which the last three books would address, respectively, the state, foreign trade, and world market and crises (19).” Contemporary neoliberal austerity poses challenges to the form of capitalism going forward (see Westra, Badeen and Albritton, 2015). This is not restricted to an examination of variations among Western capitalism: see Szelényi and Mihályi (2019) for socialist and post-socialist countries, and Aoki (2020a, 2020b) for a discussion of how to understand the role of the state, regional factors, and the development of capitalism in Japan (and its deviation from capitalism in the Western). 13 Boldizzoni (2020) offers a view that predictions for the downfall of capitalism fail to account for the role hierarchy and individualism plays in sustaining a vibrant and transforming economic system (especially see chapter six). His argument follows the same logic it is the shift to individual incentives and private gain that serves the system and ensures efficient outcomes for market capitalism. 14 The concept of “Global South” must go beyond a purely geographical interpretation that owes its origins to earlier “less developed country” and “Third World Country” terminology. Even as globalization and neoliberal expansion of capitalism seem dominant, there are “North” regions in Southern countries and “South” regions in Northern countries (see Horner, 2020). The consequence of market capitalism creating winners and losers applies both across and within countries and regions. 15 See Schrank 2015 for an attempt to resurrect economic sociology on questions of development. Critical of traditional approaches and questioning what he calls neo-Marxist efforts at understanding underdevelopment (see endnote 12), Shrank nevertheless ends up with proscriptions that offer a “better way” to promote social norms through cultural transformations
124 David Fasenfest that would enhance and, in the end, replace notions of self-interest and diminishing returns and improve economic development. 16 The effects of Western capitalism and its relationship to the rest of the world are well documented (see, for example, Dobb, 1963; Wallerstein 1974, 1980, 2011; Frank 1978, among others). 17 The following draws heavily on Fasenfest and Das, 2021. 18 This can be viewed literally, as in unpaid forced labor—for example, in the US slave-like conditions are allowed for prisoners in the US Constitution—and more figuratively either when undocumented workers or labor-migrants are confined to labor compounds in countries restricting movement or denying any civil rights. 19 Brass, 2009, revisits the neoclassical views that unfree (that is, slave) labor was inefficient, unskilled, and scarce making it incompatible with the supposed dynamic character of capitalist development. He argues that an analysis through the lens of class struggle reveals ho for contemporary global capitalism unfree labor is “more profitable to employ but no less efficient than their counterparts who are free (756).”
Bibliography Allen, I. 2014. Rhetorical humanism vs object-oriented ontology: The ethics of archimedean points and levers. SubStance, 43(3), pp. 67–87. Aoki, H. 2020a. Towards a critical understanding of the Japanese state and capitalism. Critical Sociology, 47(1), pp. 5–15. Aoki, H. 2020b. Marxism and the debate on the transition to capitalism in prewar Japan. Critical Sociology, 47(1), pp. 17–36. Böhm, F. 1979. Left-wing and right-wing approaches to the market economy. Zeitschrift Für Die Gesamte Staatswissenschaft/Journal of Institutional and Theoretical Economics, 135(3), pp. 442–448. Boldizzoni, F. 2020 Foretelling the End of Capitalism: Intellectual Misadventures since Karl Marx. Cambridge, MA: Harvard University Press. Brass, T. 2011. Labour Regime Change in the Twenty-First Century and Primitive Accumulation. Leiden: Brill Brass, T. 2009. Capitalist unfree labour: A contradiction? Critical Sociology, 35(6), pp. 743–765. Brenner, R. 1977. The origins of capitalist development: A critique of neo-Smithian Marxism, New Left Review. I/104, pp. 25–92. Byres, T. 2007. Karl Marx on India. Journal of Agrarian Change, 7(1), pp. 128–132. Calnitsky, D. 2014. Economic sociology as disequilibrium economics: A contribution to the critique of the new economic sociology. The Sociological Review, 62, pp. 565–592. Cardoso Machado, N. M. 2011. Karl Polanyi and the new economic sociology: Notes on the concept of (dis)embeddedness. Revista Critica de Ciéncias Sociales, 3, pp. 119–140. Ciancanelli, P. 2022. The power of money. In D. Fasenfest (ed.) Marx Matters. Leiden: Brill, 111–127. Ciancanelli, P. and Fasenfest, D. 2017. Monsieur Le Capital and Madame La Terre on the Brink. In P. North and M.S. Cato (eds.) Towards Just and Sustainable Economies: The Social and Solidarity Economy North and South. Bristol: Bristol University Press, 37–56. Cleaver, H. 2017. Rupturing the Dialectic: The Struggle against Work, Money, and Financialization. Chico. CA: AK Press. Dale, G. 2021. Karl Polany’s great transformation and the countermovement to capitalism. Jacobin, April 6, https://www.jacobinmag.com/2021/04/karl-polanyi-the-great-transformationneoliberalism-countermovement-capitalism. Das, R. J. 2022. Social oppression, class relation, and capitalist accumulation, In D. Fasenfest, (ed.) Marx Matters. Leiden: Brill, 85–110. Das, R. J. 2017. Marxist Class Theory for a Skepitcal World. Leiden: Brill Dobb, M. 1963. Studies in the Development of Capitalism. New York, NY: International Publishers. Eagleton, T. 2011. Why Marx was Right. New Haven, CT: Yale University Press.
Marxism or economic sociology 125 Fasenfest, D. and Das, R. J. 2021. Constructing the conceptual tools for the global south. In H. Leiulfsrud and P. Sohlberg (eds.) Constructing Social Research Objects. Leiden: Brill, 59–83. Fine, B. 2022. From Marxist political economy to financialization or is it the other way about? In D. Fasenfest, (ed.) Marx Matters. Leiden: Brill, 43–66. Fligstein, N. 2015. What kind of re-imagining does economic sociology need? In P. Aspers and N. Dodd (eds.) Reimagining Economic Sociology. Oxford: Oxford University Press, 301–315. Fligstein, N. and Dioun, C. 2015. Economic sociology. In N. J. Smelser and P. B. Baites (eds.) International Encyclopedia of the Social & Behavioral Sciences (2nd edition). Amsterdam: Elsevier, 67–72. Foster, J., McChesney, R. and Jonna, R. 2011. The global reserve army of labor and the new imperialism. Monthly Review, 63: 06. Available at: https:// monthlyreview. org/ 2011/ 11/ 01/ the- global- reserve- army- of- labor- and- the- new- imperialism/. Frank, A. G. 1978. Dependent Accumulation and Underdevelopment. London: Macmillan. Ghosh, S. 1984. Marx on India. Monthly Review, 35(8), pp. 39–53. Granovetter, M. 1985. Economic action and social structure: The problem of embeddedness. American Journal of Sociology, 91(3), pp. 481–510. Hall, P. A. and Soskice, D. (eds.) 2001. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. Oxford: Oxford University Press. Horner, R. 2020. Towards a new paradigm of global development? Beyond the limits of international development. Progress in Human Geography, 44(3), pp. 415–436. Jessop, B. 2015. Variegated capitalism and the political economy of austerity. In R. Westra, D. Badeed and R. Albritton. The Future of Capitalism After the Financial Crisis: The Varieties of Capitalism debate in the age of austerity. New York, NY: Routledge, 19–38. Jonna, R. and Foster, J. 2016. Marx’s theory of working- class precariousness: Its relevance today. Monthly Review. Available at: https:// monthlyreview.org/ 2016/ 04/ 01/ marxs- theory- of- working- class- precariousness/. Kalmring, S. and Nowak, A. 2017. Viewing Africa with Marx: Remarks on Marx’s fragmented engagement with the African continent. Science and Society, 81(3), pp. 331–347. Krippner, G. R. 2001. The elusive market: Embeddedness and the paradigm of economic sociology. Theory and Society, 30(6), pp. 775–810. Laibman, D. 2013. On the 130th anniversary of the death of Karl Marx: Answers to questions from China’s People’s Daily. Science and Society, 77(4), pp. 451–458. Marx, K. 1847. Poverty of philosophy. Available at: https:// www.marxists.org/ archive/marx/ works/ 1847/ poverty- philosophy/ ch02.htm. Marx, K. 1877. Letter to Editor of the Otecestvenniye Zapisky [Notes on the Fatherland]. available at: https://www.marxists.org/archive/marx/works/1877/11/russia.htm. Marx, K. 1977. Capital, Volume 1. New York, NY: Vintage. Marx, K. 2014 [1904]. A Contribution to the Critique of Political Economy, Chicago, IL: Charles H. Kerr & Company (released by Project Gutenberg). Marx, K. and Engels, F. 1948 [1848]. Communist Manifesto. Moscow: International Publishers. Moore, B. 1966. Social Origins of Dictatorship and Democracy: Lord and Peasant in the Making of the Modern World. Boston, MA: Beacon Press. Ollman, B. 2003. Dance of the Dialectic. Urbana-Champaign, IL: University of Illinois Press. Patnaik, U. and Patnaik, P. 2015. Imperialism in the era of globalization. Available at: https:// monthlyreview.org/ 2015/ 07/ 01/ imperialism- in- the- era- of- globalization. Polanyi, K. 2001. The Great Transformation – The Political and Economic Origins of Our Time (2nd edition). Boston, MA: Beacon Press. Pradella, L. 2017. Marx and the Global South: Connecting history and value theory. Sociology: The Journal of the British Sociological Association, 51(1), pp. 146–161. Roberts, M. 2016. The Long Depression. Chicago, IL: Haymarket Books. Saad-Filho, A. 2022. Value, capital, and exploitation in Marx. In D. Fasenfest (ed.). Marx Matters. Leiden: Brill, 67–84.
126 David Fasenfest Satgar, V. 2022. Marx, the commons and democratic eco-socialism. In D. Fasenfest (ed.). Marx Matters, Leiden: Brill, 181–197. Schrank, A. 2015. Towards a new economic sociology of development. Sociology of Development, 1(2), pp. 233–258. Smelser, N. and Swedberg, R. 2005. The Handbook of Economic Sociology. New York, NY: Russell Sage Foundation. Szelényi, I. and Mihályi, P. 2019. Varieties of Post-Communist Capitalism: A Comparative Analysis of Russia, Eastern Europe and China. Leiden: Brill. Swedberg, R. 1991. Major traditions of economic sociology. Annual Review of Sociology, 17, pp. 251–276. Swedberg, R. 2003. Principles of Economic Sociology. Princeton, NJ: Princeton University Press. Swedberg, R. 2005. Towards an economic sociology of capitalism. L’Année Sociologique, 55(2), pp. 419–449. Swedberg, R. 2015. Theorizing in economic sociology. In P. Aspers and N. Dodd (eds.) Reimagining Economic Sociology. Oxford: Oxford University Press, 34–54. Wallerstein, I. 1974. The Modern World-System I: Capitalist Agriculture and the Origins of the European World-System in the Sixteenth Century. New York, NY: Academic Press. Wallerstein, I. 1980. The Modern World-System II: Mercantilism and the Consolidation of the European World-Economy, 1600–1750. New York, NY: Academic Press. Wallerstein, I. 2011. The Modern World-System III: The Second Era of Great Expansion of the Capitalist World-Economy. Berkeley, CA: University of California Press. Westra, R., Badeen, D. and Albritton, R. (eds.). 2015. The Future of Capitalism After the Financial Crisis: The Varieties of Capitalism Debate in the Age of Austerity. New York, NY: Routledge. White, H. C. 1981. Where do markets come from? American Journal of Sociology, 87(3), pp. 514–547.
6 Sociological economics Its elements in economics and its convergence with economic sociology Milan Zafirovski
Introduction The term or concept of sociological economics1 occurs among contemporary economists and prominent early sociologists or economists-turned-sociologists such as Max Weber, Vilfredo Pareto, Joseph Schumpeter and Talcott Parsons.2 Sociological economics is thus ‘born and alive’, although less manifest and established in economics and sociology than synonymous or similar terms like ‘socioeconomics’, ‘social economics’, ‘social economy’, ‘institutional economics’, ‘behavioral economics’, ‘political economy’ in the modern, as distinct from classical, meaning and even ‘economic sociology’ (included in some widely used classification systems of modern economics). Moreover, some leading and other contemporary economists explicitly suggest or imply that a more appropriate conception of economics is sociological economics or its proxies such as socio or social economics, social economy and the like.3 Sociological or social economics is considered distinct from and indeed opposite to a pretentious, uncreative application of physics, mechanics or (and a ‘childish passion’4 for) mathematics to the economy, including the market, hence construed as a physical or mechanical object such as a natural entity or asocial mechanism like machine rather than a social system or institutional field only existing and functioning within society and in interaction with its other systems or institutions (Arrow 1994; Backhouse 2015; Hands 2001; Mirowski 1989; Piketty 2014). Some prominent economists unambiguously dissent from the ‘notion of economics as physics’ and generally as ‘hard science’ supposedly distinct and separate from and indeed superior to the social sciences (Solow 1985, 1990; also, Furubotn and Richter 2010; Schabas 2014; Yonay 1998). These economists propose and justify sociological economics as epistemics (Shackle 1972) in the sense of a body of knowledge and theory on empirical, real-life grounds such as that societal factors, especially social institutions, strongly impact the economy, including the market such as labor, consumer, capital and other markets.5 In a pertinent instance, the factual ground for sociological economics and generally economics as a social rather than physics-like science consists in that the economy is implicated in and impacted by ‘a web of social institutions, customs, beliefs, and attitudes’ with ‘different social institutions’ imposing different societal, institutional ‘constraints’ on acceptable economic behavior6 (Solow 1985, 1990). This social-institutional ground for its construction and legitimacy is also salient in many other conceptions or intimations of sociological economics or its analogues and segments, like social economics, institutional and historical economics, political economy and others, just as within its sociological equivalent modern economic sociology.7
DOI: 10.4324/9780367817152-7
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Furthermore, a growing number of contemporary economists implement a more complex and realistic conception of economics as a counterpoint to its prevailing notion as the simplistic extension of physics to the economy and society.8 They do this by incorporating sociological and related assumptions and concepts, laws, analyses, typologies and implications in economic analysis.9 This conception and partial reconstruction or rethinking of economics as sociological economics and its social, including institutional and structural, ground—rather than as physics and its putative natural, mechanical basis—inspires the present chapter of this volume of economic sociology. Nevertheless, despite many eminent economists’ suggestions to that effect, sociological economics is not yet commonly recognized or fully established as a concept within economics, as well as sociology, although the latter’s apparent equivalent is economic sociology (Boulding 1957, 1970; Gibbons 2005; Hodgson 2000; Knight 1958; Lange 1945; Piore 1996; Schumpeter 1954; Weiller and Homme 1958). Sociological economics is seldom explicitly defined—and not just because its definition seems at first glance self-explanatory—and even less systematically elaborated within economics compared to its dominant notion of ‘pure’ theory, as well as in sociology, with the exceptions of some leading contemporary economists (as Schumpeter was in respect of economic sociology before, the probably most consistent in applying sociological conceptions and findings to economics today is Akerlof 2002, 2007). Sociological economics as a conception and especially denotation seems less manifest and recognized than socioeconomics, social economics,10 as well as behavioral economics, let alone institutional economics, political economy, even economic sociology and anthropology in the usual taxonomy of modern economics fields, for example ‘economic sociology’ and ‘economic anthropology’11 are comprised under ‘special topics’ of economics in an influential classification system. In this respect, economics faces a long way and uncertain path toward at least partially pursuing and implementing the conception of sociological economics as an alternative vision of economic science. What compounds the problem is the admittedly too easy and simplistic dismissal of sociological economics or its equivalent economic sociology by ‘pure’, dogmatic or hardline economists who tend to conceive economics as applied physics, mechanics or mathematics through mathematical formalization (as admitted or implied in Basu 2000; Gibbons 2005; Piore 2002). Moreover, the problem is further exacerbated by aggressive ‘economics imperialism’ negating or depreciating alternative, including sociological, frameworks for theorizing and studying the economy and society, while sociological economics or economic sociology counters and defends against ‘ravages’ of such imperialism (Boulding 1969; also, Basu 2000; Chibnik 2011; Coase 1998; Fine 2001; Guiso et al. 2006; Hirschman 1984). ‘Economics imperialism’, true to its name, expands economics’ elementary assumptions and models beyond the economy to non-economic societal domains and thus invades sociology and related disciplines through the comprehensive ‘economic approach to all human beings (and) all human behavior’ and supposedly universal ‘rational choice theory’ as the pretended unifier and savior of social science.12 Still, significant progress in sociological economics has occurred thanks to some leading sociologically and other broadly minded contemporary economists dissatisfied with and moving beyond ‘pure’ neoclassical economics purified from social, notably institutional, and ‘irrational’ ingredients13 (Samuelson 1983; also, Backhouse 2015). They depict and challenge purist economics as ‘unrealistic’ and ‘blind and foolish’ assuming, including its rational choice expansion, ‘rational fools’.14 This trend holds the potential
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for making sociological economics a promising development, especially an interdisciplinary endeavor relaxing and transcending the rigid disciplinary boundaries—which especially pure economists erect or harden directly and ‘economics imperialism’ exponents indirectly by creating, as all imperialists do, distrust, alienation and friction— between conventional economics and sociology. After all, their precursors mostly have not erected these boundaries and instead created bridges and common spaces between economics and sociology to the point of their fusion or connection, spanning from Pareto and Marshall—and even Smith, Say, J. S. Mill and Marx—to Weber and to Schumpeter and Parsons widely regarded (perhaps except for Marshal; yet see Parsons 1932; Reisman 1990), as both eminent economists and prominent sociologists. Against this background, the remainder of the chapter proceeds as follows. The first section redefines and reconsiders sociological economics. The second section presents pertinent conceptions or anticipations of sociological economics in early and contemporary economics. The third section identifies the main branches of sociological economics. The last section supplies conclusions.
Sociological economics redefined and reconsidered In general, sociological economics is defined as an analysis of the economy treated as a constitutive component of society, thus analyzing the social or socially constituted, structured and determined or conditioned economy. Conversely, it does not treat the economy as a separate, isolated and independent entity from society in contrast to what Walras, Wicksell, J. B. Clark, Pareto, Weber, Schumpeter, Keynes and other economists (Hayek 1950; Hicks 1961; Hicks and Allen 1934; Machlup 2014; Myrdal 1953; Parsons 1932; Robbins 1952; Samuelson 1983) denote pure, especially neoclassical and contemporary, economics or economic theory (Backhouse 2015; Boulding 1970; Burgenmeier 1994; Morishima 1998; Piketty 2014). This holds true so long as pure economics applies such a treatment of the economy and model itself after physics and mechanics, including mechanical equilibrium, thus operating as the putative ‘physics of society’15 (Solow 1963, 1985; for other critiques or qualifications see Hands 2001; Hicks 1979; Hodgson 1994; McCloskey 1998; Mirowski 1989; Schabas 2014; Wieser 1967). Ironically in view of its non-sociological orientation, the latter appears as an economistic, reductive emulation of Comte’s project of the science of society as ‘social physics’ (e.g., the ‘applicability and application of Mathematics to Sociology’, or ‘mathematical sociology’ in Edgeworth 1967) which, however, he restates and renames as sociology that comprises as its important branch economic sociology (Granovetter and Swedberg 1992; Smelser and Swedberg 2005). Sociological economics is hence sociological in that it recognizes that the economy, including the market, inheres and is invariably integral to and essentially integrated in and profoundly structured by what Pareto (1932) connotes the ‘sociological system’ in the sense of a societal system or social structure and more encompassing and complex than the economic system.16 For sociological economics, the economy/the market exists and operates in society as its built-in element, and not a self-contained and self-sufficient mechanism above and beyond the latter, as construed in pure neoclassical economics as a ramification of physics, although mathematical-physics methods are unsuitable to the ‘subject-matter of economics’ according to Wieser (1967) who already admonishes in the midst of the rise of mathematical ( Jevons-Walras) marginalism (also, Schabas 2014). Alternatively, sociological economics is sociological by positing and demonstrating that
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there exists no such entity, preference and activity as an economy, market and economic actor, preferences and behavior apart from and outside of society and so a social context, environment or structure.17 In sociological economics, a non sequitur is a non-social economy and asocial economic agents, preferences and behaviors—for example, Robinson Crusoe or natural ‘economies’ and homo economicus versus ‘homo realisticus’—except as fictions or excessively unrealistic assumptions.18 In this sense, sociological economics, like economic sociology, is the more complex and realistic alternative to pure economics’ ambition of becoming applied physics and mechanics to the economy and even, as through the imperial ‘economic approach to all human behavior’ and ‘rational choice theory’, to all society.19 And sociological economics is still economics or economic by virtue of being the sociologically minded theory and study of the economy, including the market, as its inherent, proper subject-matter and well-defined domain, as is that of economic science in general (Coase 1998; Hodgson 2002; Stiglitz 2002; Williamson 2002). Conversely, it is not the general theory of society as a whole, in particular its non-economic fields like politics and culture, as instead the domains of sociology and related social sciences, or of ‘all’ human beings and behavior as within the scope of psychology. It is instead the sociologically minded economics of a particular economic element and so subsystem and function of the overarching social system constituting society (Arrow 1994; Blume et al. 2015; Harrington 1998), including societal culture exerting persistent, strong effects on the economy (Alesina and Giuliano 2015; Guiso, Sapienza and Zingales 2015). Like economic sociology, sociological economics hence essentially differs from ‘economics of society’ or the ‘economic approach to all human beings and all human behavior’ and the ‘rational choice theory’ of every phenomenon, economic and non-economic alike (Becker 1996; Lazear 2000; Smith 2003; for an evaluation see Thaler 2017, 2018). Contrary to sociological economics, ‘economics of society’ represents a non sequitur in the sense of contradicting its intrinsic subject-matter of the economy and yielding the inner contradiction of ‘economics of the non-economy’ or ‘market economics of non-markets’, thus dissolving all social science and theory to ‘economics’ and ‘rational choice theory’, and society to just one of its elements.20 ‘Economics of society’, including ‘economics of politics’, looks like a neoclassical equivalent to Marx’s economic determinism, even if the latter being vehemently rejected by the ‘economic approach to human behavior’, excluding ‘rational choice Marxism’, and displays ‘rational choice’ or academic ‘economics imperialism’ (Boulding 1969; Fine 2001; Guiso et al. 2006; Hirschman 1984; Hodgson 1998; also, Elster 1990; Lazear 2000; Stigler 1984; Tullock 1972). In retrospect, J. S. Mill (1968) classically rules out such ‘economics imperialism’ as merely a pretension,21 as does even the neoclassical economist Jevons (1866). Further, some leading contemporary economists regard imperial ‘rational choice theory’ as no less than ‘devastating’ and ‘a major stumbling block’ to progress in economics and social science overall 22 (North 2005; also, Nelson 1994; Williamson 2002). On this account, ‘economics of society’ via the imperial ‘economic approach to human behavior’ appears as an opposite alternative of sociological economics and better merits the description ‘a-sociological economics’, aside from rare exceptions (e.g., mingling rational choice theory with aspects of social economics in Becker and Murphy 2000). The relationship between the two is important to emphasize because sociological/social economics and the ‘economic approach to human behavior’—or economic sociology and ‘rational choice theory’—are sometimes conflated without a realization
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or deliberately compounded in the economic and sociological literature (Becker and Murphy 2000; Coleman 1994; Huppes 1976; Ingram and Clay 2000; Levy-Garboua 1979). This represents a failure to distinguish a sociologically oriented treatment of the economy as an integral element of the social system and economic activity as a form of social action and an economic model of society as an ‘economy’ or ‘marketplace’ and of ‘all human beings’ as rational actors and of ‘all human behavior’ as ‘rational choice’. While formally both treatments are performed and possible, substantively the first is essentially more realistic, complex and holistic, and the second is unrealistic, simplistic and reductive, as since Comte through Pareto sociologically minded economists and sociologists (and social psychologists) agree.23 In sum, sociological economics is a distinct, original interdisciplinary endeavor that contrasts with and transcends pure economics modeled after physics and is profoundly different from the ‘economic approach to all human behavior’ or rational choice theory as the incongruous, universal ‘economics of society’. Thus understood, sociological economics moves toward a holistic and consequently empirically ‘realistic’ kind of economics (Akerlof 2002). It does this on the basis that the economy is invariably an integral part of and so always exists and functions within and is deeply impacted by society as a larger and more complex framework, including the polity and culture (and within it ideology, morality and religion), thus being and functioning as a societal economy. This is what many contemporary economists24 recognize and sociologists propose since Comte, Durkheim, Weber, Simmel and Pareto both as an economist and sociologist. J. B. Say (1966), for example, suggests this by considering ‘social economy’—proposed as a ‘proper name’ for economics then named ‘political economy’—the science of the economy of or within society with its ‘proper object’ and ‘principles’.25 He therefore implies that economics tends to be social economy by analogy to political economy and hence in the epistemic sense of a science, i.e., a scientific branch of knowledge and thus extant sociological economics with epistemological properties analogues to those of economic overall (McCloskey 1998; Mises 1960; Sen 1994; Shackle 1972). This is because the economy is always that of or develops, persists and functions within society, a societal economy, and never outside of what Say calls ‘social organization’, so that there exists no isolated asocial, natural or ‘Robinson Crusoe’ economy as a fiction with limited, if any, theoretical usefulness (Arrow 1974; Boulding 1958; Conlisk 1996; Edgeworth 1967; Galbraith and Parker 2017; Knight 1958; Robbins 1952). In terms of social systems theory, sometimes (as by Parsons 1967) traced to Pareto (1932, 1963), and his own words, sociological economics is a study of the economic system considered the inseparable element of and thus existing and functioning within the ‘sociological’ or social system (Morishima 1998; Parsons 1967; Schumpeter 1956; Spengler 1940; also, Samuelson 1998). Pareto posits that the latter forms a larger and more ‘complicated’ system, simply the ‘total society’, encompassing and structuring the former (also, Arrow 1994; Boulding 1970; Bourdieu 2005; Parsons 1951; Parsons and Smelser 1965). In addition, Pareto implies sociological economics by proposing that political economy in Smith’s meaning cannot proceed successfully in that the analysis of many economic facts cannot be conducted properly with no ‘aid of sociology’ as the general science of society a la Comte and the synthesis26 of economic science and the other special social sciences. He hence implicitly defines sociological economics as the application of sociology to studying economic phenomena by treating them, including market-economic equilibrium and optimum, as ‘particular states’ of social facts27 and in the ‘economic problem’ in some situations as ‘subordinate’ to the
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‘sociological problem’. This is generally identical to, while being influenced by, Comte and especially to Durkheim’s conception of economic sociology or ‘socioeconomics’ (Boulding 1957; Hodgson 2000; Knight 1958; Parsons 1967; Piore 1996; Rutherford 2001; Spengler 1940). Conversely, sociological economics constitutes no ‘economics of society’, which Pareto categorically rules out as logically contradictory and empirically invalid or unrealistic (‘akin to non-Euclidean geometry’28). He does this on the ground that the social system is a realm essentially different from and even opposite to, notably broader and more complex than, the economy. In this context, the social system comprises sentiments, emotions or instincts (manifested as ‘residues’ and ‘derivations’) as irrational elements and thus non-rational or non-logical actions versus the economic system comprising ‘appetites’, ‘interests’ and ‘tastes’ and so, aside from some exceptions,29 logicorational behaviors, (also, Costa-Font and Macis 2017; Millikan 1936; Morishima 1998; Parsons 1967; Schumpeter 1956; Spengler 1940). In sum, Pareto’s integration of economics and sociology (in Treatise on General Sociology) yields sociological economics defined as an equivalent within economics to Comtean and Durkheimian economic sociology rather than the ‘economic approach to all human behavior’ or universal ‘rational choice theory’ as a conceivable but, in his view, implausible alternative (Morishima 1998). The fact that for Pareto, like Comte and Durkheim, the sociological system invariably incorporates and largely determines the economy as its subsystem, constitutive component empirically grounds sociological economics or economic sociology rather than the economic approach to social action or ‘rational choice theory’ ruled out as the reality-lacking ‘economics of society’.30 Similarly, some prominent contemporary economists (e.g., Akerlof 2002, 2007; Akerlof and Kranton 2000; Phelps 2013; Solow 1990) implicitly define sociological economics as the application of certain sociological and related assumptions and observations to analyzing economic processes, including those in the market, as do some others.31 By so doing, sociological economics or its proxy social-behavioral economics is expected to render economics, including both micro- and macro-economics, more holistic in the sense of treating the economy as an element of the social system and economic behavior as a form of social action and consequently more realistic by providing empirically grounded and confirmed theories. Therefore, this in part implements the proposal that economics is essentially closer to being sociological economics than applied physics and other natural ‘hard’ science (Solow 1985, 1990). The preceding indicates what is sociological and economics in sociological economics, as elaborated next. First, it is sociological in that it analyzes the economy of and in society in Smith-Say-Mill’s context, as the subsystem of the societal system in Pareto’s (and Comte-Durkheim’s) sense and sociologically minded contemporary economists. Relatedly, it is sociological by treating the economy as belonging to a plurality of integral interacting elements of the total society, including polity, culture and civil society, thus as existing and functioning in interactions with them. Conversely, it is sociological by not treating the economy as outside and beyond society or the social system, as in the asocial Hobbesian state of nature after the image of what Edgeworth (1967) conceives as Robinson Crusoe’s island, thus profoundly differing from pure economics imagined as applied, mathematical physics applying such a treatment and admittedly ‘doomed to fail’ (Solow32 1985; also, Furubotn and Richter 2010; Nelson 1994; North 2005; Piketty 2014; Schabas 2014). Furthermore, it is sociological even in the endogenous context of economics from Smith to Pareto and many contemporary sociologically
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minded economists, not only in the exogenous sense of sociology since Comte who influenced to some degree some eminent classical and neoclassical economists, especially J. S. Mill and partly Cairnes, Jevons, Wicksteed, Edgeworth and Marshall (Bladen 1941). This inference is consistent with what economists and sociologists such as Myrdal (1953), Schumpeter (1954), Parsons (1935) and others33 identify as manifest and salient sociological and related components in the development of economics since Smith and before through Mill to Marshall and Keynes. In this respect, sociological economics is substantively as a concept intrinsic or endogenous to economics rather than extrinsic to it, as it might seem and is often supposed by pure economists and hardline ‘rational choice theorists’, who are prone to the admittedly simplistic dismissal, depreciation and suspicion of it or of its equivalent, economic sociology and generally other social science (Basu 2000; Gibbons 2005; Piketty 2014; Piore 2002). Second, economics in sociological economics is that it still represents a science of the economy as its subject-matter, including wealth and the market, sociologically considered the economy of society and a component part of the sociological system by contrast to its treatment as an independent self-contained mechanism in pure economics qua applied physics. Conversely, it is economics by not extending beyond the economy, including the market, as its determinate domain and definite scope. In that sense, sociological economics is no universal ‘rational choice theory’ of both economic and non-economic sectors of society or a comprehensive economic approach to all human beings and behavior that is instead an indeterminate and infinite model of everything, thus not indulging in ‘economics imperialism’. Instead, it forms a variation of ‘normal’ economics so long as most of the latter does not contain, with perhaps some secondary exceptions, such a universal theory or comprehensive approach expanding beyond its original and proper subject and delimited scope, the economy, in particular wealth, the market and firm. Therefore, sociological economics represents economics even in the endogenous framework and genuine meaning of economic science, and not just in the exogenous context and presumably specious sense of sociology according to pure, hardline or narrow economists admittedly obsessed with ‘petty mathematical problems’ and avoiding ‘collaboration’ with the other social sciences (Piketty 2014). It follows that ‘sociological’ or ‘social’, including ‘institutional’, does not make it less ‘economics’ but makes it as economics as the latter represents during its development since classical-neoclassical stages through contemporary conceptions, just as ‘political’ in political economy in the initial sense did not make the latter less ‘economy’. This contradicts the exponents of pure economics as applied physics purged of sociological ingredients claiming that it is the only and true ‘economics’ and dismissing its ‘impure’, broader alternative that is a discipline within the social sciences, including a ‘moral science’ according to J. S. Mill and Keynes (also, Basu 2000; Bhagwati 2011; Boulding 1969).
Conceptions and implications of sociological economics The conception of economics as sociological economics, while dubious for and dismissed by pure economists and imperial ‘rational choice theorists’ and perhaps surprising to many sociologists, is not entirely new or rare in substantive terms, abstracting from its forms or terms. Rather, it is often proposed or implied during the development of economic science since Smith and in this respect continuous with a long-standing tradition within it, as well as in the history of sociology, including economic sociology, starting with Comte, thus also being consistent with the latter. The following segment
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of this chapter mostly focuses on its variations and implications within economics, with the qualification that they are also present in sociology in the form of economic sociology if the latter seems an equivalent, sociological economics as performed by sociologists. Hence, to better understand this seemingly unexpected—both for pure economists and many sociologists—conception requires placing it in a larger framework of classical, neoclassical and contemporary economics, as well as sociology in another broader analysis. Early and modern economics contain various conceptions or implications of sociological economics or its equivalents and proxies, which form two groups. The first group involves conceptions that conceive economics as essentially sociological economics deemed its genuine character, relevance or name, with terminological variations. An implied classical case in point is J. B. Say (1966) by proposing a proxy of sociological economics named ‘social economy’ as the true, ‘proper’ nature implicitly and ‘name’ explicitly for economic science named until then ‘political economy’. Some leading contemporary economists (e.g., Akerlof 2002, 2007) incorporating sociological and related assumptions and observations in economic theory and analysis are exemplary in this regard within modern economics. Such conceptions indicate that economics develops and continues to a certain degree as sociological economics, as distinct from being conceived as applied physics, mechanics and the related physical sciences. They reaffirm the self-evident but often overlooked nature of economics as a social science, including what Smith implies and J. S. Mill and Keynes denote as a ‘moral science’, and not a branch of the natural sciences applied to the economy (also, Bhagwati 2011; Boulding 1969; Etzioni 1999; Lewin 1996; Shiller and Shiller 2011; Simon 1982; Solow 1985; Thaler 2018). This forms the epistemic ground for the proposals of economics as sociological economics—simply, the social-discipline rationale—conjoined and reinforced with the factual basis involving multiple social factors, notably institutions, that deeply and permanently impact the economy. The second group comprises conceptions that propose sociological economics or its proxies within economics, although do not completely conceive the latter as the former. They consider sociological economics an integral, legitimate and broader branch of economics, in conjunction and complementarity with its other branches, most notably what Ricardo and Mill imply and Jevons, Walras, Pareto and Wicksell connote ‘pure political economy’ or economics, Schumpeter ‘market economics’, ‘catallactics’ etc. Classicalneoclassical exemplars are Mill’s ‘science of social economy’, Jevons’s advocacy of ‘economic sociology’, Wicksteed’s and Pareto’s sociologically minded economics, Walras’s, Wicksell’s and Cassel’s ‘social economy’ and Wieser’s ‘social economics’, which is recognized as a legitimate and important branch of economics, along with its pure, market rendition. Later and contemporary instances include Knight’s (1958) identification of sociological economics in Weber and Sombart as a special case of economics, Schumpeter’s (1954) economic sociology as a branch of economic analysis, Boulding’s (1970) economic sociology of the market, socioeconomics, social economics, in part behavioral economics and the like (Akerlof 2002; Blume et al. 2015; Costa-Font and Macis 2017; Sen 1995; Shiller 2003; Thaler 2018). Overall, these conceptions suggest that (paraphrasing Robbins 1952) perhaps approximately half of the equation of economics is sociological economics, at least about onethird according to Schumpeter’s (1950) estimation of the relative share of economic sociology in classical political economy, for example J. S. Mill’s Principles of Political Economy. This casts doubt on the notion of economic science as applied physics, mechanics or mathematics,34 as some renditions of pure neoclassical and contemporary economics
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propose spanning from Jevons (1965), Walras (1926), Edgeworth (1967) and Fisher (1965) to their successors (e.g., Arrow and Debreu 1954; Debreu 1991; Hicks 1961; Samuelson 1983; also, Backhouse 2015). The epistemic rationale for sociological economics or its proxies as part of economics is that the latter is at the minimum also a social science, and not only an application of natural ‘hard’ science to the economy. Hence, both conceptions corroborate the proposal for sociological economics on the underlying rationale that economics is social science, albeit the first does so directly and completely, and the second indirectly and partially. Conversely, these conceptions dispute the alternative proposal for economic science as the physics of the economy or pure economics purified from broader and more complex sociological, including political, institutional and cultural, elements. Taken together, they indicate that the conception or implication of economics as sociological economics or its proxies is far from being a novelty or rarity from a substantive standpoint, as it might appear to pure economists, imperial ‘rational choice’ theorists and many sociologists. Rather, it has a long and distinguished lineage in economics from its classical-neoclassical figures to many contemporary economists, as in sociology through its substantive equivalent, economic sociology since its classics to its new exponents. Economics as sociological economics Economics is sometimes, even if mostly implicitly, conceived as sociological economics or its equivalents and proxies, as the following instances from classical, neoclassical and contemporary economic theory show. As the widely (but not universally) regarded founder of economic science, Smith substantively intimates (without using the term) the conception of sociological economics (Reisman 1987). Smith (1937) does this by characterizing economics initially termed political economy as the branch of a broader social science (of the ‘statesman’) and analyzing the economy typically in relation to and dependence on society, such as political and other social institutions, in particular the relations between market and state, notably the influence of the second on the first (Reisman 1998). In this connection, Schumpeter (1949a) identifies ‘elements of the economic sociology of Adam Smith’,35 which seems homologous with the latter’s sociological or social and cultural economics (in Weber’s sense of the impact of culture, including religion, on the economy) (Gharad, Choi and Karlan 2021; Cappelen et al. 2020). Relatedly, Smith belongs among the conceptions or implications of sociological economics as a special branch of economic science. Furthermore, Smith’s most eminent (according to Ricardo 1975) European follower Say (1966) substantively implies the above conception by suggesting that the ‘proper name’ of economic science should not be ‘political economy’ but ‘social economy’ in the sense of epistemics or science, which seems like an extant analogue to sociological or social economics (Costa-Font and Macis 2017; Forget 1999). While Say seems to understand ‘social economy’ as what he calls the ‘economy (economics) of society’, the empirical ground for it is by implication the reality of the ‘social economy’, a concept that Comte (1983) as the ‘founder of sociology’ (according to Hayek 1955) probably invents independently in view of his ‘cerebral hygiene’ in writing (Merton 1968). This holds true in the empirical meaning of what Pareto (1932) denotes an ‘economic system’ not as an isolated and self-contained entity but as an integral element of the social system existing in interaction with its other elements, thus the socially located economy or economic actors (Gagnon and Goyal 2017). Hence, as the study of the economic subsystem of the
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social system, ‘social economy’ differs from the economics of society and thus extant ‘rational choice theory’ as a non sequitur, albeit he seemingly interprets the ‘economy of society’ in this way and Say (1841) settles for the definition of political economy as the ‘science of wealth’, following Smith’s inquiry into the ‘wealth of nations’. Conversely, Say implies that economic science never deals with a ‘Robinson Crusoe economy’ as an absurd fiction (also, Conlisk 1996; Galbraith and Parker 2017). Say thus reconstructs and extends ‘political’ in political economy by extending it from the ‘polis’ and Smith’s state and ‘statesman’ to society as a whole, and consequently ‘economy’ from that of the first to that of the second, yielding ‘social economy’ as the new, best name for economic science. In turn, Say (1964) warns against confusing the general ‘science of organization of societies’ which he calls ‘politics proper’ and his compatriot Comte more appropriately sociology with economics qua political economy as the particular study of the ways of ‘producing, distributing and consuming wealth’ serving to satisfy the ‘needs of societies’. To that extent, this rules out extending economics into a comprehensive ‘economic approach to all human behavior’ and universal ‘rational choice theory’, as well as interpreting ‘economy of society’ as ‘economics of society’ but rather as the societal economy (even if contrary to Say’s apparent intent). Instead, he suggests that since Smith a distinction exists between these two ‘bodies of doctrine’, so the ‘name of political economy’ is reserved exclusively for the ‘science treating of wealth’, thus ruling out such an extension of economics and to that extent an economic approach or ‘rational choice’ interpretation. This leads to the inference or implication that economic science under the name of political economy studies the ‘economy of society’ understood as the societal economy—rather than being the ‘economics of society’—and is in that sense social economics. In sum, Say implies that economics is proxy sociological economics by his proposal for social economy as a more accurate name for economic science than political economy. This holds true for Malthus (1968) who proposes that the ‘science of political economy’ resembles more the ‘sciences of morals and politics’ and in that sense sociology (without using the term) as what Pareto calls their ‘synthesis’ than the ‘science of mathematics’ and thus is by implication more sociological than physics-style economics. Within neoclassical and other later economics, an apparent instance or proxy of sociological economics is Wieser’s rendition of ‘social economics’ part of Weber’s comprehensive interdisciplinary project of social economics and influenced by or convergent with his economic sociology involving sociological analyses of the economy, along with Menger’s (1963) ideas, such as those concerning economics’ place within social science (Swedberg 1998). In his rendition, Wieser (1967) conceives and reconstructs to some extent economics in terms of sociological economics, by stating that a description and explanation of economic processes requires taking account of ‘sociological phenomena’ by conducting an ‘inquiry into the social relations of the economy’. In particular, he suggests that this holds true for the theory of economic value seen as making ‘more rapid and certain progress’ in investigating such social relations than ‘other sociological fields’. Generally, Wieser implies sociological economics or economic sociology by pointing to the ‘sociological problems of economic theory’ so long as they are, as he suggests, more pertinent for economics as a social science and economists as social scientists who inevitably face and deal with such problems than are the non-sociological, including the physical or mechanical. Alternatively, Wieser suggests this by categorically refuting the conception of economics as an application of ‘mathematical physics’ as unsuitable to its subject-matter in
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favor of sociologically oriented economics. This holds true so long as what primarily remains after the physical element has been thus discarded is the societal through the social structure of the economy, which consequently yields ‘sociological problems’ in economics. In addition, Wieser implies that economics is sociological rather than an extension of physics by describing it as an ‘advance guard of sociology’ and ‘only one phase’ of social science, while developing ‘more rapidly than the main body of the theory of society’. At the minimum, Wieser recognizes sociological economics as that part of economics focusing on its ‘sociological problems’ by analyzing the social structure of the economy. Either way, Wieser considers economics closer to sociology than to the physical sciences and consequently more sociological economics as congruent with its nature as a social science and its subject-matter than an extension of physics and mathematics as incongruent in this respect. The above holds for Cassel’s version of social economics, even though in the latter, Wieser’s ‘sociological phenomena’, ‘social relations of the economy’ and ‘sociological problems’ of economics are only implied or latent. Still, the fact that like Wieser, Walras and Wicksell, as well as Say and J. S. Mill before, Cassel (1929) denotes his general economic conception and main work the Theory of Social Economy implies that economics essentially represents or incorporates sociological or social economics more than anything else. This also applies to Cassel’s (1928) theory of a ‘rationally regulated social economy’, including ‘a social economy under dynamic conditions’, seen as an integral element of a ‘rationally organized society’ given that sociological or social economics theorizes the economy precisely in this manner, just as does economic sociology since Comte who apparently invents the notion of the social economy in the empirical sense of an economic part of the social system as a whole. Furthermore, Cassel’s successor Myrdal (1953) more explicitly envisions economics, in particular microeconomics, as proxy sociological economics by stating that sociology, along with social psychology, can provide a more satisfactory explication of the ‘causes’ of market phenomena such as supply, demand and price. He suggests that the main sociological explanation consists in that social groups with ‘enough political power’ can, if they wish, alter ‘all institutional factors’ determining the ‘structure of the market, even the entire economic system’, and historically the ‘rules of those in power’ govern exchange transactions for long prior to any markets. Such an explanation treating markets as determined by social institutions makes what Schumpeter (1956) also calls ‘market economics’ closer to the institutionalist and political version of sociological economics than an application of physics to the market construed as a ‘mechanism’, ‘machinery’ or ‘hydraulics’ and emptied of such determinants and contents. Generally, Myrdal considers (the technology of ) economics a ‘branch of modern psychologically orientated sociology’ and in that sense psycho-sociological economics. The probably most consistent, explicit and prominent contemporary conception and reconstruction of economics as sociological and related economics is that of some sociologically minded leading economists (e.g., Akerlof ). This conception conceives economics essentially as sociological economics on the empirical ground that social factors tend to determine or modify the ‘fundamental structure’ of the economy, and conversely neglecting these influences results in a type of economics that is ‘very blind and foolish’ (Akerlof 1990). The underlying ground for economics thus conceived is that social institutions function as a ‘major determinant of market structure’ and the economic system overall, evoking Myrdal’s statement (Akerlof 2002).
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This consistent and long-lasting endeavor of reconstructing economics especially reconstructs macroeconomics as psycho-sociological economics by virtue of adopting ‘realistic assumptions grounded in psychological and sociological observation’ and because ‘psychological or sociological considerations’ are important (Akerlof 2002; Akerlof and Yellen 1987). For example, sociological and related socio-psychological explanations for efficiency wages are found to be ‘empirically most convincing’, including ‘adherence to group norms’ in accordance with reference group theory in sociology and ‘reciprocity’ consistent with gift exchange conception from anthropology, together with ‘fairness’ according to equity theory and that of group formation from social psychology (Akerlof 2002). Thus, according to the ‘sociological version’ of efficiency wage theory resting on gift exchange, firms pay workers ‘above market-clearing wages’, while the second reciprocating by their commitment and loyalty to the first (Akerlof 2002). In this framework, evidence confirms the ‘gift exchange model’ and shows the ‘accuracy’ of the ‘Weberian theory of organization’, in particular Weber’s sociological analysis and description of ‘bureaucratic organizations’ in terms of ‘rational-legal authority’, as well as ‘meritocracy and predictability’ (Akerlof 1984; also, Acemoglu, García-Jimeno and Robinson 2015; Aghion and Tirole 1997; Bardhan 2016). Moreover, reportedly a ‘standard sociological model’, such as ‘norm-gift-exchange models’, succeeds to simultaneously explain the behaviors of workers and their firm/ employer, as by the ‘norms of gift exchange’, while the ‘standard neoclassical model’ failing to do so (Akerlof 1982; also, DellaVigna et al. 2022; Malmendier and Schmidt 2017). In another example, sociological and related models going beyond the ‘standard economic box’ are regarded as providing a ‘better overall explanation for involuntary unemployment’ (Akerlof 2002). A further instance consists of the sociological ‘normbased theory’ of motivation in macroeconomics, including ‘motivations for consumption’, invoking Bourdieu’s sociological class theory of ‘consumption of cultural goods’, conjoined with ‘Keynes’s psychological law’ of this process, as well as the ‘norms of corporate decision makers’ regarded as crucial to the ‘sociology of the corporation’ (Akerlof 36 2007). In sum, the preceding is the most prominent, consistent and clear exemplar of conceiving and reconstructing economics, including micro- and macro-economics, as sociological economics in its explicit version and essential component of social and institutional economics or its proxy and correlate behavioral economics. On this account, it is not an exaggeration or wishful thinking of sociologists and sociologically minded economists to say that economics to some extent moves to sociological economics, fulfilling the vision of some leading economists noted earlier (Solow 1990). In addition, some other contemporary economists envision economics primarily in terms of sociological economics using the epistemic argument that ‘economics is a social science’ and on the empirical ground that institutional and other social factors are those that actually shape the economy and markets (Lewin 1996). This vision suggests that a ‘sociologically complex economics’ is not restricted to ‘market phenomena’ and that economic sociology may instruct economists about the economy. Furthermore, sociological economics is admittedly more relevant than and even the prerequisite for a ‘more realistic psychological foundation’ for economics by recognizing the role of ‘social forces’ in economic decision-making, the fact that ‘sociological influences’ have a deep impact on the ‘psychology underlying economic behavior’.37 In a similar proposal, since economics is the ‘study of the economy’ as existing within society, sociological economics becomes a ‘more accurate and better term’, involving a theory of social
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institutions and their economic effects (Hodgson 2000). The substantive ground for sociological economics remains that, as prominent contemporary economists acknowledge, social factors such as institutional arrangements and related phenomena deeply affect and strongly embed economic activities (Solow39 1985). This feature of economic activities is equivalent to the social structuration, construction and embeddedness of the economy as the basic premise of economic sociology and anthropology and adopted as a ‘background condition’ in the new institutional and emerging network economics.40 Sociological economics as part of economics—and conversely Sociological economics under this name or its synonyms, proxies and components becomes a legitimate and important part of economics, which is probably a prevailing treatment, as a larger number of instances show. For example, Ricardo (1975) allows that the ‘name of political economy’ may involve a ‘larger inquiry’ in Say’s sense of social economy and to that extent proxy sociological economics rather than the ‘economic approach to human behavior’, just as preferably involving ‘a separate and distinct investigation of the laws of production and distribution of wealth’ as its ‘main problem’ since Smith. Ricardo thereby prefigures Walras’s (1926, 1936a, b) distinction between ‘pure political economy’ as the ‘theory of social wealth’ and ‘social economy’ as the ‘theory of distribution of social wealth’ forming, alongside ‘applied economy’, the main parts of economic science. Ricardo and Say agree, both following Smith, that economics is an ‘investigation of the laws of production and distribution (and consumption) of wealth’, as do all other major classical and neoclassical economists, including Senior, Mill, Marx and Cairnes, as well as Walras, Menger, Jevons, Wicksell, Marshall and others. However, they apparently disagree in respect of social economy that is for Say simply a better designation for economics and to Ricardo a ‘larger inquiry’ that echoes Smith’s ‘science of the statesman’ and anticipates Mill’s ‘science of social economy’. In particular, Ricardo implies that the ‘larger inquiry’ of political economy and thus by implication proxy sociological economics includes institutionalist economics. He acknowledges the existence of class structure, such as ‘three classes of the community’ participating in the distribution of wealth,41 as well as the role of the ‘habits and customs of the people’ in this process, namely the determination of wages, just as does Mill (also, Atkinson42 1997; Dobb 1973; North 1915; Parsons 1935, 1967; Samuelson 1983). Alternatively, Mill (1968) treats political economy as a branch of the ‘science of social economy’ dealing with ‘man in the social condition’ and thus proxy sociological economics—rather than the other way round—and in extension of sociology in Comte’s sense. Mill’s science of social economy appears broader than Say’s ‘social economy’ so long as the latter deals principally with the ‘economy of society’ and is not the expansive ‘economics of society’ and ‘social organization’ trespassing into the field of ‘politics proper’ as his expression for Comtean sociology. Such a science evokes Ricardo’s ‘larger inquiry’ in economics and looks nearly equivalent to and apparently influenced by Comte’s sociology as influential in Mill’s context, as Marshall (1961) and other economists note (Bladen 1941; Schumpeter 1954). At this juncture, Mill’s science of social economy presents an apparent ambiguity, as it seems both broader than sociological economics in Say’s rendition of social economy as newly named political economy and identical to it in the generalized form of Comte’s sociology as the synthetic science of society, as also Pareto (1963) understands it. Elaborating on Ricardo, Mill43 (1884) suggests that sociological economics involves institutionalist economics by recognizing that
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the distribution of wealth is a ‘matter of human institution only’ in that it is determined by societal ‘laws and customs’ rather than ‘physical truths’ applied to its production, as does even Senior (1951) conceding the role of ‘institutions’ in this economic process44 (also, Schumpeter 1954). These classical economists, especially Mill, thereby anticipate institutionalist economics as the crucial component of sociological economics, and converge, along with later institutionalists and historical economists, with sociological institutionalism since Durkheim (Boulding 1957; Merton 1998; Parsons 1935; Rutherford 2001). In general, an estimation is that a significant part of Millian economics represents proxy sociological economics, as Schumpeter (1950) suggests by estimating that economic sociology comprises about ‘one-third’ of Mill’s Principles. Moreover, as Schumpeter (1954) implies in his overarching history of economic analysis, this seems a close approximation of the relative share of the elements of sociological economics in the development of economics since Smith/Mill. Mill’s follower and the probably ‘last’ important classical economist (Stigler 1957), Cairnes (1967) adopts the notion of the social economy—featuring the ‘existence of non-competing industrial groups’—in Comte’s empirical meaning of an economic realm of society rather than Mill’s epistemic sense of social economics. By so doing, Cairnes embraces the central premise of sociological economics or economic sociology since Comte that the economy inherently constitutes a social economy by virtue of invariably existing and operating within society as one of its multiple interactive elements. Moreover, even a prominent neoclassical economist like Jevons (1965) suggests that it is sociological economics—under the ‘branch of Economic Sociology’, along with some other branches—that can help economic science escape its ‘chaotic state’.45 Therefore, he considers economic sociology and so sociological economics an important and legitimate branch of economics, alongside economic theory or political economy and other branches. Jevons does not explicitly define economic sociology but his reference to Spencer’s ‘Sociology, the Science of the Evolution of Social Relations’ implies that this branch or sociological economics would be a study of social influences in the economy, including the market, observing, for example, that present ‘political information’ has an influence on the ‘future supply and demand’. Jevons’s follower Wicksteed (1934) implicitly proposes that economics should become or incorporate sociological economics by proposing that it has to be a ‘handmaid of sociology’ on the empirical basis that the economy, notably the market, is never isolated and independent from society46 (also, Lie 1997). Hence, he envisions sociological economics or its equivalent Jevons’s economic sociology as an indispensable and legitimate field of economics, alongside its other fields. Wicksteed’s rationale for his, for ‘pure’ economists and most sociologists, startling statement is derived from Comte’s earlier insight into the relationship between economic and sociological analyses cited (in the original formulation) as a prologue to his main work47 the Common Sense of Political Economy. Another eminent neoclassical economist—moreover the ‘greatest of all economists’ according to Schumpeter (1954)—Leon Walras conceives sociological economics under the proxy of social economy as a constitutive part of economic science. Walras’s (1926, 1936a) defines social economy as the ‘theory of distribution of social wealth by property and taxation’, simply the ‘theory of division of social wealth’. He treats social economy as an integral part of economic science, along with ‘pure’ political economy which he defines as the ‘theory of social wealth’ and the ‘theory of determination of prices under a hypothetical regime of absolutely free competition’, and ‘applied’ political economy
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as the ‘theory of agricultural, industrial and commercial production of social wealth’ (Walras 1926, 1936b). In this sense, sociological economics or its proxy socioeconomics joins Schumpeter’s (1956) ‘theory of market economics’, as well as applied economics, in Walras’s corpus of economic science (Burgenmeier 1994). Walras (1936a) implies that in contrast to ‘pure’ political economy, social economy rests on the ‘law of moral relations of people in society or the principal of morals’ such as ‘good or justice’ (also, Sandmo 2007). This holds insofar as the process of ‘distribution of social wealth’ as the subject of social economy entails what Schumpeter (1954) and other economists, as well as philosophers since Aristotle, call distributive justice, equity or fairness (Bowles and Carlin 2020; Cappelen et al. 2007; Spengler 1980). Therefore, sociological economics in the proxy shape of social economy is a necessary and relevant part of Walrasian economic science that relates to but is distinct from ‘pure’ political economy predicated on the ‘law of economic relationships of people in society or the principle of labor and industry’ such as ‘utility or interest’ (Walras 1936a). The aforesaid also applies to Wicksell who adopts and elaborates Walras’s trilogy of economics, including the proxy of sociological economics in the form of social economy. Wicksell (1934) defines social economy as an investigation of the proper operation and application of ‘economic laws and practical precepts’ in the aim of attaining the ‘most possible social gain’ and the changes necessary for that purpose in the ‘existing economic and legal structure of society’. Like Walras, Wicksell incorporates social economy into economic science, along with ‘pure’ political economy consisting of a ‘statement of economic laws’ and ‘applied’ political economy as the ‘application of these laws to the concrete economic life of society’. As noted, Wicksell’s compatriots Cassel and Myrdal conceive economics as not just incorporating social economy, but itself constituting the latter in the epistemic sense of the science of the economy within society and presupposing sociological explanations of economic-market, phenomena. Walras’s successor Pareto (1963) even more explicitly analyzes the relationship between economics and sociology, specifically treating the first as a part of the second regarded a la Comte as the ‘synthesis’ of all the sciences of human society.48 In particular, Pareto (1932) implies that economics incorporates sociological economics, by suggesting that the ‘study’ of many economic problems cannot be properly conducted without the ‘aid of sociology’. Like Walras, he includes sociological economics under different names and in the sense of using such ‘aid of sociology’ in studying the economy into economic science, alongside and integrated with ‘pure’ political economy. Moreover, Pareto’s Treatise on General Sociology appears as an exercise in sociological economics and generally a holistic analysis of the relationships between the economy and society, or the ‘economic system’ and the ‘sociological system’, analyzed as a part and a whole, respectively. This represents a classical approach in sociology since Comte whose work appears also in this light, as well as implicitly in economics since Mill (Parsons 1935; Schumpeter 1954; Spengler 1940). Pareto49 (1932) treats the societal system as more comprehensive and complex than the economy seen as one of its integral elements—and accordingly sociology features more ‘complication’ in relation to pure economics— epitomizing the main premise of sociological economics or economic sociology since Comte in sociology and under his influence Mill in economics, as do some later economists (Arrow 1994; Blume et al. 2015; Boulding 1970; Piketty 2014). Within the Austrian School, Menger (1963) acknowledges theoretical economics’ ‘position in the sphere of the social sciences’ and to that extent comes close to the idea of sociological or social economics even if without using the terms. Also, Menger suggests
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that the subject-matter of economics is the societal or national economy that he characterizes as the ‘social form’ of precautionary human activity in relation to other ‘social phenomena’, including the state as a ‘social structure’, and which endows economic science with attributes or implications of sociological or social economics. In the Austrian School post-Menger, especially Wieser (1967), as the most sociologically minded (versus Böhm-Bawerk as the least, see Schumpeter 1956), proposes sociological economics in the proxy shape of social economics, elaborating on Menger’s (1950, 1963) marginal utility theory and pronouncements on economics and social science, and influenced by or converging with Weber’s (1968) economic sociology (Swedberg 1998). (Wieser’s rendition was an invited contribution to Weber’s vast interdisciplinary project of Social Economics involving members of the Austrian and Historical School as opposing schools.) Recall that under Weber’s apparent influence, Wieser’s social economics focuses on the ‘sociological problems of economic theory’, undertakes an ‘inquiry into the social relations of the economy’ and becomes an integral and legitimate part of economics integrated with its other parts. In addition, Wieser implies that economics is intrinsically sociological because of being an ‘advance guard of sociology’ and the economy, including economic values, processes and relations, is one of ‘sociological fields’ (in the sense of social spheres). Some later members of the Austrian School elaborate on Wieser in this and related respects, as especially does Mises and to a lesser extent Hayek as the more and less sociologically minded, respectively. Almost replicating Wieser, Mises (1960) considers economics the ‘best elaborated branch of sociology’, ‘a branch of a more comprehensive science of sociology’ and to that extent intrinsically sociological in nature. Hayek (1950) recognizes the introduction of certain concepts from sociology into economics, thus giving the latter sociological elements or implications, for example, Mill’s adopting Comte’s social statics and social dynamics, but doubts whether this specific adoption is ‘beneficial’. A fortiori, the rival German Historical School, including Weber and Sombart (and Schmoller and others before), redefines and reconstructs economics as social-historical and to that extent proxy sociological or socioeconomics (Rutherford 50 2001) whose concept especially the first member proposes, along with social economics in the broad sense of integral economic science with economic sociology as its part (Swedberg 1998). In addition, inspired by Weber, Knight (1958) uses the term sociological economics primarily with reference to the Historical School (see also Parsons 1928, 1929), in particular Weber (1968) and Sombart51 (1929), but this and other heterodox schools, including Marxian and original institutional Veblenian economics (e.g., Ayres 1933; Commons 1931; Mitchell 1914; Veblen52 1934) are beyond the scope of the present chapter focusing on their orthodox or mainstream counterpart. The point is that much of classicalneoclassical economics harbors elements and implications of sociological economics or economic sociology contrary to appearances and ‘pure’ economistic and ‘rational choice’ interpretations rather than that historical, Marxian, institutional and related unorthodox schools do, which is manifest, indisputable and even axiomatic. Yet another prominent neoclassical economist—the ‘most eminent’ according to Parsons (1967)—Marshall envisions economics as involving sociological economics or economic sociology (without using the terms) as its part or aspect, along with pure market economics. He does this by treating economics both as the specific ‘study of wealth’, the ‘attainment and use of material requisites of wellbeing’ on the one side and as a part of the science of society (the ‘study of man’) on the ‘other and more important side’ (Marshall 1961). His rationale for the ‘more important side’ of economics as part
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of social science, thus sociology as a potentially unifying discipline,53 is that ‘economic laws or laws of economic tendencies’ represent special cases of ‘social laws’ and in extension the economy is an integral element of society. Notably, like that of Mill, his own economics contains various and important elements or implications of sociological or social economics (Reisman 1990; also, Bowles and Gintis 2000). This is what Schumpeter (1941) suggests by identifying the economic sociology of 19th-century capitalism in Marshall’s neoclassical economics such as his Principles of Economics (also, MacDonald 1965). For illustration, Marshall (1961) acknowledges the ‘cumulative’ effects and ‘deep and controlling influence’ of social-cultural factors like customs and morals characterized with a ‘constraining force’ on the economy, including the ‘methods of production’ and the character of producers and thus economic progress54 (also, Benabou and Tirole 2011; Parsons 1932; Young and Burke 2001). Marshall’s implicit conception of economics as incorporating sociological economics or economic sociology resurfaces in his successors like J. N. Keynes, Pigou and J. M. Keynes whom some leading contemporary economists (Akerlof 2002, 2007) invoke as the most prominent exponent of early behavioral macroeconomics. J. N. Keynes (1955) regards the ‘theory of economic progress and development’ and thus a branch of macroeconomics ‘subordinated’ to general sociology adopting or echoing Comte’s ideas in this respect. In addition, Pigou (1960) considers economics both the study of wealth and welfare and a branch of social science on the basis that economic welfare is a particular form of ‘total social welfare’ and in extension the economy a component of society. In particular, J. M. Keynes’s (1960) economics identifies and emphasizes the ‘mass psychology of the market’, the ‘psychology of the community’, the ‘fundamental psychological law’ of the economy and the like. Such ‘mass psychology’ consists of phenomena like ‘a sudden fluctuation in opinion’, ‘waves of optimistic and pessimistic sentiment’, particularly ‘spontaneous optimism’ and ‘animal spirits’ like ‘spontaneous urges for action rather than inaction’55 driving economic, especially entrepreneurial, and other behavior (also, Akerlof 2002; Akerlof and Shiller 2009; Beaudry and Portier 2014; Phelps 2013). In addition, evoking Marshall, Keynes alerts to ‘all kinds of social customs’ that influence the economy, especially the ‘distribution of wealth and of economic rewards and penalties’ and hence the ‘accumulation of capital’. Other neoclassical instances in this respect include J. B. Clark (1899) who implies sociological economics by proposing a division of economic science based not on production, distribution and exchange (and consumption) as ‘not distinct operations’ but instead on ‘sociological evolution’56 echoing Comte or Spencer and generally on the fact that economic processes take place in society. For example, he acknowledges that ‘hired labor or loaned capital’ and related production factors and economic forces ‘depend on social organization’. In particular, Clark defines Catallactics as ‘a science of an organized economy’, especially ‘exchanges’, in the context of society pictured as ‘a single organization’ that results in the ‘socialization of economic life’ arranging products in social ‘groups and subgroups’. Because of this branch of economics analyzing a ‘static’ and simple economy within society, it appears as an economic variant of Comte’s social statics as a branch of sociology involving the study of social order and organization. By contrast, what Clark connotes Social Economic Dynamics which he characterizes as the study of ‘changes’ and the ‘progress of organized production’ and the ‘progress of the world’ is equivalent to and perhaps inspired, directly or via Mill, by Comte’s social dynamics as the second branch of sociology consisting of the study of movement and progress of society, including the social economy. Further, Clark treats (a la Durkheim)
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‘market value’ as a ‘social’ and to that extent historical rather than a natural, universal phenomenon. The probably most sociologically minded neoclassical or early contemporary economist Schumpeter (1954) incorporates sociological economics—under economic sociology as the equivalent—into the branches of economic analysis, along with economic theory and others. Notably, Schumpeter redefines sociological economics via economic sociology as essentially institutionalist economics or sociology, namely the ‘analysis of social institutions’ that are characteristic of and shape the ‘economic organization’ of society versus economics as the ‘study of economic mechanisms’ (also, Smelser and Swedberg 2005; Swedberg 1991). He thereby implies Durkheim’s sociological institutionalism in terms of the subject-matter and adopts Weber’s economic sociology both in this respect, such as ‘economically relevant institutions’, and that of method, namely ‘interpretative description’ (Schumpeter57 1949b; also, Boulding 1957; Hodgson 2000; Parsons 1935; Phelps 2013; Piore 1996; Swedberg 1998). Further, perhaps more than any major economists Schumpeter explores consistently and systematically elements of sociological economics in the sense of economic sociology during the development of economic theory, as in his wide-ranging History of Economic Analysis and many other works. Schumpeter identifies such elements in Smith, Mill, Marshall, Pareto, Wieser and other classical and neoclassical economists, as well as their unorthodox counterparts from Marx to Veblen and Mitchell. He mentions BöhmBawerk, for example, as the virtually the only instance among eminent neoclassical and all economists, in particular within the Austrian School, whose economic theory lacks explicit sociological elements in contrast to his colleagues, especially Wieser’s social economics, sociological theory of power and historical sociology and to some degree Menger (Schumpeter 1956). In addition, some other economists-sociologists, contemporaries of Schumpeter identify relevant ‘sociological elements’ and ‘sociological presuppositions’ in classical and neoclassical, as well as heterodox, economics from Smith, Ricardo, Mill and Marx to Marshall and Pareto to Veblen (Davis 1945; Parsons 1932, 1935, 1967; Spengler 1940). Later contemporary instances or proxies of sociological economics also abound and multiply after Schumpeter’s exemplar, as noted in the beginning. To summarize, they involve, first, incorporation and integration of sociological concepts and theories into economics. This tendency especially includes sociological institutionalism, in particular its Durkheimian and related versions either explicitly or more often by implication.58 Generally, it comprises the assumption of the social environment, framework or setting underlying and shaping and of social forces operating in and influencing the economy and market.59 Another instance is incorporating specific sociological and socio-psychological assumptions and concepts in micro- and macroeconomics. These include gift exchange, reciprocity, reference groups, social distance, social norms, the social-institutional non-contractual bases of economic contracts, societal embeddedness, social status, social capital, cultural capital and the like.60 Yet another instance pertains to sociological typologies and analyses of premodern and modern society (Phelps 2007). In particular, they include Tönnies’s dichotomy of pre-capitalism and capitalism, as well as that of Weber and his theory of the religious (Protestant-ethic) and other social sources of the rise and expansion of capitalism.61 For illustration, some leading contemporary sociologically minded economists acknowledge Tönnies’s sociological depiction of the ‘anonymity’ of market transactions in Gesellschaft (capitalism) as a ‘fair description of classical perfect competition’ in the mode of Smith and Ricardo, as well as a la Walras
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(Phelps 2007). In addition, they credit Weber for inventing the notion of the ‘entrepreneurial spirit’ rather than Schumpeter whom they regard as ‘wrongly credited’ (Phelps 62 2013) in this respect by unsuspecting ‘pure’ economists. Also, other contemporary economists adopt certain sociological laws and propositions, such as adopting Michels’ ‘iron law of oligarchy’ and applying it to the economy, for example, the post-slavery US South and various Latin American, Caribbean and African economies (Acemoglu and Robinson 2006), or refer to it (Caillaud and Tirole 2002).
Branches, proxies and analogues of sociological economics An essential branch or proxy of sociological economics represents socio-institutional, simply institutional economics whose sociological equivalent is institutionalist economic sociology. Hence, the core of sociological economics, as well as institutionalist economic sociology, lies in institutionalism specifically in the Durkheimian and Veblenian sense of a sociologically oriented analysis of and focus on the deep, powerful and pervasive impact of social institutions on the structure, operation and outcomes of the economy, in particular the market and the firm, rather than as the purely economic ‘rational choice’ theory and explanation of institutions as aggregate effects of individual behaviors and choices. Many sociologically minded economists define or conceive sociological or socioeconomics precisely in terms of the profound and strong influence of social institutions on the economy, including markets and firms, just as thus defining along with sociologists, its equivalent institutionalist economic sociology.63 In sociologically connoted Durkheimian and Veblenian institutionalism, social institutions therefore function as the explanatory factor or condition of economic behaviors, processes and outcomes rather than as the dependent variable or product of individual rational behavior (utility-cost optimization), as in the economic approach to society or ‘rational choice’ theory, as well as in its slightly modified application the ‘new’, as distinct from and opposed to early, institutional economics. From the standpoint of sociological economics or institutionalist economic sociology, the first treatment of social institutions as factors in the economy expresses genuine, original institutionalism and the second a kind of perverted or derivative ‘institutionalism’ as a mostly mechanical, uncreative application of pure neoclassical economics via the ‘economic approach’ or ‘rational choice’ theory to institutional phenomena. Hence, within sociological economics or institutionalist economic sociology, institutions are exemplary and paramount social conditions or structures conditioning or structuring the economy, including markets and firms, rather than composite results of individual rational choices and actions (utility-profit maximization or cost minimization), as in the ‘economic approach’ or ‘rational choice’ theory, as well as the ‘new’ institutional economics. It follows that Durkheimian and Veblenian institutionalism64 treating social institutions as structural determinants of economic activity is compatible, and its alternative construing them as effects of individual ‘rational choices’, incompatible with sociological economics or institutionalist economic sociology in which society plays the role of a general explanatory factor or whole and the economy mostly a dependent variable or part (versus ‘rational choice’ theory, as well as orthodox Marxism, where their respective roles are reversed). Consequently, original, proper institutionalism within sociological economics or institutionalist economic sociology focuses primarily on social institutions’ determination or the institutional context of the economy65 while derivative, specious institutionalism in the ‘economic approach’ or ‘rational choice’ theory and
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in part the ‘new’ institutional economics centering on and indeed obsessing with the individual origins of institutions—that is a false or secondary problem of ‘genesis’ and infinite regression from the stance of the first field—to argue and ‘prove’ that virtually everything in society derives from rational (utility, profit, cost optimizing) behavior. In retrospect, institutionalism in the original sense epitomized in the early institutional Veblenian economics is usually deemed congruent with its sociological variant hat in classical, especially Durkheimian, sociology, aside from some variations. Moreover, such institutionalism is germane or implicit in classical political economy, in particular Smith’s idea of public institutions,66 Say’s notion of social and political organization and Ricardo-Senior-Mill’ stratification-institutional explanation of wealth distribution, Cairnes’s concept of non-competing industrial groups and so on. Further, institutionalism thus understood is latent in parts of neoclassical and later economics such as Walras-Wicksell-Cassel’s social economy, Wieser’s social economics, Clark’s social-economic statics and dynamics, Marshall’s historical economic sociology of capitalism, Schumpeter’s sociology of development, enterprise and business cycles etc. In addition, institutionalism is exemplified by modern institutional economics, more precisely, its side that continues to treat social institutions in the manner of Durkheim or Weber as explanatory factors crucially impacting the economy and markets versus their reductive treatment as aggregate outcomes of rational individual actions, specifically economic efficiency or cost-profit calculations (Coase 1998; Engl, Riedl and Weber 2021; Furubotn and Richter 2010; Greif and Tabellini 2010; North 2005; Ostrom 2010; Williamson 2000). A related branch or proxy of sociological economics is what can be denoted socialhistorical economics. Its earlier exemplar is the Historical School of economics, including Schmoller, Sombart and Weber, and embroiled in the ‘battle of methods’ with the orthodox, theoretical Austrian School (Commons 1931; Furubotn and Richter 2010; Rutherford 2001; Solow 1985; Swedberg 1998). Its later instances are economic history as part of economic analysis (Schumpeter 1954; Solow 1985) and contemporary historicalinstitutional economics combining the tradition of the Historical School with that of institutionalism (Greif 1998; Greif and Tabellini 2010; Hodgson 2002; North 1994; also, Williamson 2000). At this juncture, Knight (1958) invokes Sombart and Weber as especially contributing to the Historical Economic School’s extension into ‘sociological economics’ in Germany as a development parallel to ‘economic sociology’ in France. Notably, according to Schumpeter (1954), Max Weber ‘more than any other’ person attempted to give ‘currency’ to social economics in Germany (also, Swedberg 1998). A particular branch or equivalent of sociological economics with reference to markets is what some early contemporary economists propose as the ‘economic sociology of the market’ (Boulding 1970). An empirical ground for this branch and generally sociological economics or economic sociology consists in that the economy, including the process of its development, involves total society or the socio-sphere and hence gives a ‘very limited value’ to ‘purely economic models’. Relatedly, other early contemporary economists imply the sociological economics of the market by proposing that sociology (and social psychology) can yield a ‘more satisfying’ explanation of the ‘causes of supply, demand and prices’ (Myrdal 1953). Further, leading contemporary economists construct a consistent and elaborate economic sociology or sociological economics of the market by identifying the role of ‘sociological factors’ in markets, with especially institutions becoming ‘a major determinant of market structure’, including a ‘sociological version of
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efficiency wage theory based on gift exchange’, sociological (and psychological) models yielding a ‘better’ explanation for involuntary unemployment, sociological explanations of the ‘consumption of cultural goods’, while building also the ‘sociology of the corporation’ (Akerlof 2002, 2007). Yet another branch or aspect of sociological economics is socio-political economics, simply political economy in the modern sense as distinct from its initial meaning as economic science (Gordon 1976; Lowe 1935). As a branch of sociological economics, political economy is understood primarily as the analysis of the impact of the polity, power and ideology on the economy, including the influence of the state or government and law on the market, while taking account of the effects in the opposite direction but still being distinct from the economics of politics or public choice theory (Acemoglu 2005; Acemoglu and Robinson 2001; Akerlof and Kranton 2002; Atkinson 1997; Bartels and Brady 2003; Boulding 1957; Fine 2001; Hirschman 1977; Roe and Siegel 2009). It is an epistemic part of sociological economics on the factual ground that the polity, like the economy, is a constitutive component of the social system in contrast to the economics of politics that construes the latter and all society as a marketplace and appendage or extension of the economy (as does orthodox Marxism). An additional branch or rather correlate of sociological economics involves psychosociological or socio-psychological economics, more commonly denoted behavioral economics during recent times. In some influential contemporary formulations, psycho-sociological qua behavioral economics incorporates and combines realistic sociological and psychological assumptions in economic analysis spanning both micro- and macro-economics (Akerlof 2002; Hommes 2021; Kahneman 2003; Simon 1982; Thaler 2018). An even broader hybrid involving psychological, sociological and anthropological assumptions is ‘Psycho-Socio-Anthro-Economics’ (Akerlof 1997). In retrospect, especially behavioral macroeconomics is often traced to and based on Keynesian economic theory regarded as the most important early exemplar, in particular its concept and analysis of ‘animal spirits’ and related forces in the economy and market (Akerlof 2002; Akerlof and Shiller 2009; Phelps 2013). Further branches or facets of sociological economics include both micro- and macro-examples. Its micro-examples include what Schumpeter (1951) calls ‘sociology of enterprise’ and contemporary economists ‘sociology of the corporation’ or the firm as a social, including power or governance, structure and production as a social process.67 Additional instances or dimensions of sociological economics are sociologicaleconomic analyses of consumption, especially its conspicuous or status form, and consumer behavior since Veblen and Weber through later economists.68 Its further examples include the sociological-economic theory of growth and development, such as that of Schumpeter (1939, 1949a), his sociological explanations of business cycles (e.g., the Great Depression), fiscal sociology, the classification and analysis of comparative socioeconomic systems like pre-capitalism, capitalism and post-capitalism and so on (Kuznets 1972; Phelps 2013; Piketty 2020; Rostow 1960; Wagner 1997). In addition, a recently (re)emerging branch or proxy sociological economics is cultural economics. In this context, the latter is understood as an analysis of the impact of culture, including moral norms and religious and ideological values, on the economy such as the rise and expansion of capitalism.69 By contrast, in the ‘economic approach to human behavior’, cultural economics is characterized as the economics or rational choice theory of culture, including values and beliefs yielding the ‘economics of religion’, a characterization
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that is incompatible with that within sociological economics in which the economy exits within and depends on a cultural context. Finally, certain equivalents or analogues of sociological economics comprise ‘socioeconomics’, ‘social economics’, ‘social economy’ as a science and the like. These are substantively equivalent or analogous and used mostly interchangeably, albeit the sociological element is more manifest, deliberate and salient in sociological economics. Contemporary economists and economic sociologists usually take ‘socioeconomics’ as a shorthand for sociological, including institutional, economics, albeit it sometimes entails complementary psychological connotations and so is interpreted as sociopsychological, behavioral economics (Etzioni 1999; also, Burgenmeier 1994; Granovetter and Swedberg 1992; Rutherford 2001). ‘Social economics’ and ‘social economy’ in an epistemic sense imply sociological economics so long as the concept of the ‘social’ does that of the ‘sociological’ by analogy to ‘psychical’ and ‘psychological’ and conversely (Becker and Murphy 2000; Blume et al. 2015; Costa-Font and Macis 2017; Maccheroni, Marinacci and Rustichini 2014; Stantcheva 2021). This is what Pareto suggests by the notion of sociological as societal system, and other economists mean by sociological as social factors and conditions, and sociological as social considerations (Akerlof 2002, 2007; Akerlof and Karnton 2002; Akerlof and Yellen 1987; Spengler 1940). An obvious equivalent of sociological economics within sociology is economic sociology that some contemporary economists explicitly or by implication register and to some degree embrace or appreciate following or echoing Schumpeter.70 Substantively, the two are equivalents and thus used interchangeably as synonyms converging on an identical treatment and analysis of the economy, including the market, as an integral element of the sociological system’ in the meaning of a social system or ‘socio-sphere’. A simple formal difference is that sociological economics is what sociologically minded economists do, and economic sociology is what economically interested sociologists do when studying the economy (by contrast to those applying the ‘economic approach’ or ‘rational choice theory’ to non-economic phenomena). Hence, in disciplinary terms, sociological economics belongs to economics, and economic sociology to sociology, although such boundaries between these and other social science disciplines are growingly challenged and transgressed. In general, aside from minor variations, the definitions of sociological economics and economic sociology are typically in identical terms—the theory and study of the influence of social process and structure on the economy, including the economic impact of institutions in their institutionalist versions.
Conclusion A seeming tentative inference or dilemma from the preceding may be—‘we are all sociological economists or economic sociologists now’? Still, this is not yet the case within most of contemporary economics, unlike substantively in classical political economy and in part neoclassical economics, not to mention unorthodox economic schools such as the old institutional economics and the Historical School. Nevertheless, a growing number of prominent sociologically minded contemporary economists represent or approximate ‘sociological economists’ in continuity with their precursors like Schumpeter, Myrdal, Boulding and perhaps Keynes, not to mention Weber and Veblen, as do in part even some exponents of the comprehensive ‘economic approach to human behavior’ in some of their later, sociologically minded works (Becker). For instance,
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perhaps approximately between one-third and half of the Nobel Prize recipients during recent times appear as or resemble sociological or sociologically minded or social, as distinct from pure, narrow, economists (including Akerlof, Arrow, Coase, Haavelmo, Krugman, Myrdal, North, Ostrom, Roth. Sen, Shiller, Solow, Spence, Stiglitz, Tirole and Williamson). In particular, leading sociologically minded contemporary economists (Akerlof 2002, 2007; Akerlof and Shiller 2009; Krugman 2009) imply that ‘we are all Keynesians (again)’ in light of the Great Recession and its remedying by the new Keynesian ‘medicine’, just as the Great Depression was remedied by the ‘Keynesian revolution’ (Baumol 2000; Blanchard 2000; Eggertsson 2008; Galbraith and Parker 2017). This holds true not only in economic policy terms but also in those of psychologicalsociological, behavioral economics whose earlier rendition is traced to Keynes, in particular his sociological-psychological assumptions, including equity, inertia, social status and ‘animal spirits’ (Akerlof 2002; Akerlof and Shiller 2009). At least, a growing number of contemporary economists are ‘Keynesians again’ in terms of economic policy and more importantly to the present context in those of sociological economics or its proxies, including social, institutional and behavioral economics. Similarly, one can declare that ‘economists are all Schumpeterians again’ not just in the sense of Schumpeter’s economic theory of ‘creative destruction’ in capitalism but in that of his sociological economics or its equivalent economic sociology that he both explores in the history of economic theory and constructs, including the ‘sociology of enterprise’ (also, Akerlof 2002). At least increasing numbers of contemporary economists are ‘Schumpeterians again’ in the sense of Schumpeter’s sociological economics, who can be considered its paradigmatic embodiment, a prototype of an economistsociologist within economics, alongside Pareto, Weber etc., just as in respect of ‘creative destruction’ theory. Also, perhaps ‘economists are all Smithians again’ not only or even primarily with regard to Smith’s ‘invisible hand’ of the market but in the meaning of his sociological economics or what Schumpeter (1949a, 1956) identifies as his ‘economic sociology’ (in the Wealth of Nations), including economic socio-psychology (in the Theory of Moral Sentiments) (also, Reisman 1987). At least many of them can be described in the meaning of sociological economics or its proxies, which makes contemporary economic science come full circle to its origin as a social science, what Smith called ‘part of the science of the statesman’. Generally, the preceding vindicates the above (Solow-Akerlof ) plea and reconstruction of economics as sociological economics rather than as a variation of physics and consequently as what it originally meant to be—a social, and not hard science, as its proper epistemics. It also supports the factual foundation of sociological economics, the fact that the economy, including the market, is invariably immersed in and impacted by various forces of society, especially social institutions. In this sense, sociological economics is no extraneous and incongruous nuisance to economics—as it might appear to ‘pure’ economists—but rather its essential nature and significance, at least its integral element, alongside Walras’s ‘pure’ economics, as is in the form of ‘social economy’ in his own framework. In short, sociological economics alerts to social institutions and other societal factors and their impact on economic behaviors, processes and outcomes. In addition, this impact is a fact the most eminent economists of all times recognize from Smith, Ricardo and Mill through Walras, Jevons, Pareto and Marshall to Schumpeter and Keynes and to their leading contemporary successors.
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Still, realistically mainstream economics is not and probably never will be full-blown sociological economics, including institutionalist economics in the sense of Durkheimian or Veblenian institutionalism as its core, as have neither classical political economy nor neoclassical economics. Yet, it is not and perhaps hardly ever will be totally Walrasian pure economics purified from all social, including, institutional and nonrational elements after the hard science model of physics or mechanics, just as have neither classical political economy since Smith through Mill nor neoclassical economics, including that of Walras, Pareto and Marshall. Hence, the prevailing tendency and foreseeable future of economics consists in an integration, complementarity and collaboration, or a kind of peaceful coexistence at the minimum, between pure and sociological economics, anticipated by that between ‘pure’ political economy and ‘social economy’ since Smith, Say and Mill through Walras, Wicksell, Pareto, Marshall and Wieser to Schumpeter and Keynes. In this sense, economics will continue to be a more complex, less simplistic or homogenous, thus a multi- rather than a single-paradigm social science, as the likely result of the growing complexity of the modern economy, as it was ‘born and raised’ as a composite of pure and sociological economics since Smith, Say and Mill through Walras, Pareto and Marshall. The question is not of whether it is and will be only pure or sociological economics, either outcome being an unrealistic and unsustainable option in the long run, but what the relation and proportion of each within modern economics are. To that extent, approximately, to use Robbins’ (1952) expression, ‘half of the equation’ or at least one-third—using Schumpeter’s estimation of the sociological share of Mill’s political economy—of economic science as a social science is or will likely be sociological economics or its core such as institutionalist economics such as Durkheimian or Veblenian institutionalism, the other half remaining ‘pure’ economics. The consequent interdisciplinary direction is that economics complements and is complemented by sociology within social science in that sociological economics corresponds to and conceivably merges with economic sociology as its equivalent. After all, it is a ‘pure’ economist Jevons that invents economic sociology as a nominal term, while Comte inventing it as a substantive concept, and another one Schumpeter who explicitly defines it a la Durkheim and Weber as the ‘analysis of social institutions’ and their economic effects and more than anyone explores and identifies its elements and implications in the development of economics. At least, these and related instances provide historical precedents and justification for the preceding (Solow) proposal and (Akerlof ) consistent reconstruction of contemporary economics as sociological economics or its proxies on institutional and related social and socio-psychological grounds.
Notes 1 Knight (1958: 18–19) remarks that during the 1900s–1920s the Historical Economic School ‘has broadened out, particularly in Germany, under such leaders as Max Weber and Werner Sombart into what is often called sociological economics, a position also well presented in France (in the form of sociologie economique or economic sociology)’. In this regard, Weber (1968: 311–312) states that ‘sociological economics (Sozialökonomie) considers actual human activities as they are conditioned by the necessity to take into account the facts of economic life’. It is obvious, however, that Sozialökonomie is more accurately translated as social economics. 2 See also Akerlof (2002); Boulding (1957); Costa-Font and Macis (2017); Hodgson (2000); Jackson (2007); Knight (1958); Lewin (1996); Piore (2002); Solow (1990); Weiller and
Sociological economics 151 Homme (1958); for a different, idiosyncratic meaning of the term confused with the ‘economic approach’ to social behavior or ‘rational choice’ theory see Levy-Garboua (1979). 3 See Akerlof (2002, 2007); Akerlof and Kranton (2000); Akerlof and Shiller (2009); Arrow (1994); Bye (1950); Blume et al. (2015); Boulding (1957, 1970); Costa-Font and Macis (2017); Hodgson (1994, 1998, 2000); Lewin (1996); Piore (2002); Sen (1990); Solow (1985, 1990); Stiglitz (2002). 4 Piketty (2014: 29) deplores that the ‘discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation, at the expense of historical research and collaboration with the other social sciences. Economists are all too often preoccupied with petty mathematical problems of interest only to themselves. This obsession with mathematics is an easy way of acquiring the appearance of scientificity without having to answer the far more complex questions posed by the world we live in’. For example, McCloskey (1998: 35) remarks that Paul Samuelson’s Foundations of Economic Analysis ‘reduced economics to the mathematics of nineteenth-century physics’. Also, Backhouse (2015: 347) comments that Samuelson’s Foundations of Economic Analysis contained the ‘analogies with thermodynamics per se’ and centered on the ‘mathematical structures on which certain physical, chemical, and biological theorems were based. Results that might appear to be physical in origin could actually be mathematical implications of a system being in equilibrium’. Backhouse (2015: 347) adds that Samuelson’s ‘introductory textbook expresses a very different view of economics—more institutional and datadriven’. 5 See Bagwell and Bernheim (1996); Bakshi and Chen (1996); Boulding (1957); Bursztyn et al. (2018); Coase (1998); Dixon and Wilson (2013); Fershtman and Segal (2018); Hodgson (2013); Lawson (1997); Mäki (2002); North (2005); Ostrom (2010); Solow (1985; 1990); Tetlock, Mellers and Scoblic (2017); Williamson (2005). 6 Solow (1985: 328, 1990: 282) states ‘I disagree with the notion of economics as physics [but rather as] sociological economics [and] the attempt to construct economics as an axiomatically based hard science is doomed to fail [because] economics is a social science. Moreover, all narrowly economic activity is embedded in a web of social institutions, customs, beliefs, and attitudes’. See also Arrow (1998); Beaman et al. (2021); Bowles and Polania-Reyes (2012); Dixon and Wilson (2013); Furubotn and Richter (2010); Greif (1998); North (2005); Pryor (2002); Sen (1994); Williamson (2000). 7 Some examples in contemporary economics are Acemoglu (2010); Bowles and Gintis (2000); Charness, Rigotti and Rustichini (2007); Coase (1998); Hodgson (2000); Jackson, Rogers and Zenou (2017); Lewin (1996); North (2005); Spence (2002); Williamson (2005); Young (1996). Selected recent instances within modern economic sociology are Bourdieu (2005); Fligstein (2001); Fligstein and Dauter (2007); Granovetter (2005, 2017); Guillén et al. (2005); Smelser and Swedberg (2005); Trigilia (2002). 8 See Akerlof (2002); Akerlof and Shiller (2009); Fershtman, Gneezy and List (2012); Frank (1999); Gneezy, Kajackaite, and Sobel (2018); Hodgson (1998); Lewin (1996); Shiller (2003); Solow (1985); Thaler (2000); Young (1996). 9 Examples are Acemoglu and Robinson (2008); Aghion and Tirole (1997); Akerlof (1984, 1997; 2002, 2007); Akerlof and Kranton (2000); Akerlof and Shiller (2009); Akerlof and Yellen (1984); Akerlof and Holden (2016); Arrow (1994); Becker and Murphy (2000); Blume et al. (2015); Bowles (1998); Fang (2001); Guiso, Sapienza and Zingales (2006); Hodgson (1998); Jackson (2007); Kranton and Minehart (2001); Kranton (2016); Landes (1998); McCleary and Barro (2006); North (1994, 2005); Perez-Saiz and Xiao (2022); Phelps (2007, 2013); Sen (1995); Sobel (2002); Spengler (1940); Stiglitz (2000); Williamson (2000, 2002, 2005). 10 Some examples dealing with socio/social economics, behavioral economics, institutional and political economy are Acemoglu, Egorov, and Sonin (2015). Akerlof (2002); Becker and Murphy (2000); Blume et al. (2015); Burgenmeier (1994); Costa-Font and Macis (2017); Etzioni (1999); Furubotn and Richter (2010); Hodgson (1998); Kahneman (2003); Koszegi (2014); Rutherford (2001); Thaler (2018). 11 Some recent examples of economic anthropology include Barjamovic et al. (2019); Chibnik (2011); Enke (2019); Michalopoulos and Xue (2021). 12 For ‘economics imperialism’ and related syndromes see Becker (1976, 1993), Buchanan (1991); Hirschleifer (1978); Lazear (2000); Mueller (1997); Smith (2003); Stigler (1984);
152 Milan Zafirovski Stigler and Becker (1977); Sugden (1991); Tullock (1972). In a later writing, however, Becker and Murphy (2000: 5) allow that the ‘economic approach to behavior incorporate(s) social forces’ and combine it with social economics defined as the theory of ‘market behavior in a social environment’. From the standpoint of sociological economics or economic sociology, Becker’s work in social economics, however seemingly peripheral or secondary, is perhaps his most valuable contribution to economics and sociology, more so than the imperial and growingly discredited or mitigated ‘economic approach to all human behavior’, as the ‘rational choice’ theory of everything and so nothing in social life (Hirschman 1984; Smelser 1997). The admission that social structure has ‘enormous power over behavior’ (Becker and Murphy 2000: 23) seems more valuable and relevant in this regard than the assertion that ‘all human behavior’ involves ‘participants who maximize their utility’—basically, a lesson from a 101 undergraduate Economics course (Becker 1976: 8). Yet, the odd claim that rational choice theory is ‘not inconsistent with the importance of social structure but rather is crucial in understanding how this structure is determined’ (Becker and Murphy 2000: 23) apparently reverts to the monocausal economistic explanation of social structures, including institutions, so to economics determinism/imperialism. 13 Samuelson (1983: 90) remarks that ‘many economists would separate economics from sociology upon the basis of rational or irrational behavior defined in the penumbra of utility theory’, in that the first deals with the rational and the second with the irrational. 14 See Akerlof (1990, 2002); Allais (1997); Bowles and Gintis (2000); Fershtman et al. (2012); Frank (1999); Gerrard (1993); Hodgson (1998); Nelson (1994); North (2005); Sen (1977, 1995); Thaler (2016); Young (1996). 15 Solow (1985: 330–331) laments that the ‘best and brightest in the profession proceed as if economics is the physics of society’ and objects that ‘there are, however, some reasons for pessimism about the project’ of economics as a hard science. Earlier, Solow (1963: 6–7) cautions that ‘there is a subtle difference’ between economics and physics. Hicks (1979: x) warns that the problems of economics, including its ‘static’ and ‘dynamic’ versions, even if these in their original sense are branches of mechanics, are not mechanical and concludes as economics turns out to be less like hard science and more like history as it moves beyond ‘statics’. Schabas (2014: 3) comments that ‘for some, mathematical renditions of economics are nothing more than attempts to dress the subject in the garb of the more revered science of physics, and thereby mask what are essentially apologetics for capitalism’. Long before these warnings, Wieser (1967: 52) warns that mathematical physics and its methods, including the notion of equilibrium, are ‘not suited to the subject-matter of economics’. 16 See also Arrow (1994); Blume et al. (2015); Bourdieu (2005); Coase (1998); Harrington (1998); Gagnon and Goyal (2017); Granovetter (2017); Hodgson (2000; Ioannides and Loury (2004); Ioannides (2013); Jackson, Rodriguez-Barraquer and Tan (2012); Jackson, Rogers and Zenou (2017); Merton (1968; Parsons (1951); Smelser and Swedberg (2005); Spengler (1953). 17 See Becker and Murphy (2000); Costa-Font and Macis (2017); Fershtman and Segal (2018); Fershtman and Persitz (2021); Granovetter (2017); Hicks (1959); Jackson et al. (2017); Kosse et al. (2020); Kranton (2016). 18 See Bowles and Gintis (2000); Conlisk (1996); Dixon and Wilson (2013); Fehr and Gintis (2007); Fershtman, Gneezy and List (2012); Frank (1999); Henrich (2007); Henrich et al. (2001); Hicks (1969); Hodgson (2013); Robbins (1952); Sen (1995); Simon (1982); Thaler (2016); Tetlock, Mellers, and Scoblic (2017); Young (1996). 19 See Akerlof (2002, 2007); Akerlof and Holden (2016); Bowles and Gintis (2000); Bourdieu (2005); Fershtman et al. (2012; Frank (2014); Hodgson (1994); Lewin (1996); Solow (1985, 1990); Thaler (2000, 2018). 20 To see how absurd and contradictory ‘economics of the non-economy’ is via the Becker et al. ‘economic approach to all human behavior’ qua ‘rational choice’ theory one needs to imagine its analogue in other social sciences like ‘sociology of non-society’, ‘political science of non-politics’, ‘anthropology of non-culture’ and ‘history of non-history’, then in philosophy such as ‘ethics of non-morality’, ‘aesthetics of non-art’ and ‘epistemology of non-knowledge’. In this connection, Thaler (2017: 1800) reports that ‘Becker’s research goal was to apply the standard tools of maximizing behavior to study a wide variety of topics that were not then part of the domain of economics including addiction, crime, discrimination, marriage, divorce, childbearing and social interactions. Becker acknowledged that by
Sociological economics 153 applying the tools of economics to such topics he was pushing the envelope’. Thaler (2018: 1278) adds that occasionally ‘Becker conceded that he had tried to explore the boundaries of where the rational model can be applied, such as his work on marriage, divorce, crime, and even rational addiction’. 21 J. S. Mill (1968: 139) cautions that ‘with respect to those parts of human conduct of which wealth is not the principal object, to those Political Economy does not pretend that its conclusions are applicable’. Jevons (1866: 282) admits ‘economy (sic) does not treat of all human motives. There are motives nearly always present with us, arising from conscience, compassion, or from some moral or religious source, which economy cannot and does not pretend to treat. These will remain to us as outstanding and disturbing forces; they must be treated, if at all, by other appropriate branches of knowledge’. 22 North (2005: 4) makes the following warning: ‘Indeed the uncritical acceptance of the rationality assumption is devastating (sic) for most of the major issues confronting social scientists and is a major stumbling block in the path of future progress’. If one of leading contemporary, especially institutional, economists describes rational choice theory as ‘devastating’ and ‘a major stumbling block’ to scientific progress, it is something profoundly wrong about it, contrary to its proponents’ claim to its being a panacea not only for economics but also for all social science. They thus appear as what Comte calls a ‘delusion’ of a ‘universal explanation by a single law’, in this case that of ‘utility maximization’. Also, Williamson (2002: 171) warns that the ‘prevalence of the science of choice approach to economics has also been an obstacle. Economics throughout the 20th century has been developed predominantly as a science of choice. But the science of choice is not the only lens for studying complex economic phenomena, nor is it always the most instructive lens’. 23 See Akerlof (2002; Baxter (1993; Frank (2014); Gibbons (2005); Hicks (1979); Kahneman (2003); Lawson (1997); Lewin (1996); Mäki (2002); Shackle (1972); Simon (1982); Thaler (2018); Young (1996). 24 Some examples among contemporary economists include Akerlof (2002, 2007); Alesina and Giuliano (2015); Arrow (1994); Blume et al. (2015); Beaman et al. (2021); Gharad, Choi and Karlan (2021); Coase (1992, 1998); Fershtman and Persitz (2021); Gagnon and Goyal (2017); Guiso et al. (2006, 2015); Haavelmo (1997); Henrich (2000); Hodgson (1998); Jackson (2014); Kranton (2016); Phelps (2007, 2013); Roth (2018). 25 In this context, Say’s (1966: 49) ‘economy of society’ (l’économie de la société) can be understood or translated in English as a societal economy, albeit apparently it means the ‘economics of society’ in the original French. Say (1966: 49) mostly understands ‘social economy’ in the same way as and interchangeably with ‘political economy’—a study or science with its ‘own proper object’—and thus implies the idea of the social-as-societal economy which Comte (1983: 243) makes explicit. Even when Say (1966: 49, 115) uses the word the ‘social economy’ (l’économie sociale) he apparently means social economy as a science, just as when using the ‘political economy’ (l’économie politique) meaning ‘political economy’ also as a science. Thus, Say (1841: 2) also describes ‘political economy’ as the economy of the society (l’économie de la société) apparently in the sense of the economics of society since he understands it as a ‘science’ versus the real-life economy, rather than as the economy of the society in the sense of its economic system, as in Comte. Apparently, Say equates ‘political economy’ and ‘social economy’ as both signifying the economics of society and understands the ‘economy of the society’ as economic science, though comes close to, via apparent confusion or double understanding, its different meaning as the economic system of society, so Comte’s notion of the ‘social economy’ as a part of the social system. Also, Say seems to vacillate between defining political/social economy as the science of wealth and that of the whole ‘social body’, but eventually, as in his main work, settles for or pursues the first definition following Smith and as typical within classical political economy. Thus, Say (1841: 1–2) remarks that since Smith the name of political economy is reserved for the ‘science that treats wealth’—but ‘only social wealth founded on exchange and property that are social institutions’ versus ‘natural wealth’—as distinct from that of ‘politics only’. Also, echoing Say, Cournot (1960: 14) states that ‘from a standpoint of mere etymology, whatever appertains to the organization of society belongs to the field of Political Economy; but it has become customary to use this last term in a sense much more restricted [as] being occupied principally with the material wants of mankind’.
154 Milan Zafirovski 26 Pareto (1963: 1406–1408, 1415–1418) suggests that pure economics and its results ‘form an integral part of sociology, but only a part that must be taken in conjunction with other parts to yield a picture of what happens in reality [and] in solving problems we have to consider not just the economic phenomenon taken by itself, but also the whole social situation, of which the economic situation is only a phase’. Pareto (1963: 1551) infers that ‘knowledge of the causes which are economic could not have been supplied by political economy alone. That science had to be combined with another more general science [sociology] that would emphasize the multiplicity and great variety of the forces that were really determining phenomena which, though strictly economic to all appearances, actually depended upon other social phenomena’. 27 In Pareto’s (1932: 1313; 1963: 1439–1440) words, the ‘states of the economic system may be regarded as particular cases of the general states of the sociological system’. Pareto (1932: 1315; 1963: 1442) elaborates that the economic system is composed of certain units (‘molecules’) moved by ‘tastes’, performing ‘logical actions’ and maintained by the ‘connections of obstacles’ that oppose acquiring ‘economic goods’ but the ‘sociological system is much more complicated’ because it comprises units with ‘residues, derivations, interests, and proclivities’ alike engaging in both ‘logical and non-logical actions’. 28 Pareto (1932: 1315–1316; 1963: 1443) warns that ‘far removed from realities, instead, is the hypothesis that human beings draw logical inferences from residues (sentiments) and then act accordingly (and) a science, therefore, based on the hypothesis that logical inferences are drawn from certain given residues (i.e., on the hypothesis of universal rationality) would yield a general form of the social phenomenon having little or no contact with reality—it would be a sociology like a non-Euclidean geometry’. This implies that the economic approach to all human behavior or rational choice theory resting on the hypothesis of universal rationality lacks even minimal realism from a sociological viewpoint as well as a philosophical stance, just like its theoretical model, orthodox economics (Lawson 1997; Mäki 2002). 29 One exception is Pareto’s (2000: 94) observation of emotional forces operating in certain markets such as the stock market where even professional financiers ‘sometimes allow themselves to be swayed by sentiment’ comparable to ‘moral and religious crises’, for example, ‘fanatic enemies of alcohol’ implying or anticipating puritanical, religiously driven Prohibition in the United States at the time when he was writing. 30 Counterfactually, ‘economics of society’ would be justified if the economic system incorporated the social system as its part. However, this is logically absurd or empirically impossible for Pareto, as well as Durkheim and Comte, who all characterize the latter as more comprehensive and complex, although the modern economy also is reportedly a ‘very complicated system’, as is even more modern society as a whole, in particular a complex of institutions (Solow 1985; also, Bowles and Gintis 2000; North 2005). Exponents of the ‘economic approach to human behavior’ and ‘rational choice’ theorists imply through ‘economics imperialism’ as if such an impossibility were a reality or possibility conflating the influence of the economy and market on society—while denying or downplaying the opposite impact—as the social system being actually incorporated into the economy, as do, with some qualifications, Marx et al. But this is evidently a flagrant error for Pareto as a sociologist and even economist, as well as for Comte, Durkheim, Simmel and Weber, namely the fallacy of incorporating the general into the particular, analogous to that of fallaciously construing the economy as a part of the market or firms within ‘pure’ economics rather than conversely as invariably done. This analogy means that pure, orthodox economists hardly ever treat the economy so in relation to markets or firms instead treating these as its parts, and yet through the economic approach or ‘economics imperialism’ resort to the opposite procedure, construing all society as if it were really comprised—not just influenced by—so exhausted in its economic system. Remembering the logical fallacy and empirical error of reducing the economy to market or the firm as something most economists do not do will help ‘rational choice’ theorists realize that of their standard reductions of society to ‘economy’ and ‘markets’ as not to be committed as well. Yet, Pareto could comment or anticipate that the ‘economic approach to human behavior’ or ‘rational choice theory’ will not be what it is if does not commit such society to economy/market reductions, and not just overstating the effects of the second on the first and understating those in the opposite direction.
Sociological economics 155 31 Examples are also Akerlof and Holden (2016); Becker and Murphy (2000); Bowles and Gintis (2000); DellaVigna et al. (2022); Gibbons (2005); Hodgson (2000); Ioannides (2013) Jackson et al. (2012); Kranton (2016); Lewin (1996); Li, Matouschek and Powell (2017); Malmendier and Schmidt (2017); Tetlock et al. (2017). 32 Solow (1985: 328) elaborates that the ‘modern economy is a very complicated system. Since we cannot conduct controlled experiments on its smaller parts, or even observe them in isolation, the classical hard-science devices for discriminating between competing hypotheses are closed to us’. 33 See also Akerlof and Yellen (1987); Akerlof (2002); Ball et al. (2001); Bowles and Gintis (2000); Davis (1945); Reisman (1990, 1998); Sen (1994); Spengler (1940). 34 For criticisms of economics as applied physics, mechanics or mathematics and related theories, including general equilibrium theory, see Blaug (2001); Bowles and Gintis (2000); Furubotn and Richter (2010); Hodgson (1998); Mirowski (1989); Nelson (1994); North (2005); Piketty (2014); Schabas (2014). 35 Schumpeter (1949a: 60) specifies that ‘division of labor, the origin of private property, increasing control over nature, economic freedom, and legal security—these are the most important elements constituting the economic sociology of Adam Smith. They clearly relate to the social framework of the economic course of events’. 36 Akerlof (2002: 428) invokes Keynes’ General Theory as the ‘greatest contribution’ to psycho-sociological, behavioral macro-economics before the current period on account of its emphasis on the ‘role of psychological and sociological factors, such as cognitive bias, reciprocity, fairness, herding, and social status’, including ‘animal spirits’, in the economy and markets (also, Akerlof and Shiller 2009; Dube, Giuliano and Leonard 2019). Hence, he regards Keynes’ motivational and other assumptions as ‘quite consistent with the behavioral regularities documented by psychologists and sociologists’ (Akerlof and Yellen 1987). 37 Lewin (1996: 1294–1295) adds that ‘any serious reevaluation of the psychological underpinning of economics requires that careful attention be paid to sociological analyses. The sociological shortcomings (of economics) are much more fundamental and difficult to address. Why economists de-emphasize sociological issues in their work is a complex question’. Lewin 1996: 1297) also objects that ‘sociological economics found no place in this (neoclassical) framework’. 38 Hodgson (2000) suggests that Coase’s ‘definition of economics in terms of ‘social institutions’ can be seen as being very close to Durkheim’s definition of sociology and Schumpeter’s definition of economic sociology’. 39 Solow (1985: 328) posits that ‘all narrowly economic activity is embedded in a web of social institutions, customs, beliefs, and attitudes’, apparently echoing Polanyi (1968). 40 See Bourdieu (2005); Granovetter (1985; 2005, 2017); Polanyi (1968); also, Beaman et al. (2021); Fershtman and Persitz (2021); Gagnon and Goyal (2017); Goyal (2012); Jackson (2014); Jackson et al. (2017); Williamson (2000). 41 Ricardo (1975: 277) states that the ‘product of land—all that is derived from its surface with the united application of labour, machinery, and capital—is divided among three classes of the community’, namely landowners, capitalists and workers. 42 Atkinson (1997: 297) remarks that ‘income distribution was a subject of central importance to classical economists’ such as Ricardo. 43 Mill (1884: 155) acknowledges that the distribution of wealth ‘is a matter of human institution’ in that it ‘only depends on the laws and customs of society’ such that the ‘rules by which it is determined are what the opinions and feelings of the ruling portion of the community make them’, thus evoking Ricardo’s ‘classes of the community’ and perhaps anticipating Marx’s ‘ruling class’. Senior (1951: 3) also admits that the distribution of wealth is ‘liable to be affected by the peculiar institutions of particular Countries, in the cases for instance of slavery, legal monopolies, or poor laws’, though he claims that even in these the ‘natural state of things can be laid down as the general rule, and the anomalies produced by particular disturbing causes can be afterwards accounted for’. 44 Schumpeter (1954: 518) comments that ‘many writers, primarily the English theorists—such as Ricardo, James Mill, and Senior—did not bother to specify the details of the institutional frame they visualized but took them for granted’. Yet he emphasizes J. S. Mill’s ‘awareness of
156 Milan Zafirovski the historical relativity of social institutions and also of some at least of his “economic laws”’ (Schumpeter 1954: 519). 45 Jevons (1965: 20–21) submits that ‘it is only by subdivision, by recognising a branch of Economic Sociology, together possibly with two or three other branches of statistical, jural, or social science, that we can rescue our (economic) science from its confused state’. 46 Wicksteed’s (1934: 784) full statement is: ‘The better we understand the true function of the market in its widest sense, the more fully shall we realize that it never has been left to itself, and the more deeply shall we feel it never must be. Economics must be the handmaid of sociology’. Among rare contemporary economic sociologists who are familiar with or take account of this statement is Lie (1997: 354), who comments that ‘Wicksteed’s conclusion remains relevant today’ with regard to markets and their study. 47 Wicksteed’s (1934: 1) citation of Comte is the following in the original French without even an English translation: ‘L’analyse économique proprement dite ne me semble pas devoir finalement être conçue ni cultivée, soit dogmatiquement, soit historiquement, à part de l’ensemble de l’analyse sociologique, soit statique, soit dynamique’. 48 Pareto (1963: 3) states that ‘human society is subject of many researches. Some of them constitute specialized disciplines: law, political economy, the history of religions. To the synthesis of them all, which aims at studying human society in general, we may give the name of sociology’. 49 Pareto (1932: 1594–1595) proposes that in political economy the ‘equilibrium results from the opposition between tastes and obstacles. One finds a much greater complication in sociology where, to logical actions, alone considered by (political) economy, are to be added non-logical actions, and to logical-reasoning derivations’. 50 Rutherford 2001: 189) refers to the ‘socioeconomics’ of Schmoller and Weber within the Historical School, as well as of Durkheim in French sociology. 51 For illustration, like Weber and the Historical School overall, Sombart (1929: 2, 14; also, 1932) includes economic organization, as well as the ‘economic outlook or the economic spirit’ and ‘entrepreneurs’, into ‘culture systems or culture spheres’, together with the state, law, religion, art, philosophy, science and speech. Hence, Sombart (1929: 2) suggests a la Comte that every economic and other historical facts ‘must finally be assigned its place in these great culture systems and acquire its ultimate significance in relation to one of them’. 52 For instance, Veblen (1934: 72) treats economic and related phenomena such as the leisure class and private property as ‘elements of social structure’ seemingly a la Durkheim. More broadly, Veblen (1899: 143) observes that the ‘industrial side of life is not the whole of it, nor does the scheme of life in vogue in any community or at any cultural stage comprise industrial conduct alone. The social, civic, military, and religious interests come in for their share of attention, and between them they commonly take up by far the larger share of it’. 53 Marshall (1961: 618) remarks that the ‘present movement towards Sociology in America, England and other countries recognizes the need for the intensive study of economics and other branches of social science’. 54 Marshall (1961: 465) warns that ‘if custom prevents the progress of one generation, the next generation would start from the lower level than otherwise’. 55 Keynes (1960: 161) elaborates that ‘a large proportion of our positive activities depends on spontaneous optimism rather than on a mathematical expectation, whether moral or hedonistic or economic. Most probably, most of our decisions to do something positive the full consequences of which will be drawn out over many years to come can only be taken as a result of animal spirits—of a spontaneous urge to action rather than inaction, and not as the outcome’ of cold calculation. 56 J. B. Clark therefore implies what his contemporary, the US economist-sociologist Edward Ross (1899) denotes the ‘sociological frontier of economics’. 57 Schumpeter (1949b: 203–204) similarly denotes economic sociology as the ‘description and interpretation—or “interpretative description”—of economically relevant institutions, including habits and all forms of behavior in general, such as government property, private enterprise, customary or “rational” behavior’. He thus almost replicates Weber’s ideas of ‘economically relevant’ phenomena, ‘interpretative understanding’, the ideal type of capitalist entrepreneurs, rational and traditional action etc. In this connection, Phelps (2013: 78) remarks that Weber’s work The Protestant Ethic and the Spirit of Capitalism ‘must have been
Sociological economics 157 read by every sociologist ever since and by Schumpeter, who is wrongly credited with coining “the entrepreneurial spirit”’. 58 Some examples are Boulding (1957); Bowles and Carlin (2020); Charness, Rigotti, and Rustichini (2007); Coase (1992, 1998); Greif (1998); Hodgson (1999); North (1994, 2005); Ostrom (2005); Piore (1996); Solow (1985, 1990); Spence (2002); Tetlock et al. (2017); Williamson (2002, 2005). 59 Selected instances include Basu (2018); Becker and Murphy (2000); Fershtman and Segal (2018); Hicks (1959); Jackson et al. (2017); Kosse et al. (2020); MacDonald (1965); March and Simon (1958); Robbins (1952); Sen (2009). 60 Cases in point are Akerlof (2002, 2007); Akerlof and Kranton (2000); Akerlof and Holden (2016); Atkinson (1997); Basu (2000); Gagnon and Goyal (2017); Gorodnichenko and Roland (2011); Goyal (2012, 2019); Hodgson (1998, 1999); Ioannides (2013); Jackson (2014); Jackson et al. (2017); Piketty (2014, 2020); Sobel (2002); Solow (1985); Williamson (2000, 2002); for sociological influences see Granovetter (2005, 2017). 61 See Becker and Pascali (2019); Gharad et al. (2021); Campante and Yanagizawa-Drott (2015); Cantoni, Dittmar and Yuchtman (2018); Ekelund, Hébert and Tollison (2002); Falk et al. (2018); Iyer (2016); McCleary and Barro (2006); Landes (1998); Phelps (2007, 2013); Squicciarini (2020); also, Alesina and Giuliano (2015). 62 Phelps (2013: 78) adds that The Protestant Ethic and the Spirit of Capitalism ‘was not the high point of Weber’s social thought. His big book, 1922’s Wirtschaft und Gesellschaft (Economy and Society), offers first drafts on several basic problems in the social sciences: the state, companies, bureaucracy, rationality, legitimacy, and more—topics that went on to enliven social [science]’. 63 See Atkinson (1997); Boulding (1957); Bowles and Gintis (2000); Hodgson (1998, 2000); (Lewin 1996); Parsons (1935); Phelps (2013); Piore (1996); Rutherford (2001); Schumpeter (1954); Solow (1985, 1990); Spengler (1940); Young (1996). 64 Regarding the issue of what causes or determines social institutions within especially Durkheimian sociological institutionalism, Durkheim provides an answer consistent with socio-institutional economics or institutionalist economic sociology but opposite to the ‘economic approach’ or ‘rational choice’ theory and to some extent the ‘new’ institutional economics. Generally, Durkheim (1966: 110–111) posits that social facts ‘are not explained by the simple consideration that they serve some end. The determining cause of a social fact should be sought among the social facts preceding it and not among the state of the individual consciousness’. Such a causation hence applies to what Durkheim (1966: lvii) denotes the ‘genesis’ of institutions deemed crucial social facts. This implies that the causes of certain institutions consist of prior institutional arrangements and other social structures, simply society, and not individual ends, decisions and behaviors contrary to the ‘economic approach’, ‘rational choice’ theory, as well as the ‘new’ institutional economics. In short, institutions have an intrinsic societal origin, logic and constitution within Durkheimian institutionalism. Most adherents of sociological economics or institutionalist economic sociology explicitly or implicitly share or approach Durkheim’s view that the overarching origin or determinant of institutions is social structure or society and collective action rather than private interests and actions. At any rate, institutionalism, within sociological economics or economic sociology, concerns primarily the impact of social institutions on the economy rather than their origins that instead preoccupy the ‘economic approach’ or ‘rational choice’ theory and its extension into the ‘new’ institutional economics by individualistic and economistic explanations a la the explanatory panacea of private cost-profit optimizing. 65 For illustration, Akerlof (2002: 413) observes that ‘institutions become a major determinant of market structure’ (see also Bowles and Gintis 2000; Charness, Rigotti, and Rustichini 2007; Commons 1931; Costa-Font and Macis 2017; Furubotn and Richter 2010; Greif 1998; Greif and Tabellini 2010; Hodgson 1998; Myrdal 1953; Ostrom 2005, 2010; Rutherford 2001; Samuelson 1983; Spence 2002; Veblen 1934). For some surviving traces or implications of Durkheimian or Veblenian institutionalism in the ‘new’ institutional economics, see Coase (1992, 1998), North (1994, 2005), and Williamson (2000, 2002). Also, Engl, Riedl and Weber (2021: 261) reminiscent of Durkheim state that the ‘success of any society [economy] is largely determined by the formal and informal institutions (e.g., laws and norms) that govern behavior’. Such statements make many contemporary economists appear unwittingly more Durkheimian and thus sociological than they seem to realize or acknowledge.
158 Milan Zafirovski 66 Davis (1945: 134) alerts that ‘his economic principles Adam Smith conceived as valid only within that more or less implicit institutional framework, the social order commonly identified with early English liberalism’. 67 See Akerlof (2002); Akerlof and Holden (2016); Bowles and Carlin (2020); Gibbons (2005); Jackson et al. (2017); Li, Matouschek and Powell (2017); Rajan and Zingales (1998); Williamson (2002). 68 See Akerlof (2007); Bagwell and Bernheim (1996); Bakshi and Chen (1996); Becker and Murphy (2000); Bursztyn et al. (2018); Fershtman and Segal(2018); Immorlica et al. (2017); Leibenstein (1950). 69 See Akerlof (2007); Alesina and Giuliano (2015); Desmet, Ortuño-Ortín, and Wacziarg (2017); Fisman, Paravisini, and Vig (2017); Guiso et al. (2006); Kranton (2016); Montgomery (2010; also, Iyer 2016). 70 See Akerlof (2002, 2007); Akerlof and Kranton (2000, 2002); Gibbons (2005); Hodgson (2000); Jackson (2014); Jackson et al. (2012; 2017); Phelps (2007; 2013); Piore (1996); Williamson (1998, 2000).
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166 Milan Zafirovski Pareto, V., 1932 [1916]. Traité de sociologie generale. Paris: Payot. Pareto, V., 1963 [1935]. The Mind and Society. A Treatise on General Sociology. New York: Dover Publications. Pareto, V., 2000 [1901]. The Rise and Fall of Elites: An Application of Theoretical Sociology. New Brunswick: Transaction Publishers. Parsons, T., 1928. Capitalism in recent German literature: Sombart and Weber. The Journal of Political Economy, 36(6), pp. 641–661. Parsons, T., 1929. Capitalism in recent German literature: Sombart and Weber (concluded). The Journal of Political Economy, 37(1), pp. 31–51. Parsons, T., 1932. Economics and sociology: Marshall in relation to the thought of his time. Quarterly Journal of Economics, 46(2), pp. 316–347. Parsons, T., 1935. Sociological elements in economic thought. I. The Quarterly Journal of Economics, 49(3), pp. 414–453. Parsons, T., 1951. The Social System. New York: The Free Press. Parsons, T., 1967 [1936]. The Structure of Social Action. A Study in Social Theory with Special Reference to a Group of Recent European Writers. New York: The Free Press. Parsons, T. and Smelser, N., 1965 [1956]. Economy and Society, A Study in the Integration of Economic and Social Theory. New York: The Free Press. Perez-Saiz, H. and Xiao, H., 2022. Cultural affinity, regulation, and market structure: Evidence from the Canadian retail banking industry. American Economic Journal: Microeconomics, 14(1), pp. 451–489. Phelps, E., 2007. Macroeconomics for a modern economy. American Economic Review, 97(3), pp. 543–561. Phelps, E., 2013. Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change. Princeton, NJ: Princeton University Press. Piketty, T., 2014. Capital in the Twenty-First Century. Cambridge, MA: The Belknap Press of Harvard University Press. Pigou, A., 1960 [1920]. Economics of Welfare. London: Macmillan. Piketty, T., 2020. Capital and Ideology. Cambridge, MA: The Belknap Press of Harvard University Press. Piore, M., 1996. Review of The Handbook of Economic Sociology. Journal of Economic Literature, 34(2), pp. 741–754. Piore, M., 2002. Economics and sociology. Revue économique, 53(2), pp. 291–300. Polanyi, K., 1968. The economy as instituted process. In E. Leclair and H. Schneider (eds.) Economic Anthropology. New York: Holt, Rinehart And Winston, 122–143. Pryor, F., 2002. The Future of U.S. Capitalism. New York: Cambridge University Press. Rajan, R. and Zingales, L., 1998. Power in a theory of the firm. Quarterly Journal of Economics, 111(3), pp. 387–428. Reisman, D., 1987. Adam Smith’s Sociological economics. London: Macmillan. Reisman, D., 1990. Alfred Marshall’s Mission. New York: St. Martin’s Press. Reisman, D., 1998. Adam Smith on market and state. Journal of Institutional and Theoretical Economics, 154(2), pp. 357–384. Ricardo, D., 1975 [1817]. Principles of Political Economy and Taxation. Cambridge: Cambridge University Press. Robbins, L., 1952. An Essay on the Nature and Significance of Economic Science. London: Macmillan. Roe, M. J. and Siegel, J. I., 2009. Finance and politics: A review essay based on Kenneth Dam’s Analysis of Legal Traditions in the Law-Growth Nexus. Journal of Economic Literature, 47(3), pp. 781–800. Ross, E., 1899. The sociological frontier of economics. Quarterly Journal of Economics, 13(4), pp. 386–395. Rostow, W., 1960. The Stages of Economic Growth. Cambridge: Cambridge University Press. Roth, A. E., 2018. Marketplaces, markets, and market design. American Economic Review, 108(7), pp. 1609–1658.
Sociological economics 167 Rutherford, M., 2001. Institutional economics: Then and now. Journal of Economic Perspectives, 15(3), pp. 173–194. Samuelson, P., 1983 [1947]. Foundations of Economic Analysis. Cambridge, MA: Harvard University Press. Samuelson, P., 1998. How Foundations came to be. Journal of Economic Literature, 36(3), pp. 1375–1386. Sandmo, A., 2007. Leon Walras and the Nobel peace prize. Journal of Economic Perspectives, 21(4), pp. 217–228. Say, J. -B., 1841. Traité d’économie politique ou simple exposition dela manière dont se forment, se distribuent et se consomment lesrichesses. Gallica.bnf.fr/Bibliothèque nationale de France. Say, J. B., 1964 [1803]. A Treatise on Political Economy. New York: A. M. Kelley. Say, J. B., 1966 [1852]. Cours complet d’économie politique pratique. Paris: Guillaumin. Schabas, M., 2014. A World Ruled by Number: William Stanley Jevons and the Rise of Mathematical Economics. Princeton, NJ: Princeton University Press. Schumpeter, J., 1939. Business Cycles. Vols. I and II. New York: McGrawHill. Schumpeter, J., 1941. Alfred Marshall’s Principles: A semi-centennial appraisal. The American Economic Review, 31(2), pp. 236–248. Schumpeter, J., 1949a. The Theory of Economic Development. An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle. Cambridge, MA.: Harvard University Press. Schumpeter, J., 1949b. The Communist Manifesto in sociology and economics. Journal of Political Economy, 57(3), pp. 199–212. Schumpeter, J., 1950. Wesley Clair Mitchell (1874–1948). Quarterly Journal of Economics, 64(1), pp. 139–155. Schumpeter, J., 1951. Essays on Economic Topics. Port Washington: Kennikat Press. Schumpeter, J., 1954. History of Economic Analysis. New York: Oxford University Press. Schumpeter, J., 1956. Ten Great Economists. London: Allen and Unwin. Sen, A., 1977. Rational fools: A critique of the behavioral foundations of economic theory. Philosophy And Public Affairs, 6(4), pp. 317–344. Sen, A., 1990. Commentary. In R. Swedberg (ed.) Economics and Sociology. Redefining their Boundaries: Conversations with Economists and Sociologists. Princeton, NJ: Princeton University Press, 249–267. Sen, A., 1994. The formulation of rational choice. American Economic Review, 84(2), pp. 385–390. Sen, A., 1995. Rationality and social choice. The American Economic Review, 85(1), pp. 1–24. Sen, A., 1999. The possibility of social choice. American Economic Review, 89(3), pp. 349–378. Sen, A., 2009. The Idea of Justice. Cambridge, Mass: The Belknap Press of Harvard University Press. Senior, W. N., 1951 [1836]. An Outline of the Science of Political Economy. New York: A. M. Kelley. Shackle, G. L. S., 1972. Epistemics and Economics. Cambridge: At The University Press. Shiller, R., 2003. From efficient markets theory to behavioral finance. Journal of Economic Perspectives, 17(1), pp. 83–104. Shiller, R. and Shiller, V., 2011. Economists as worldly philosophers. American Economic Review, 101(3), pp. 171–175. Simon, H., 1982. Models of Bounded Rationality. Cambridge: MIT Press. Smelser, N., 1997. Problematics of Sociology: The Georg Simmel Lectures, 1995. Berkeley: University of California Press. Smelser, N. and Swedberg, R., 2005. The sociological perspective on the economy. In N. Smelser and R. Swedberg (eds.) The Handbook of Economic Sociology. Princeton, NJ: Princeton University Press, 3–26 Smith, A., 1937 [1776]. An Inquiry into the Nature and Causes of the Wealth of Nations. New York: Random House, Inc. Smith, V., 2003. Constructivist and ecological rationality in economics. American Economic Review, 93(3), pp. 465–508.
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Part II
Historical overview of economic sociology
7 Elements of economic sociology in classical political economy Rachael Behr and Virgil H. Storr
Introduction Classical political economy (CPE) and post-CPE (henceforth CPE), which includes the Austrian, Bloomington, and Virginia Schools of thought, is an approach to political economy that follows in the “mainline” tradition of Adam Smith (Boettke and Candela 2020; Mitchell and Boettke 2017).1 Arguably, three propositions advanced by Smith about the nature of the social world characterize the CPE and the schools of thought that comprise it (see Boettke et al. 2016). First, classical political economists believe that individuals face both cognitive and epistemic limits as they attempt to navigate the social world. Second, they believe that human activity is guided and directed by formal and informal rules which act as points of orientation. Third, they believe that social coordination and cooperation are possible without central direction. These propositions form the basis of the Austrian School’s discussions of entrepreneurship and the market process, the Virginia School’s discussions of constitutional choice and political decision-making, and the Bloomington’s schools discussions of polycentricity and collective action. We argue that there are strong links between CPE and economic sociology, and especially between CPE and the new economic sociology (henceforth NES). In the later nineteenth and early twentieth centuries, the distinction between economics and sociology was not so stark. Additionally, CPE and NES share many of the same intellectual forebearers. For instance, Max Weber has deeply influenced both CPE and NES. As Smelser and Swedberg (2005: 8) described, “among the classics in economic sociology Max Weber occupies a distinct place. He proceeded furthest toward developing a distinct economic sociology, laying its theoretical foundation and carrying out empirical studies.” Similarly, as Käsler (1988: ix) explains, “among sociologists, Weber is recognized as one of the principal ‘founding fathers’ of the discipline.” Also, “Weber has become regarded throughout the world as an undisputed ‘classic’ of sociology. Every lexicon or ‘history’ of this discipline mentions his name as central and emphasizes his authoritative influence on its development” (Käsler 1988: 211). Similarly, Weber was a key figure in the development of Austrian economics. As Boettke and Storr (2002: 1730) write, “Weber and the Austrians have a deep and symbiotic relationship.” Ludwig von Mises, a founder of the modern school of Austrian economics, devoted large portions of both his Epistemological Problems of Economics (1981 [1933]) and Human Action (2013 [1949]) to a critical exploration of Weber’s methodological approach. Indeed, Mises and subsequently most Austrian political economists adopted Weber’s position on methodological individualism, value freedom, and
DOI: 10.4324/9780367817152-9
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Verstehen. As Lachmann’s (1951: 413) review of Mises’ Human Action contends, “in reading this book we must never forget that it is the work of Max Weber being carried out here.” Additionally, Alfred Schutz was a student of Mises and the leading proponent of phenomenological sociology. Mises was the one who encouraged Schutz to pursue his studies of Weber. Prendergast (1986), for example, argued that Schutz’s early writings provided philosophical and sociological foundations for Mises’ work. As Barber (2002) added, Schutz’s primary work, Phenomenology of the Social World, “supplied philosophical foundations for Max Weber’s sociology and for economics, with which he was familiar through contacts with colleagues of the Austrian school.” There are similar links that can be drawn between CPE, NES, and Alexis de Tocqueville. Indeed, central figures of both CPE and NES have written books dedicated to his ideas in reference to their field: Richard Swedberg (2009), one of modern economic sociologists most prominent thinkers, and Vincent Ostrom (1997), one of the founders of the Bloomington School.2 Tocqueville, though a lesser figure in economic sociology, explored the relationship between social phenomena and economic outcomes in ways quite like Max Weber. And, as V. Ostrom acknowledges, his own “effort is to deepen the foundations implicit in Tocqueville’s analysis so that we might recognize the theoretical merit of Tocqueville’s achievements and begin to explore potentials for crafting democratic societies built on principles of self-governance” (Ostrom 1997: 30). This chapter discusses the connections between CPE and NES and highlights what both camps might learn from one another. Specifically, we point to Weber’s writings on the scope of socio-economic inquiry, NES’s discussion of the social nature of economic action, and CPE’s discussion of the social situation of economic phenomena. We contend that for several reasons CPE and NES are natural dialogical partners.
The scope of socio-economic inquiry Economics is arguably a narrow field. The economics found in most introductory textbooks, for instance, is focused on buying and selling, consumers and producers, demand and supply, and little else. Often, even the animating agents (i.e., entrepreneurs), and context of economic activity (i.e., the formal and informal institutions that inform economic action), are absent or in the background.3 Weber, however, saw the social and economic realms as inextricably linked. In particular, Weber (1949) argued that social economic phenomena were comprised of economic phenomena, economically relevant phenomena, and economically conditioned phenomena. The first, economic phenomena or “pure” economic phenomena, are described as the “events and constellations of norms, etc. the economic aspect of which constitutes their primary cultural significance for us” (Weber 1949: 64). An example of this would be the economic institution of banks (Swedberg and Agevall 2016: 73). Or, as Storr (2013: 6) details, “economic events such as exchange and competition [and] economic norms such as offering employees a lunch break” fall under the category of pure economic phenomena. These phenomena lend themselves to a study of economic aspects, not social ones. Social scientists study pure economic phenomena for an economic understanding. Second is economically relevant phenomena. These phenomena “are non-economic phenomena that are relevant for economic phenomena” (Swedberg and Agevall
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2016: 73). These phenomena include “all the activities and situations constituting an historically given culture [that] affect the formation of the material wants, the modes of satisfaction, and the integration of interest groups…” (Weber 1949: 66). Ascetic Protestantism provides a main example of this type of phenomenon, one that Weber employed in his famous work. In general, as Storr (2013: 6) points out, “gender, racial, ethnic and class relations and biases, religious and political beliefs and institutions” all are a part of economically conditioned phenomena because “they affect actors’ preferences and decisions.” Third, Weber details economically conditioned phenomena, which are defined as “non-economic phenomena that are partly conditioned by economic phenomena, e.g., the religious beliefs of the social classes” (Swedberg and Agevall 2016: 73). In other words, these phenomena are, as Weber himself put it, “not economic…and the economic effects of which are of no…interest to us…but which in individual instances are in their turn more or less strongly influenced in certain important aspects by economic factors” (Weber 1949: 64). As Storr (2013: 6) detailed, “families and friendships, the fiscal aspects of the state, and attitudes towards…immigrants, to the extent that they are influenced by economic phenomena, would fall into this category.” The kinds of subjects that both CPE and NES focus on, thus, fit comfortably with Weber’s schema. Taken as a whole, his phenomena encapsulate the entangled world of social economy. This has been described by Zelizer as “connected lives” (Zelizer 2005) or as “differentiated ties” (Zelizer 2000). Her point is that relationships (Zelizer specifically focuses on intimacy) are embedded within social and economic phenomena. Her argument is in direct contention with the “hostile worlds” and “nothing but” views: the “hostile worlds” view argues that relationships and the economy are incompatible, and that the two spheres should not be mixed. The “nothing but” view explains things like intimacy as driven by nothing but one phenomenon. For instance, intimacy to some economists could be explained as being nothing but rational economic action; or to some sociologists, as nothing but sociological phenomenon. Zelizer argues that both of these views ignore a Weberian understanding that economic action is socially embedded. Boettke and Storr (2002) have similarly described this as treble embeddedness, i.e., society, the polity, and the economy are on the same “level” of comparison and the individual is simultaneously embedded within each of these spheres. Rather than viewing the polity embedded within society, and the economy embedded within the polity (what is referred to as single embeddedness; see Boettke and Storr 2002: 169–170), one must understand that all three influence, overlap, and intersect each other, creating a treble embeddedness. Treble embeddedness allows us to analyze individuals and communities that are at once affected by and also effect change within all three areas – society, the polity, and the economy. Consider, for instance, how comfortably the study of entrepreneurship, rent seeking, and efforts to overcome commons problems would fit within the scope of what Weber’s social economics, even though those subjects, for a time at least, were seen as outside the economics. Austrian School economist Kirzner’s (1973) theory of entrepreneurship, for instance, rests upon his understanding of entrepreneurial “alertness.” The entrepreneur is alert to hitherto unnoticed profit opportunities, where he can “buy low and sell high” and provide goods and services that help satisfy otherwise unsatisfied human wants. This alertness, of course, requires knowledge of society, the polity, and the economy,
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and as we will discuss later, these all affect individuals (including entrepreneurs), and individuals are also involved in their crafting. As Lavoie (1991: 46) explains, profit opportunities are not so much like road signs … as much as they are like difficult texts in need of a sustained effort of interpretation. Entrepreneurship is not only a matter of opening one’s eyes, of switching on one’s attentiveness; it requires directing one’s gaze. Similarly, Arentz et al. (2013) argue that prior knowledge and experience play a critical role in an entrepreneur’s ability to identify and exploit entrepreneurial opportunities. Consider also Virginia School economist Tullock’s (1967, 1993) discussions on rent seeking. Tullock argued that certain privileges or extra-economic profits (rents) can be secured by firms through the manipulation of the political environment. Tariffs, for instance, were one of Tullock’s main examples. If a domestic producer can lobby for tariffs on the goods they produce, then more domestic goods, and less foreign goods, are produced and sold on the marketplace. This benefits the firm, but the resources expended in securing the tariffs and costs to consumers of paying higher prices are socially wasteful. As with commercial entrepreneurs, the successful political entrepreneurs must be aware of contextual nuances within society, the polity, and the economy to rent seek effectively. Also of note is Bloomington school founder E. Ostrom’s (1990) ideas on common pool resource (CPR) problems (discussed further in Section III). Ostrom detailed how the options for governing (CPRs) were not simply between private ownership and government ownership. Ostrom identified a third solution simply by observing the world around her: individuals have the ability to craft their own means of self-governance over the commons. While it may not work in every scenario, Ostrom found that many communities were already doing just this, i.e., solving CPRs without relying on topdown solutions or resorting to private ownership (E. Ostrom 1990, 2009). The range of topics that NES scholars explore are similarly extensive and fit within a framework of Weber’s economic sociology. Consider, for instance, the field’s discussion of social capital (see Coleman 1988; Portes 2000). Social capital has been used to describe an individual’s social connections, the resources that individuals can access by virtue of those connections, and the norms that govern those connections. These relations are both economically conditioned, i.e., social relations are undoubtedly shaped by economic conditions, and economically relevant, i.e., social relations and the norms that are enforced through social relations certainly shape economic actions. The discussion of structural holes and (strong and weak) ties within NES, similarly, focuses on how social structures and individuals positions in that structure shape economic opportunities and choices (see Burt 2004; Granovetter 1973, 1983; Uzzi 1996). Economic circuits are, similarly, both economically conditioned and economically relevant phenomena (see Mears 2011; Wherry 2012; Zelizer 2013). Remittances, microcredit, and local monies and currencies all are emblematic of economic circuits: they rely upon local norms and enforcement for their maintenance and accreditation. Circuits likewise rely upon an understanding of individuals’ treble embeddedness within society, the polity, and the economy. It seems clear that CPE and NES are natural dialogical partners. Like Weber, a forebearer of both fields, CPE and NES both emphasize that the political, social, and economic realms are inextricably linked. Both fields employ notions of embeddedness to get a holistic view of human beings within society, the polity, and the economy.
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The social nature of economic action and the social construction of institutions Mainstream economic textbooks often begin with a model of Robinson Crusoe, a fiction figure from Daniel Defoe’s novel of the same name who is stranded alone on a deserted island. Crusoe has an allocation problem. He must decide how to spend his time to maximize the quality of his life. He must choose how much time to devote to fishing/hunting/gathering and how much time to devote to leisure. This thought experiment of an economy comprised of a single individual has been fruitfully deployed by economists to make sense of consumption and production behavior as well as to study public choice and economic growth. For CPE and NES scholars, the action begins once Friday joins Crusoe on the island. For both camps, economic action necessarily takes place within a social environment. Buchanan has criticized the Crusoe economics of mainstream economics (Buchanan 1964). He details that simply analyzing Crusoe, before Friday enters the island, is not “an appropriate starting point for our discipline, even at the broadest conceptual level” (Buchanan 1964: 217). A better starting point is examining the “exchange, trade, and agreement” that Crusoe and Friday engage in together (Buchanan 1964: 218). The Virginia School, with its emphasis on studying social action, rather than action within a vacuum, understands the importance of the social nature of economic action. Buchanan himself was said to believe “that economics is not a science” but instead an art, recognizing that economics was more about exchange than it was about maximization or equilibrium (Boettke 2012: 245). Similarly, Swedberg and Granovetter, two of the founders of NES, emphasized the idea that economic action is socially influenced. Granovetter’s famous article, “Economic Action and Social Structure: The Problem of Embeddedness,” for instance, noted that social scientists often take an under- or over-socialized view of human actors. Granovetter argued, however, that individuals are neither entirely devoid of all culture, norms, and other social elements (under-socialized) nor are they entirely driven by culture, norms, and other social elements (over-socialized). A middle road of sorts allows the social scientist to understand human beings as both shaped by, and constantly shaping, their environments and social structures. Similarly, in “The Strength of Weak Ties” (1973), Granovetter detailed how weak ties, those we may have with acquaintances and distant friends, actually provide a strength that strong ties do not. Weak ties provide an individual with the ability to reach out to distant groups for help and favors. For example, Granovetter examines how most job positions are found through the help of weak ties, since they have connections with whom the jobseeker may not have been aware. Overall, Granovetter’s research agenda affirmed “the affinity between his Weber’s economic sociology and his own analysis of embeddedness” (Swedberg 1998: 221 note 4). Granovetter along with Swedberg have described the three propositions that define NES: economic action is social action, economic action is socially situated, and economic outcomes are socially constructed (the third proposition will be explored later in this section). The proposition that economic action should be seen also as social action retained cursory agreement among mainstream economists and economic sociologists. Both groups “agree in a general way that economic action is a type of behavior that has to do with choosing among scarce means that have alternative uses… At this point, however, the agreement ends” (Granovetter and Swedberg 1992: 6). Mainstream economists, however, adopt a narrow view of economic action where actions as devoid of any cultural meanings and not oriented toward any type or group of actors. A narrow
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understanding of economic action, Granovetter and Swedberg (1992: 6) argued, “goes too far in eliminating all noneconomic motives… But to make this assumption in each and every situation, as in today’s mainstream economics, is profoundly misleading.” As an alternative, NES offers the ability to study and understand that some noneconomic motives exist in action. Granovetter and Swedberg (1992: 7) argued that “…economic action cannot, in principle, be separated from the quest for approval, status, sociability, and power.” The second proposition that Granovetter and Swedberg highlight is that economic action is socially situated. This is arguably another key area of disagreement between mainstream economics and NES. Mainstream economics centers on homo economicus, a completely atomistic being who responds essentially automatically to incentives. Sometimes homo economicus is assumed to be perfectly rational, in possession of all the relevant facts and situated into an action space devoid of institutions. Often the agent is modeled as plagued by a number of biases that they cannot overcome and/or are placed in an environment where institutions are modeled as constraints rather than say points of orientation. Granovetter and Swedberg (ibid., 9), on the other hand, argued that “economic action is socially situated and cannot be explained by reference to individual motives alone. It is embedded in ongoing networks of personal relationships rather than being carried out by atomized actors.”4 The Austrian School has similarly placed an emphasis on the need to understand the social nature of economic action. Mises (1957: 159–160) gave the fullest account for a need of understanding of embeddedness: Every individual is born into a definite social and natural milieu. An individual is not simply man in general, whom history can regard in the abstract. An individual is at any instant of his life the product of all the experiences to which his ancestors were exposed plus those to which he himself has so far been exposed. An actual man lives as a member of his family, his race, his people, and his age; as a citizen of his country; as a member of a definite social group; as a practitioner of a certain vocation. He is imbued with definite religious, philosophical, metaphysical, and political ideas, which he sometimes enlarges or modifies by his own thinking. His actions are guided by ideologies that he has acquired through his environment. Mises, along with other Austrian thinkers at the time, understood that individuals act within a complex social environment. His actions come from somewhere, and these can best be understood through economically relevant and economically conditioned phenomena, and through NES’s understanding of action as social action. The Bloomington School, most notably associated with Elinor and Vincent Ostrom, emphasizes, too, that economic action is socially influenced. In particular, the Bloomington School emphasis on self-governance has highlighted that individuals often act differently than standard economic theory would predict, because of their social situations and their ability to work together with others. Again, E. Ostrom’s (1990) famous study was of how communities overcome commons problems and escape Hardin’s (1968) tragedy of the commons was not insurmountable. Indeed, the Ostroms’ focus on the inherent social nature of economic action is evidenced in their “emphasis on concrete, real world cases” (Aligica et al. 2017: 6). For example, E. Ostrom’s work on governing the commons (1990) detailed how the options for governing CPRs were not merely private ownership or government ownership. The former may require large financial
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means or the ability to overcome regulatory burdens, which may prove impossible. The latter requires taxes and other regulatory burdens to be placed upon the CPR’s users. A third solution, which Ostrom proposed in her work, is the ability for the resource to remain a CPR and for individuals within the community to craft their own means of self-governance over the commons. While it will not work in every scenario, Ostrom applied these ideas and found that many communities were already doing just this, without the need for private or public ownership (E. Ostrom 1990, 2009). It is apparent that Ostrom took Weber’s understanding of social economic phenomena to heart. Her work understands that the typical tragedy of the commons story did not take into consideration, specifically, that economic actors are socially situated. For example, the relationships that those operating within a CPR maintain matter as to whether they can craft their own governing solutions and institutions. If they have close-knit relationships with those who also use the CPR, it is likely the users will be able to craft governing solutions of their own. This is precisely what Ostrom detailed in her studies of fisheries, where the CPR was not depleted but instead governed by its users (Ostrom 2009; Aligica and Sterpan 2017). If, however, users are unaware or weary of others using the CPR, or they are disconnected from others who use the resource, they are unlikely to be able to adopt the self-governing structures to overcome commons problems. Ostrom recognized that the relationships in the lives of individual actors mattered in real-life scenarios. Economists may discuss homo economicus in their models, but without an understanding of real-life relationships, social actions, and their effects on economic institutions, the theory may be lacking. Ostrom showed just this in her updated understanding of Hardin’s tragedy of the commons. Similarly, V. Ostrom’s later work, drawing upon Tocqueville, stressed “how norms and cultural evolution matter for democratic governance” (Aligica et al. 2017: 3), which is related to the Austrian interaction thesis (discussed below), and of course, the idea from NES that economic institutions are social constructions. V. Ostrom’s (1997) work detailed that “[m]ethods of normative inquiry for making interpersonal comparisons can only be realized by drawing on the resources of language and culture that have become a part of human existence in a world of human creativity” (V. Ostrom 1997: 13). Indeed, he pleaded that “[w]e need to consider the cultural foundation of creative civilizations if people are to avoid becoming ‘a sacrifice to ills of which they are ignorant’ (Tocqueville [1835–1840] 1945, 1: 231)” (V. Ostrom 1997: 225). In other words, studies in the social sciences must ground themselves in the culture of the surrounding community, without which the studies will be woefully misguided. He continued, “Family, neighborhood, and community bring together all essential elements in constituting all the diverse aspects of language usages that are constitutive of the matrices of society and contingencies of culture” (V. Ostrom 1997: 298). The Ostroms understood the necessity of studying social action as shaping and being shaped by economic institutions. By viewing culture as a main influence, the Ostroms were able to take a more comprehensive approach to understanding and studying communities and entire civilizations. Likewise, the Virginia School recognizes that social, cultural, and institutional settings shape the incentives that people face, yet they also discuss that actors can influence those very settings. Indeed, the entire school was founded upon the very idea that institutions like social settings change incentives and behavior. As Buchanan explained (1978: 364), Man acts within a set of institutional constraints that have developed historically: in part by sheer accident; in part by survival in a social evolutionary process; in part
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by technological necessity; in part by constructive design (correctly or incorrectly conceived). Buchanan emphasized that institutions and rules can largely alter behavior. That is, economic action takes place within the realm of social situations, including institutions and rules. This is why Buchanan sought to study man within the political sphere, where incentives like profit-and-loss calculation are largely absent, and consequently alter an individual’s behavior. This, of course, is closely related to Granovetter and Swedberg’s second proposition that economic action is socially situated. Ostrom, as discussed above, largely focused on applied case studies (Aligica et al. 2017: 6). NES, similarly, places emphasis on analyses of the real-world, where situations exist outside of a vacuum. As Granovetter and Swedberg (1992: 9) detailed, “economic action is socially situated and cannot be explained by reference to individual motives alone. It is embedded in ongoing networks of personal relationships rather than being carried out by atomized actors” (Granovetter and S wedberg 1992: 9). In the broader sense, then, both CPE and NES understand that social context, which is both shaped by the individuals creating rules of the game, and which also shapes individuals within that game, is important for the social sciences. Weber anticipated this appreciation of the social construction of institutions. Indeed, Weber understood that individuals were involved in the construction of, and also constructed by, the economic institutions within which they existed, which is crucial for any economic analysis (Aggasi 1960, 1975; Boettke 1989, 1990a, 1990b; Prychitko 1989/1990). As Boettke and Storr (2002: 171) detailed, [i]n addition to being influenced and affected by the context of meanings in which he or she is located, however, the Weberian actor is also conceived of as the producer of, the creator of, that context. As such, a Weberian individualism neither proceeds with disembodied actors, unaffected by the social institutions within which their actions are embedded, nor with social structures and relations dissociated from the web of meanings that give them life. In other words, individuals are neither completely determined by their environments, nor are they completely asocial and separate from their environments. Weber applied this logic in his Protestant Ethic and the Spirit of Capitalism (2018 [1905]), which is arguably his most famous work. Weber understood modern capitalism to be animated by a particular spirit, namely the Protestant (mainly Puritan, as he pointed out) ethic that encourages an ethos of hard work, discipline, and frugality. He argued that each form of capitalism was animated by a particular spirit, but in this work, he traced the individual appeal toward Protestantism, and the ethics that it promoted, as the main spirit driving Western capitalism. Thus, Weber’s emphasis that individuals with the Protestant ethic tend to lead to an animating spirit of sorts which brings about modern capitalism, which relies upon an understanding that these individuals are within and even constructing, but not purely determined by, their religious and community environments. The third key proposition that Granovetter and Swedberg noted was that economic institutions are social constructions. The economic approach to institutions, found in the field of New Institutional Economics, is often associated with economists such
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as (Oliver Williamson 1975, 1985; Douglass North and Thomas 1973; North 1990). According to the efficiency-always propositions of the mainstream economists, “[a] n institution exists because it is efficient” (Granovetter and Swedberg 1993: 14). By assuming that every actor within that institution is maximizing given his constraints, there is in fact no logical way for the emerging institution not to be efficient. But NES take trouble with this approach: “the concept of efficiency in mainstream economics is confusing and contradictory (see, for example Granovetter 1979; Oberschall and Leifer 1986) and lacks subtlety.” Among other arguments, Granovetter and Swedberg (1993: 17) also detailed how path-dependent development shows “that the most efficient solution does not always win out” because “chance elements often interfere at an early stage in the process, altering its course.” In contrast to the neoclassical approach, Granovetter and Swedberg (1993: 19) understood institutions [as] social constructions of reality… Only a dynamic analysis can handle the problem of institution formation in the economy. In cases where there is in fact only one viable equilibrium, then a static type of analysis is sufficient. Otherwise, a dynamic analysis is needed… The discussion above of the Bloomington Schools work on governance has already pointed to their emphasis on the social construction of institutions. As a fellow traveler, the Austrian School has contributed to the idea that individuals are involved in the construction of, and also shaped by, their economic institutions. Consider Austrian economists’ emphasis on spontaneous order. As Ferguson (1782) detailed, a spontaneous order is something that is “the result of human action, but not of human design.” Smith’s (2009) notion of the invisible hand followed in this line of thought, as he famously described that man “is led by an invisible hand to promote an end which was no part of his intention” – that is, the butcher, the baker, and the brewer all have a regard to their own self-interest, and this generates an institution which no individual oversaw, planned, or intended. In the same tradition, Hayek went on to detail how the socio-economic setting where we all reside is as an “extended order” that was more complicated than any sole mind could comprehend, let alone plan (Hayek 2010). And as Mises (1966: 312) explained, “the market phenomena are social phenomena. They are the resultant of each individual’s active contribution.” Spontaneous orders are orders, or patterns of regularity, or institutions, that humans craft through social, political, and economic actions, even if doing so unknowingly. Moreover, the Austrian School is also a strong proponent of the interaction thesis, which studies “the interaction between cultural attitudes and beliefs and the formal institutions that provide the infrastructure for economic development” (Boettke and Nicoara 2015: 653). Indeed, this thesis was propagated by Mises and Hayek themselves: they both “made a deeper philosophic argument about how beliefs and attitudes either legitimize or delegitimize the liberal order” (Boettke and Nicoara 2015: 653). The Austrian School developed this thesis and “brought to the forefront once again these broader arguments about the cultural foundations of economic growth” (Boettke and Nicoara 2015: 653). Because the Austrian School understood that culture is fundamental to economic growth (or lack thereof ), they understood Granovetter and Swedberg’s third proposition that economic institutions are social constructions to be of upmost importance to discussions of growth. Austrians, like their fellow travelers in NES, the Bloomington School, and the Virginia School, note that there is some context that
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shapes man; he does not exist within a vacuum but is rather shaped by social norms, and shapes those norms as well. There is, of course, another sense in which institutions are socially constructed. Berger and Luckmann (1966), both influenced by Schutz, advanced this very point. They argue that while the physical earth can exist without human beings, any notions of society or social orders cease to exist as soon as human beings cease to exist. As they explained (1966: 52) “social order exists only as a product of human activity.” Without such activity, social orders are a nonexistent phenomenon. In addition to social orders having an objective reality (as discussed above), social orders also have a subjective reality in that they are internalized by individuals whose beliefs about the nature and meaning of those orders come to be embedded within them. Storr (2010) added onto Berger and Luckmann’s point by arguing that the market is one such institution that is a social construction. As Storr (2010: 205) argues, markets are not only social constructions that have objectifiable features but also become subjectively internalized by market actors. Markets are both brought about through the interactions of buyers and sellers and are internalized as sites of meaning making and relationship building. Storr (2010: 205) goes on to detail how “the market…is experienced by individuals as not just a series of conversations about prices and profits but also conversations between potential and actual friends.” Both CPE and NES take seriously the notion that individuals are shaped by, and also actively shape, the world around them. Institutions like markets are spontaneous orders that are created by, yet also shape, the humans within them.
Conclusion This chapter establishes the natural partnership and complementarity between CPE and economic and NES. In general, we understand these two different fields, that of CPE and NES, to be more alike than a cursory glance might show. Economic sociology emphasizes the importance of economic social phenomena (Weber 1949) and economic action as socially oriented (Granovetter and Swedberg 1992). In particular, the Austrian School emphasizes methodological individualism, objectivity of the social sciences, and that culture can have an effect on economic development. The Bloomington school importantly understands that economic action is socially situated, recognizing that economic theory, which takes place in a vacuum, loses sight of the social context in which actions and group dynamics play out. And, the Virginia School also takes economic action as embedded in social situations, as it proposes the understanding that institutions, social structures, and the like, all influence individual incentives and action. CPE and NES are, as we comprehend, natural dialogical partners to economic sociology. There has been some recent work at the intersection of CPE and NES. In the disaster recovery literature, there have been several authors at the forefront of connecting CPE and NES. Storr, Haeffele-Balch, and Grube (2015) detail how communities in New Orleans after Hurricane Katrina and in New York after Hurricane Sandy recovered following such trying situations. Entrepreneurs within communities, they argue, were able to help their communities recover because of their unique understanding of the conditions. In other words, these entrepreneurs were embedded within a specific society, polity, and economy, and by understanding these unique insights, they were able to help their communities recover. In a similar line of work, Chamlee-Wright (2010)
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investigates communities within New Orleans following Hurricane Katrina and digs into not only how communities rebuild physically but also how they rebuild socially. She explores the greater phenomenon of spontaneous order and how it relates to disaster recovery, where humans recover not through a planned human design, but simply as a result of individual and community actions. Moreover, Lemke (2011, 2016) argues that greater women’s rights often form in communities that allow for greater jurisdictional competition (2016) and allow for polycentric governance (2011). Lemke (2016) explores communities where lawmakers have a vested interest in their communities and where residents are able to choose between jurisdictions; the social and legal aspects of communities, Lemke finds, are of upmost importance for women gaining more rights, such as holding property. Her work has been crucial in connecting CPE and NES in the study of women’s rights. Studies of friendships, particularly commercial friendships, have also been at the forefront of connecting CPE and NES. Storr (2008) argues that the market is more than just a space of impersonal and anonymous buying and selling – indeed, it can be a social space where individuals form friendships, whether it be with a barista or a colleague. Chamlee-Wright (1997) studies Ghanaian open-air markets and finds that the women who work at these markets form friendships and even watch each other’s children, moving far beyond the realm of anonymous exchanges and instead into a world where individuals are embedded within social and economic relations with each other. These works help to elucidate an understanding of social, political, and economic embeddedness of friendships and relationships that form and develop in market settings. More work, though, ought to be done on connecting CPE and NES. Specifically, one fruitful line of research could connect the Ostrom’s ideas of polycentricity (E. Ostrom 2010) to economic sociology. And other potential research could link economic sociology to constitutional political economy and the crafting of a constitution, from Buchanan and Tullock (1962). Studying the world through both lenses – CPE and NES – can bring much nuance to studies of social, political, and economic phenomena.
Notes 1 As Boettke, Coyne, and Newman (2016) detail: In Living Economics (2012), Boettke argues that there is a “mainline” of economics and political economy that runs from Adam Smith and David Hume to Mises and Hayek, and from Mises and Hayek to Buchanan and Vernon Smith. This intellectual line is defined by substantive propositions about how the economic system works. 2 See Swedberg’s Tocqueville’s Political Economy (2018), and Ostrom’s The Meaning of Democracy and the Vulnerabilities of Democracies: A Response to Tocqueville’s Challenge (2000). 3 Although the scholarly conversation within mainstream economics is much broader than the textbook version, it is still somewhat narrow in the sense that is open to only certain empirical techniques. 4 They continue to explain network theory and embeddedness: By network we mean a regular set of contacts or similar social connections among individuals or groups. An action by a member of a network is embedded because it is expressed in interaction with other people. The network approach helps avoid not only the conceptual trap of atomized actors but also theories that point to technology, the structure of ownership, or culture as the exclusive explanation of economic events. (Granovetter and Swedberg 1993: 9)
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Elements of economic sociology in classical political economy 185 Chamlee-Wright, E., 2010. The Cultural and Political Economy of Recovery: Social Learning in a Post-Disaster Environment. London: Routledge. Coleman, J. S., 1988. Social capital in the creation of human capital. American Journal of Sociology, 94 (S95–S120), pp. S95-S120. JSTOR, www.jstor.org/stable/2780243. Accessed 23 April 2020. Ferguson, A., 1782. An Essay on the History of Civil Society. Printed for T. Cadell, W. Creech, J. Bell, Edinburgh London. Granovetter, M. S., 1973. The strength of weak ties. American Journal of Sociology, 78 (6), pp. 1360–1380., doi:10.1086/225469. Granovetter, M., 1979. The idea of “advancement” in theories of social evolution and development. American Journal of Sociology, 85 (3), pp. 489–515. Granovetter, M. S., 1983. The strength of weak ties: A network theory revisited. Sociological theory, pp. 201–233. Granovetter, M. S., 1985. Economic action and social structure: The problem of embeddedness. American Journal of Sociology, 91 (3), pp. 481–510, doi:10.1086/228311. Granovetter, M. S. and Swedberg, R., 1992. The Sociology of Economic Life. Boulder: Westview Press. Granovetter, M. and Swedberg, R., 1993. Explorations in Economic Sociology. Russell Sage Foundation, Chapter The Nature of Economic, pp. 3–39. Hardin, G., 1968. The tragedy of the commons. Science, 162 (3859), pp. 1243–1248. Hayek, F. A., 1942. Scientism and the study of society. Economica, 9 (35), pp. 267–291, doi:10.2307/2549540. Hayek, F. A., 1943. The facts of the social sciences. Ethics, 54 (1), pp. 1–13, JSTOR, www.jstor. org/stable/2989047. Hayek, F. A., 1945. The use of knowledge in society. The American Economic Review, 35 (4), pp. 519–530. Hayek, F. A., 2010 [1944]. The Road to Serfdom. Oxon: Routledge. Käsler, D., 1988. Max Weber: an Introduction to His Life and Work. Chicago, IL: University of Chicago Press. Kirzner, I. M., 1973. Competition and Entrepreneurship. Chicago, IL: University of Chicago Press. Kirzner, I. M., 1997. Entrepreneurial discovery and the competitive market process: An Austrian approach. Journal of Economic Literature, 35 (1), pp. 60–85. JSTOR, www.jstor.org/ stable/2729693. Lachmann, L. M., 1951. The science of human action. Economica, 18 (72), pp. 412–427. JSTOR, www.jstor.org/stable/2549611. Langrill, R. and Storr, V. H., 2015. Contemporary Austrian economics and the new economic sociology. In Peter J. Boettke and Christopher Coyne (eds.), The Oxford Handbook of Austrian Economics, New York: Oxford University Press, pp. 1–19. Lavoie, D., 1991. The discovery and interpretation of profit opportunities: Culture and the Kirznerian entrepreneur. In B. Berger (ed.), The Culture of Entrepreneurship. San Francisco, CA: Institute for Contemporary Studies, pp. 33–51. Lemke, J. S., 2011. Polycentrism, self-governance, and the case of married women’s rights reform. The Annual Proceedings of the Wealth and Well-Being of Nations, Volume IV, 2011–2012, pp. 69–88. Lemke, J. S., 2016. Interjurisdictional competition and the married women’s property acts. Public Choice, 166 (3), pp. 291–313. Mears, A., 2011. Pricing looks: Circuits of value in fashion modeling markets. In Jens Beckert and Patrik Aspers (eds.), The Worth of Goods: Valuation and Pricing in the Economy, pp. 155–177. Mises, L. V., 1981 [1933]. Epistemological Problems of Economics. New York University Press. Mises, L. V., 2005 [1957]. Theory and History: An Interpretation of Social and Economic Evolution. Bettina Bien Greaves (ed.). Indianapolis, IN: Liberty Fund.
186 Rachael Behr and Virgil H. Storr Mises, L. V., 2014 [1949]. Human Action: A Treatise on Economics. Bettina B. Greaves (ed.), Indianapolis, IN: Liberty Fund. Mises, L. V., 2019 [1912]. Theory of Money & Credit. Indianapolis, IN: Liberty Fund. Mitchell, M. D., and Boettke, P. J., 2017. Applied Mainline Economics: Bridging the Gap between Theory and Public Policy. Arlington, TX: Mercatus Center at George Mason University. North, D.C. and Thomas, R.P., 1973. The Rise of the Western World: A New Economic History. Cambridge: Cambridge University Press. North, D.C., 1990. Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge university press. Oberschall, A. and Leifer, E.M., 1986. Efficiency and social institutions: Uses and misues of economic reasoning in sociology. Annual Review of Sociology, pp.233–253. Ostrom, E. 1990. Governing the Commons. Cambridge: Cambridge University Press. Ostrom, E., 2009. A general framework for analyzing sustainability of social-ecological systems. Science, 325 (5939), pp. 419–422. Ostrom, E., 2010. Beyond markets and states: Polycentric governance of complex economic systems. The American Economic Review, 100 (3), pp. 641–672. http://www.jstor.org/ stable/27871226. Ostrom, V., 1997. The Meaning of Democracy and the Vulnerability of Democracies: A Response to Tocqueville’s Challenge, Ann Arbor: University of Michigan Press. Portes, A., 2000. The two meanings of social capital. Sociological Forum, 15 (1), pp. 1–12. https:// doi.org/10.1023/A:1007537902813. Prendergast, C., 1986. Alfred Schutz and the Austrian school. American Journal of Sociology, 92 (1), pp. 1–26. Prychitko, D., 1989/90. Methodological individualism and the Austrian school. Journal des Economistes et des Etudes Humaines, 1 (1), pp. 171–179. Schumpeter, J. A., 1942. Capitalism, Socialism and Democracy. New York: Harper and Brothers. Schumpeter, J. A., 1954. History of Economic Analysis. Oxon: Routledge. Schutz, A., 1972. The Phenomenology of the Social World. George Walsh and Frederick Lehnert (trans.), Evanston, IL: Northwestern University Press:. Smelser, N. J., and Swedberg, R., (eds.) 2005. The Handbook of Economic Sociology. Princeton, NJ and Oxford: Princeton University Press. Smith, A., 1759 [2007]. The Theory of Moral Sentiments. D. D. Raphael (ed.). Indianapolis, IN: Liberty Fund. Smith, A., 1776 [2009]. The Wealth of Nations. R. H. Campbell (ed.). Indianapolis, IN: Liberty Fund. Storr, V. H., 2008. The market as a social space: On the meaningful extraeconomic conversations that can occur in markets. The Review of Austrian Economics, 21 (2–3), pp. 135–150. Storr, V. H., 2010. The social construction of the market. Society, 47 (3), pp. 200–206. https:// doi.org/10.1007/s12115-010-9322-6. Storr, V. H., 2013. Understanding the Culture of Markets. Oxon and New York: Routledge. Storr, V. H., Haeffele-Balch, S., and Grube, L. E., 2015. Community Revival in the Wake of Disaster, Basingstoke: Palgrave Macmillan Ltd. Swedberg, R., 2002. The economic sociology of capitalism. Journal of Classical Sociology, 2 (3), pp. 227–255, doi:10.1177/1468795x0200200301. Swedberg, R., 2004. New economic sociology: What has been accomplished, what is ahead? Journal of Economic Sociology, 5 (4), pp. 37–55., doi:10.17323/1726–3247-2004-4–37–55. Swedberg, R., 2006. Max Weber’s contribution to the economic sociology of law. Annual Review of Law and Social Science, 2 (1), pp. 61–81, doi:10.1146/annurev.lawsocsci.2.081805.105800. Swedberg, R., 1998. Max Weber and the Idea of Economic Sociology, Princeton, NJ: Princeton University Press. Swedberg, R., 2009. Principles of Economic Sociology. Princeton, NJ: Princeton University Press. Swedberg, R., 2018. Tocqueville’s Political Economy. Princeton, NJ: Princeton University Press.
Elements of economic sociology in classical political economy 187 Swedberg, R. and Agevall, O., 2016. The Max Weber Dictionary: Key Words and Central Concepts. Stanford: Stanford University Press. Tullock, G., 1967. The welfare costs of tariffs, monopolies and theft. Western Economic Journal, 5 (3), pp. 224–232. Tullock, G., 1993. Rent Seeking. Brookfield, VT: Edward Elgar. Uzzi, B., 1996. The sources and consequences of embeddedness for the economic performance of organizations. American Sociological Review, 61 (4), pp. 674–698. Weber, M., 1949 [1904]. The Methodology of the Social Sciences. New York: The Free Press. Weber, M., 1905 [2018]. Protestant Ethic and the Spirit of Capitalism. St. Paul: Wilder Publications. Weber, M., 1949 [2011]. Methodology of Social Sciences. Edward Shils (trans.), New Brunswick: Transaction Publishers. Wherry, F. F., 2012. Performance circuits in the marketplace. Politics & Society, 40 (2), pp. 203–221. Williamson, O.E., 1975. Markets and hierarchies: Analysis and antitrust implications: A study in the economics of internal organization. University of Illinois at Urbana-Champaign’s Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship. Williamson, O.E., 1985. Reflections on the new institutional economics. Zeitschrift für die gesamte Staatswissenschaft/Journal of Institutional and Theoretical Economics, (H. 1), pp.187–195. Zelizer, V., 2000. The purchase of intimacy. Law & Social Inquiry, 25 (3), pp. 817–848. Zelizer, V., 2005. The Purchase of Intimacy. Princeton, NJ: Princeton University Press. Zelizer, V., 2013. Economic Lives: How Culture Shapes the Economy. Princeton, NJ: Princeton University Press.
8 Classical economic sociology Philippe Steiner
Introduction Economic sociology is a sub-field of the social sciences that “combines the analysis of economic interest with an analysis of social relations” (Swedberg 2003: 1). As “interest” and “social relations” are very general concepts, they were quite often mingled together in the 18th and 19th centuries. It is only after the institutionalization of political economy and sociology that economic sociology became the aforementioned subfield in the second half of the 20th century. For an understanding of what happened before the development of the new economic sociology, there exist some general historical surveys (Swedberg 1987, Smelser and Swedberg 1994, Gislain and Steiner 1995), and two specific studies of two great contributors to this domain (Swedberg 1998, Steiner 2011). In this chapter, I begin with a brief review of the complex interactions within 19th-century social sciences dealing with the economy, then I consider more specifically these interactions during the beginning of the 20th century, the so-called classical period of sociology.
Political economy, sociology and their complex interactions in the 19th century Political economy and sociology are two social sciences that appeared almost at the same period by the end of the 18th century. Political economy came first, dimly in the subtitle of François Quesnay’s articles (1756–1757) published in the Encyclopédie and in Adam Smith’s famous Inquiry into the Nature and the Cause of the Wealth of Nations (1776), whereas sociology appeared publicly when Auguste Comte created this new term in his lectures on positive philosophy in 1839. This quasi-simultaneity went together with tentative essays in creating new labels such as économie sociale in France ( Jean-Baptiste Say’s introduction to his Cours complet d’économie politique pratique, 1828), economia sociale in Italy (Antonio Scialoja’s Principii di economia sociale, 1840) during the first part of the 19th century. However, some confrontational approaches emerged soon after. This is notably the case with Comte who devoted one of his lectures to the critique of political economy on the ground that its methodological basis was unsatisfactory. Later on, he proposed a new approach to the economic dimension of society in volume two of his massive Système de politique positive (1851–1853). Comte then considered political economy not only as resting on the unsatisfactory abstract methodology but also as a danger to the stability of industrial societies because it spread and praised egoism understood as the basic value
DOI: 10.4324/9780367817152-10
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of rational economic behavior. Instead, said Comte, we need to develop the opposite value, altruism, that is at the basis of family life on the one hand, and religion on the other. Thus, sociology and the sociological approach to the economy were offering the remedy for the ills nurtured by political economy (Steiner 2017). In the 1840s, Mill was favorably impressed by Comte’s philosophy of sciences to the point he used Comte’s distinction between statics and dynamics as a relevant cleavage to organizing his Principles of Political Economy (Mill 1848, II: 210), but later on, he rejected vigorously Comte’s views on altruism, considering them as the fruits of a man obsessed by a rigid morality. These were the first skirmishes between the two social sciences, and that was not enough for the emergence of economic sociology. The influence of the sociological approach on the understanding of economic life happened in two different forms. On the one hand, the historical approach that was at the core of Comte’s positive philosophy met the historical approach in law and political economy in the German states. The works of Wilhelm Roscher (Grundriss zu Vorlesungen über die Staatswirtschaft nach geschichtlicher Methode, 1843) and Karl Knies (Politische Ökonomie vom geschichtlichen Standpunkte, 1852) gave birth to a school that influenced many economists in Italy, England and the United States. Hence, the Comtean sociological approach did not disappear with the death of Comte. On the other hand, if sociology proper did not reach a minimal institutionalization before the first decades of the next century, its intellectual weight became significant with Herbert Spencer whose works became famous all over the world. In addition to that, and contrary to Comte, Spencer was in line with the economic liberalism which was common among many economists and his evolutionary approach to societies went hand in hand with the rational economic man that was becoming the legitimate basis of political economists. By the end of the 19th century, economic theory was in crisis. In 1876, when came the time to pay tribute to Adam Smith’s Wealth of Nations, William Stanley Jevons claimed that the method and the debate over the so-called historical approach to political economy was not the relevant strategy to overcome the crisis. Instead, having Herbert Spencer’s work in mind, he suggested to take into account new issues, thanks to sociology: Now I am far from thinking that the historical treatment of our science is false or useless. On the contrary, I consider it to be indispensable. The present economical state of society cannot possibly be explained by theory alone. We must take into account the long past out of which we are constantly emerging. Whether we call it sociology or not, we must have some scientific treatment of the principles of evolution as manifested in every branch of society. ( Jevons 1876: 195) Sociology was necessary to make sense of the evolution of societies, whether to explain their past or to decipher what could be their future. Three years later, in the preface of the second edition of his Theory of Political Economy, he went further, suggesting to subdivide political economy into various branches, among which economic sociology: As I have previously explained, the present chaotic state of Economics arises from the confusing together of several branches of knowledge. Subdivision is the remedy. We must distinguish the empirical element from the abstract theory, from the
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applied theory, and from the more detailed art of finance and administration. Thus will arise various sciences, such as commercial statistics, the mathematical theory of economics, systematic and descriptive economics, economic sociology and fiscal science. ( Jevons 1879: xvii — see as well p. 20) British economists reacted to this proposal. Those who were inclined toward a historical approach welcomed the idea and pushed forward to a stronger connection between political economy and sociology, which they found already at work within Smith’s Inquiry. It was necessary to take into account other springs of action such as “love, chivalrous sentiment, morals, religion” instead of isolating the desire for wealth as the deductive economists do, wrote Thomas Cliffe Leslie (1879: 211–212). Others, such as John Eliot Cairnes (1875) and Walter Bagehot (1885), wrote in defense of the abstract deductive method that was under attack while making room for a historical approach within political economy and connections with the broad views offered by Spencer’s sociology. John Neville Keynes offered a conciliatory view according to which whilst the study of economic phenomena cannot be completed without taking account of the influence exerted on the industrial world by social facts of very various kinds, it is nevertheless both practicable and desirable to recognize a distinct systematized body of knowledge, which is primarily and directly concerned with economic phenomena alone. (Keynes 1890: 114) Such was the situation of political economy in relation to sociology when the generation of scholars—Émile Durkheim, Max Weber and Vilfredo Pareto—who elaborated what is now known as classical sociology entered the academic field. Each of them followed a specific path to elaborate economic sociology, together with many others, almost forgotten, such as René Worms, the French sociologist who created in 1893 the Institut International de Sociologie [International Association for Sociology] to which many sociologists (Georg Simmel, Gabriel Tarde, Ferdinand Tönnies) and leading economists of the time (Eugen von Böhm-Bawerk, Alfred Marshall, Carl Menger, Gustav Schmoller, Thorstein Veblen) got a membership.
Classical sociology and economic sociology Durkheim, Weber and Pareto had different formations and were acting in quite different intellectual backgrounds. Durkheim (1858–1917) was a philosopher who turned explicitly to sociology at the very beginning of his academic career, even if he was never appointed as a professor of sociology. He was following the Comtean approach in the sense that he opposed the views endorsed by French liberal economists (Steiner 2022). Obviously, history was of great importance to his sociological approach; however, he was not satisfied by the German historical school as represented by Gustav Schmoller because of its lack of theoretical backbone. His thesis was devoted to the division of labor (Durkheim 1893), but this book was not claiming to belong to economic sociology: rather, it was a contribution to general sociology. Then after 1897, he left out economic issues and devoted his research to the sociology of religion. Still, economic sociology was the second major topic of L’Année sociologique, the journal that he founded in 1897, and François Simiand (1873–1935)
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and Maurice Halbwachs (1877–1945) two important members of his group devoted most of their efforts to the development of economic sociology. Max Weber (1864–1920) was trained as a lawyer while getting as well training in political economy, philosophy and theology; then, he participated in the works of the German historical school when Gustav Schmoller was the leading scholar. He became a professor of political economy in 1894 at Freiburg but stopped teaching after his nervous breakdown in 1897; he resumed his work in 1903 and teaching after WWI, with a professorship in “Social sciences, Economic History and Economics” at the University of Munchen (1919). His approach is driven by the issue of making the link between the conceptual apparatus of political economy and the flow of historical events. His social economy (Sozialökonomik) appeared mainly in long articles that he published in the journal (Archiv für Sozialwissenschaft und Sozialpolitik) he co-directed with Weber Sombart and Edgar Jaffé; finally, his most significant achievement was his contribution to the handbook on the modern economy (Grundriss der Sozialökonomik) with a volume known as Economy and Society that his assistant and then after his wife prepared out of his proofs and manuscripts (Tribe 2019). Vilfredo Pareto (1848–1923) was trained as an engineer and applied mathematician. A fierce advocate of economic liberalism and polemist, after a first career as an engineer and then as director of a company in Italy, he turned to political economy, publishing theoretical papers in the Giornale degli economisti. In 1893, he was appointed to the chair of Léon Walras at the University of Lausanne, when the French mathematician economic retired. His general views of political economy as a social science are a way to answer the problem raised during the British methodological debate: pure political economy, applied political economy and general sociology formed a triptych out of which it was possible to advance research in mathematical economics and, at the same time, to explain social facts by progressively relaxing the strong hypothesis necessary to the development of the abstract and deductive part of the science. As the title of his work in sociology—Trattato di sociologia generale/Traité de sociologie générale, 1916/1917 for the French translation) makes clear he intended as well to elaborate general sociology.
Durkheim, the Durkheimian and French economic sociology Durkheim’s contributions to the birth of economic sociology can be organized along two lines: first, his critique of political economy because of its unsatisfactory theoretical and methodological basis; second, his social reform grounded on some specific institutions necessary to trigger a social transformation on the basis of a sound understanding of the functioning of the modern societies. Methodological issues Following Comte’s critique of political economy, Durkheim explained how dissatisfied he was with the theoretical underpinnings of this social science. He had a negative appreciation of the “economic man” that fills the world of most economists. Durkheim did not condemn the use of abstraction, but the use of inappropriate abstractions, as he explained in the following passage in his opening lecture at the University of Bordeaux: To simplify things economists have artificially impoverished matters. Not only do they abstract from all circumstances of time, place and country in imagining the
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abstract type of man in general, but in this ideal type itself they have neglected everything that does not relate to a life that is strictly individual, so that this abstraction from an abstraction leaves them nothing more than the cheerless image of a purely selfish self. (Durkheim 1888: 85) Abstractions are a necessary component of scientific inquiry, but for this purpose, abstractions must offer the possibility to isolate one part of reality so that it may be studied according to the principles of the experimental sciences. Instead, said Durkheim, economists were substituting for reality ideas that they tried to render coherent through the use of a rationality principle. In the process, the very nature of society disappeared: in modern parlance, Durkheim here is pointing out the necessity of embedding economic activity within the social world. How Durkheim proceeded to link economic activity and society? Economic events are social events; they are “way of doing, thinking and feeling” that impose themselves on economic actors as it is the case with the currency system, credit arrangements and the organization of the factory that an entrepreneur builds for running his business. A departure from the expected behavior would find its sanction in bankruptcy. Then, after having adopted the terms of institution, Durkheim defined economic sociology in the following way: Finally, there are the economic institutions: institutions relating to the production of wealth (serfdom, tenant, farming, corporate organization, production in factories, in mills, at home, and so on), institutions relating to exchange (commercial organization, markets, stock exchanges, and so on), institutions relating to distribution (rent, interest, salaries, and so on). They form the subject matter of economic sociology. (Durkheim 1909: 150)
Division of labor, contract and exchange Generally speaking, Durkheim is reluctant to consider exchange as a binding force able to produce some kind of durable solidarity among market participants. Exchange entails an opposition of interest between the two parties since one would like to buy at a cheaper price, whereas the other one would sell at a higher one and, in this process, their objective solidarity (the division of labor) is lost: For if interest draws men together, it is never for more than some few moments. It can create only an external bond between them […] For where interest alone reigns, since nothing emerges to check the interplay of egoism, each ego finds itself in a state of war with every other, any truce in this eternal antagonism would not be of long duration. Self-interest is the least constant thing in the world. Today it unites you, tomorrow, it will make me your enemy. (Durkheim 1893: 152) Nevertheless, Durkheim is not an opponent of the market economy: his main objective is to understand its institutional foundation and then to suggest reform in order to add social justice to the market economy.
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The first institutional underpinning of the market economy is the contract that legally binds together the buyer and the seller. Contrary to the view upheld by Herbert Spencer, Durkheim explained that the contract and the wishes of the parties are not enough for such a task. Any contract entails many obligations that are not the result of the wishes of the parties and this is necessary so since in the opposite case, they would have to bargain on so numerous legal clauses that it would take too much of their time, they would be blocked. Durkheim did not go further in that direction; instead, he stressed the non-contractual basis of the contract, that is to say the social basis without which contractual behavior would be socially meaningless. Accordingly, “We cooperate because we have wished to do so, but our voluntary cooperation creates for us duties that we did not want” (Durkheim 1893: 161). The contract is binding thanks to the regulation of contracts, which is of social origin. Unexpectedly, the study of the evolution of suicide rates in Europe led Durkheim to offer some innovative ideas in terms of economic sociology. The issue of justice appeared then as the central value thanks to which a sociological assessment of the present industrial society could be delivered. The problem to solve required finding an institution able to give a social underpinning to this idea, beyond the personal view of the sociologist. Durkheim pointed out two such institutions: the first one is public opinion, whereas the second was to be created under the name of professional groups. As explained above, Durkheim did not provide a sociological theory of price formation, leaving de facto this “technicality” to the economists. However, Durkheim considered the normative assessment that public opinion may express when prices and revenues were escaping the domain of moral validity, so to speak, that they should not trespass. This is what can be called the social evaluation of market prices: Economists protest in vain: it will always scandalize public sentiment that an individual can make use, in absolutely superfluous consumption an amount of wealth that is too great, and it seems that this intolerance relents only in times or moral disturbance. There is therefore a genuine system of regulation that, while not always taking legal form, unceasingly sets with relative precision the maximum of comfort that each class of society can legitimately seek to obtain. But a scale set up this way is in no way immutable. It changes as collective income rise or falls, and with changes occurring in the moral ideas of society. (Durkheim 1897: 276) The rapid changes that had provoked the growth of the division of labor rendered the older process of socialization inadequate; religious, political and family processes of socialization were ineffective in the thriving domain of economic activity. Accordingly, a new institution was needed to fill this gap. Based on the gathering of workers and bosses, Durkheim’s professional groups were firstly providing interactions between workers and bosses; these interactions would help finding agreements and regulations about working conditions, level of wages, forms of competition and the like (Durkheim 1890–1900, lecture 3). This stronger and encompassing network of relations would moderate the passions of each category through the mutual knowledge they would get from these interactions and finally, this new collective entity would be able to create the ideals that were lacking in the present organization of the industrial society. Furthermore, Durkheim boldly suggested that these professional groups could become the basis of the political organization, with a pooling system grounded on professional categories instead of geographical ones.
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Durkheim left out economic sociology after the publication of his study on suicide since he had now a quite negative view of the scientific achievements of political economists. Does it mean that the impetus for Durkheimian economic sociology was exhausted? No, because Durkheim was not an isolated scholar. His sociology was strongly associated with a collective entity and the collective work done by the group of scholars who worked around the Année sociologique. Accordingly, the full development of the Durkheimian approach to economic sociology is to be found in the pages of the 13 volumes of the Année sociologique and, then, in Simiand’s and Halbwachs’s books. Finally, Mauss’s work on the gift must be mentioned as a path-breaking masterpiece of economic sociology. François Simiand and Maurice Halbwachs The critical tone is certainly what is the most salient in the numerous reviews that Simiand wrote for L’Année sociologique. He was a bold and harsh critique of political economy, whether the liberal version of it, so common among the French political economists of the time, or the historical approach that was of the greatest importance in Germany. Simiand adopted Durkheim’s methodological views so that economic sociology should be grounded on a careful and demanding historical and statistical approach, similar to the structure of the experimental procedure set forth in the Rules of the sociological method (definition, observation, classification, explanation and administration of the proof ). The main review essays were published in a volume in which the critical dimension of his economic sociology or positive political economy was the main characteristic of the book (Simiand 1912); North American institutional economists, such as Thorstein Veblen and Wesley Mitchell were on the same line (Gislain and Steiner 1999). Beyond these methodological skirmishes, Simiand’s research was focused on wages and money issues (Simiand 1907 and 1932). His theory of wage formation is built on a conflict theory of action in order to give an account of the variations in nominal wages according to the phase of the business cycle. According to the phase of the cycle, workers will opt for one strategy based on their perception of the trade-off between effort and monetary gain, while in the opposite camp, the bosses would do the same. This was highly innovative within the Durkheimian school since, first, conflict was not a usual dimension in the French sociological cluster; second, the theory had a “methodological individualism” flavor that is generally and rightly considered foreign to Durkheim’s sociology. Later on, in his last great book, Simiand would acknowledge this point and explain that, nonetheless, his individualistic approach was empirically grounded and experimentally proved. His trade cycle theory—a most important topic of interwar political economy—was built on the idea that the basic engine of these fluctuations was provided by the fluctuation in the monetary creation since a raise in the quantity of money produced a raise in monetary prices and thus a euphoric feeling favorable to the growth of activity—the reverse in the case of a contraction in the quantity of money. After a PhD in political economy dedicated to the study of housing market speculation, Halbwachs studied with great scrutiny the consumption patterns of the working classes in order to go beyond the statistical results known as Engel’s laws (Halbwachs 1912). Accordingly, in order to reach the social representations at the root of these behaviors, Halbwachs sorted out the three classical categories of expenditures (food, clothing, housing) according to their amount and frequency. As food is bought on a daily basis, its prices are considered as given and buyers do not haggle, considering that
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they get value for money. When expenditures are less frequent, economic representations change and suspicion prevails, buyers haggle because they are no longer able to link a price to the good. Uncertainty about the quality of the clothes leads them toward the cheap clothes so that the buyer will not be much of a dupe; the highest uncertainty comes with the price of their apartment that appears always too high for the service received and thus, according to Halbwachs, escaping the payment of the rent was not considered as blameworthy. Marcel Mauss Mauss’ contribution to economic sociology is to be found in his famous essay on the gift (Mauss 1925). Mauss’s interest in gift-giving derives from his previous work on sacrifice, so, this study is to be understood as a contribution of the Durkheimian program in religious sociology to economic sociology. Gift-giving is a form of transaction that is difficult to understand from the point of view of the economist since it means that you give something against nothing, creating on a micro-scale a form of “free lunch”. Mauss admits straightforwardly that from a sociological point of view, gift-giving is both altruistic and self-interested, both free and compulsory. This last idea is the key point in Mauss’ definition of gift-giving behavior organized around the obligation to give, the obligation to receive and the obligation to give back. Adam Smith has endeavored to explain the rules that men follow in exchanging goods on the market, so one can read Mauss’ definition as the equivalent of the gift: there, instead of the monetary equality in market exchange and the end of the social relation once the transaction is over, gift-giving does not involve equality in value but the obligation to keep in touch for the potentially endless process of giving. The gift is therefore a specific transaction, distinct from market exchange. The circulation of things is a necessity to societies, but the manner in which this circulation occurs is a mode of being that characterizes one society relative to others; and this applies to our present societies since many transactions are achieved through gift-giving, for example, in the biomedical domain either for blood or human organs. Finally, the connection between religion and economic life was as well emerging in one of the most innovative works done by Simiand. In a paper written for the new Durkheimian journal—Annales sociologiques—he claimed that money was a social reality (i.e. a social fact). The reason behind this view comes from the fact that the value of money, which has no specific usefulness, was a kind of mystery for the main economists of that time—and this is still the same today. Accordingly, in contradistinction to economists who try to explain the emergence of money through a utilitarian process leading to the selection of the most convenient good for simplifying their transactions, Simiand suggested to defining money as a collective belief securing the continuity between the present conditions of monetary exchanges and its future: Gold is made up of appreciation, of estimation, of belief, of confidence, product of sentiment as much as of reason, which cannot be distinctly separated one from the other […] This representation, at once intellectual and affective, which is a money of this kind [fiat money], is not made from competent and informed individuals, but rather by groups, by collectivities, by a nation; it is social. It has a character and a role manifestly objective, because it is a belief and a social faith, and, as such, a social reality. (Simiand 1934: 38–39)
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Thus, the functioning of this key economic institution is based on collective beliefs, on faith that can be studied scientifically as religious beliefs were studied by religious sociologists.
Weber, Simmel and Sozialökonomie (2500) Weber’s work developed within the framework of the methodological debates that took place in Germany at the end of the 19th century and the beginning of the 20th. He belonged to the Verein für Sozialpolitik founded by Schmoller, but had clear differences with Schmoller, whose theoretical orientations he found too weak compared to the Austrian theory of economics developed by Menger in his Grundsätze der Volkswirschaftslehre (Hennis 2000: 109ff ). Indeed, if Weber’s work aimed at understanding the course of history, he was convinced that this could only be achieved with theoretical tools as precisely as possible. The development of the theory was an indispensable means to this end, hence his effort to produce a considerable set of ideal-types in Economy and Society. Interests and the theory of action The 19th-century debates raised the problem of the nature and orientation of the actions dealt with in social sciences and economics. Weber makes a first-rate contribution to this question with the distinction of four types of action, which provides a solid basis for developing his economic sociology. As is well known, Weber proposes four ideal-types of action formulated as follows: Social action can be determined either (1) by purposive rationality : through expectations of the behavior of external objects and other people, and employing these expectations as a “condition” or “means” for one’s own rational ends, as sought after and considered objectives: or by (2) value rationality: through conscious belief in the unconditional and intrinsic value — whether this is understood as ethical aesthetic, religious, or however construed — of a specific form of particular comportment purely for itself, unrelated to its outcome; or by (3) affect, especially emotion: through actual emotions and feelings; or by (4) tradition: through ingrained habituation. (Weber 1920: 101) The first two ideal-types are the most important ones since, considered together, they stress the specificity of economic rationality and the existence of different forms of rationality when ultimate values enter economic life. Indeed, the comments on purposive rational action show that Weber takes the economists’ approach here and pushes it to its extreme point when he states: Whoever acts in a purposively rational manner orients their action to the purpose, means and associated consequences of an act, and so rationally weights the relation of means to ends, that of the ends to the associated consequences, and that the various possible ends to each other. (Weber 1920: 102–103)
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This precision makes that this rational actor is similar to homo oeconomicus who examines all the segments of the action, the interactions between means and ends, between ends and consequences of the action, whatever their numerous and complexity. Rationality in value opens up a vast field of possibilities allowing other types of interest based on ethical, religious or esthetic values to be taken into account. This second form of rationality makes it possible to deploy economic sociology on a vast set of domains, as Weber himself showed with the study of political, legal and religious phenomena in relation to the economy (Swedberg 1998). Although he notes that rationality in value is always marked by a form of irrationality from the point of view of purposive rationality (Weber 1920: 103), Weber does not use the latter from a normative point of view, as Georg Simmel does in his Philosophy of Money when he studies the teleological series in which activity is evaluated according to its “objectively valid meaning” instead of the “intended meaning” (Weber 1920: 78). In the case of consumption, Simmel traces the following series: social value—money as a means—expenditure—the object as a means—the intended end, and then considers the pathological deviations that disturb the series (Simmel 1900: 239–259). Simmel’s approach is however interesting for the economic sociology of consumption in a monetary society. Greed and avarice appear when money becomes an end in itself and blocks the teleological series at the stage of money that is no longer spent (avarice) or whose spending causes disillusionment (greed). The thrifty, the prodigal and the ascetic hypostasize the moment of spending in such a way that the thrifty wants everything that has been bought to be consumed, even if it means making himself ill; the prodigal squanders money by enjoying the moment of spending, while the ascetic fears money, always ready to be used and to bring down his moral will. Finally, the cynic and the blasé see in money the vector of a general lowering of ultimate values, the cynic enjoying this devaluation, while the blasé does not feel any more any difference between values. Varieties of economic action Weber’s theory of social action is based on the notions of subjective meaning and relationship to others. When does social action become an economic one? Action is economic when the subjective meaning aims at utility. Weber fixes several levels of relation to utility: Action will be called “economically oriented” inasmuch as its intended meaning is oriented to meeting a desire for utilities. “Economic activity” will refer to peaceful exercise of power of disposition primarily oriented to “rational economic action”, which action is primarily rational by virtue of being directed to a purpose, and hence is planfully oriented to economic ends. “Economy” is autocephalous economic action; the “pursuit of economic activity” is continuously ordered economic activity. (Weber 1920: 143) Utility refers to the possibility of using material goods or social relations as a means to an end. This refers to the idea of scarcity of these goods or relations, but it is not enough to characterize economic activity. The latter assumes two additional characteristics: first, it does not make use of violence, actual or potential, and is therefore peaceful; second, it is
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rationally oriented toward an end. Finally, Weber emphasizes the fact that the economy presupposes the autonomy of decisions. These details indicate that it is possible to conceive of an economic activity in which other ends are mixed with the search for utility, or in which violence can take place, or even that this action is not means-end rational. There is thus room for a wide range of economic activity in Weberian sociology. This is also apparent from the long article Weber published in the first issue of the Archiv für Sozialwissenschaft und Sozialpolitik. In this article, economic events and institutions in the narrow sense come first; then economically important phenomena, such as religion, which are not economic in the strict sense but produce effects that are economically important; finally, he mentions economically conditioned phenomena, all those that are more or less influenced by the economy (Weber 1904: 37–38). The considerable extension of the economic domain that emerges from these two texts does not prevent Weber from giving a precise place to economic sociology. If the economic domain, as well as the social domain, are both difficult to delimit, Weber attributes to economic sociology the task of understanding the originality of the reality that surrounds us according to a triple perspective: (i) the analysis of the structure of current social relations; (ii) the study of their cultural significance and (iii) the historical study of their formation as a unique configuration (Weber 1904: 46). If we take the example of exchange, as a general concept, common to several empirical phenomena, an exchange is of interest to the jurist; if we add the law of marginal utility, the idealtypical concept of exchange is of interest to the economist. Economic sociology has its particularity in the light it casts on economic activity by considering exchange as a social activity, as he explains in Economy and Society in connection with the theory of interest developed by Eugen von Böhm-Bawerk: under what general conditions can it usually be said that parting with 100 now in return for a future 100 + x is rational? Economic theory will answer this question by reference to the relative marginal utilities prevailing between future goods and current goods. Good! Here the sociologist would be interested in exactly which human action this supposed relationship founds its expression: that actors could make a distinction between present and future in the form of “interest” the basis of their operation, for when and where this is true would be no less than obvious. (Weber 1920: 188) The second point of view refers to the cultural significance of the historical situation in which exchange became a mass phenomenon, while the third refers to the historical study aimed at understanding how this unique historical situation was formed. Religion, economy and capitalism Unlike Durkheim, Weber’s interest in religious phenomena did not lead him to abandon economic questions. On the contrary, his imposing research in this field is the means to develop his economic sociology whose main directions are: the attitudes toward riches, religious organizations and relations to certain socio-economic classes, and how different ways to approach salvation may affect the economy (Swedberg 1998: 109). The starting point was the idea that in the 16th century, in a world strongly marked by religion, only a religious force could profoundly change economic behaviors. The
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Protestant sects intervened at this point: work was seen as a religious imperative to make the world that God had given to mankind prosper. Ascetic Protestantism imposes an unceasing life of labor, understood as a “vocation”. This type of action is rational in value: the ascetic Protestant aims at salvation and his work brings him not wealth, but the possible sign of salvation, a psychological utility of a religious type. Asceticism is also the means of confirming before the members of the sect the purity of behavior and thus the membership of the social group so as to be able to do business in the community. Once the motives for individual economic-religious action have been clarified, Weber can explain that the aggregation of such behaviors provides one explanatory element among others for the emergence of modern capitalism (Weber 1930: chapters XXII and XXX), in which rational economic behavior becomes an obligation, an “iron cage”. Beyond this well-known result, Weber provides a remarkable analysis of the formation of modern rationalism whose existence cannot be explained only by price increases and decreases. It is a magnificent work of economic sociology to show the religious origin of the economic actor as summarized in the following formula: “the Quaker is a kind of ‘walking law’ of marginal utility” (Weber 1920: 116).
Pareto: from mathematical economics to sociology The starting point of Pareto’s position is the British debate on the place of abstract economics in the face of the demand to take into account the social and the historical. Echoing the conciliatory position of J.-N. Keynes, Pareto proposes to articulate different strata of social science in such a way as to come progressively closer to an explanation that is as complete as possible of concrete economic and social facts. This articulation is built on his conception of rationality and his engineering culture. On this basis, it is possible to show Pareto’s contributions to economic sociology by considering two series of propositions: firstly, Pareto offers tools combining economic and sociological approaches; secondly, Pareto uses this approach to highlight paradoxes and the way to solve them. Theory of action and the architecture of social sciences In his major sociological work, Pareto presents the final version of his theory of action and his particular conception of rationality (Pareto 1916: §149–§153). In this work, he does not propose an empirical classification (economic, military, political action, etc.), but a formal classification of actions defined according to two criteria. He distinguishes between the objective point of view of an observer equipped with all the scientific knowledge available at a given moment and the subjective point of view of the actor, and then he questions the correspondence between the goals of the action defined according to these two distinct points of view. When there is an objective goal attested by the external observer and a subjective goal for the actor who provides himself with the necessary means to reach it, because for Pareto rationality presupposes the conscious use of logico-experimental reasoning, there is a logical action. All other cases fall into the vast domain of non-logical actions, those that either have no goal (objective or subjective), or those where the objective and subjective goals do not coincide (Pareto 1916: §151). A non-logical action is not illogical, however; Pareto explains that in many cases it is the best that can be done, simply
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because one does not yet possess the logico-experimental explanations that would allow to rationally justify the action. Cases where the subjective goal is missing are of little importance for social science; the case where the subjective goal differs from the objective goal leads Pareto to distinguish two sub-categories depending on whether the actor would accept the objective goal if he had knowledge of it, thus introducing a form of learning that allows one to move from a non-logical to a logical action. This conception of action is coupled with the architecture of the social sciences and the principle of successive approximations (Pareto 1896–1897 §35; 1909 I, §30). For Pareto, pure political economy is abstract knowledge, independent of the psychology of the actors, just like rational mechanics. As such, pure political economy assumes that actors are only interested in the economic aspects of social life and act in a logical way (existence and correspondence of objective and subjective goals). Thus defined, pure political economy explains only a very small part of social reality, and Pareto agrees with the critics of abstract economic theory; but instead of rejecting pure political economy, he proposes to keep it while associating it with knowledge that implements less strict assumptions. Thus, applied political economy preserves the hypothesis of an action solely oriented toward the economic dimension but adds passions and prejudices to the economic actor, thus making him deviate from the rationality assumed by pure political economy. Sociology, finally, complements the first two to take into account non-logical actions and other motives (ethical, religious, political, sexual, etc.) that move human beings (Pareto 1899: 174). Without the term being used by Pareto, space is thus created for economic sociology understood as that part of general sociology that studies the combination of logical and non-logical actions, in which the motive for the action is not only economic but also religious, political, etc. This architecture is at work in many theoretical and empirical developments elaborated by Pareto. For example, in his welfare economics, he explains that the optimum, which we now call the Pareto optimum, is obtained when the utility of one actor cannot be increased without decreasing that of another (Pareto 1916: §2121–§2139). At this point, he says, pure theory can no longer say anything because it forbids the comparison of the loss of utility of one actor and the gain of utility of the other. This does not prevent such comparisons from being made by governments in order to reallocate factors of production or to modify the distribution of income. To do this, socio-political criteria different from those of pure economics are taken into account in order to define the maximum utility of a community. Economic sociology and some paradoxes of rationality The first paradox comes with the case of the behavior of the entrepreneur, one key actor in economic theory. In the framework of general equilibrium theory, the entrepreneur rationally adjusts his offers and demands as he goes through the tâtonnement leading to equilibrium on all markets at the same time. This entrepreneur acts in such a way as to remunerate the factors of production at their market rate (interest on capital, wages on labor, including his own, and rent on land), while making a profit, the subjective goal of his action; but at the end of the process, in a situation of perfect competition, the entrepreneur’s profit is zero (Pareto 1909: chap. V, §10–§11, 74). From the economist’s point of view, there is indeed a goal (to reach equilibrium, and thus the situation of zero profit), but it differs from that of the actor: Pareto is therefore led to affirm that
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the entrepreneur does not perform a logical action (Pareto 1916: §159). On the other hand, the speculator, who on an intuitive basis anticipates the final equilibrium price before it is reached, also aims to make a profit and does so while acting in a nonlogical way. This paradox shows that Pareto was aware that at the very heart of pure theory were non-logical actions—an idea that Joseph Schumpeter took up when he explained that the entrepreneur is driven by a special form of rationality that he called “supra-rationality”. A second paradox identified by Pareto also involves the combination of logical and non-logical actions. In studying the problem of protectionism, which haunted him as a theorist convinced of the benefits of free trade, Pareto highlighted the paradox of collective action or the phenomenon of the free rider (Pareto 1896–1897: §1046–§1047). Let us suppose, he says, that a protectionist policy leads all consumers paying an additional cost for the benefit of national producers. Suppose further, says Pareto, that the sum is small for each of the consumers and that the latter are aware of the spoliation of which they are victims. However, it is very likely that they will do nothing to avoid this spoliation since the cost of organizing to fight against the protectionist policy is likely to be higher than the extra cost. From a strictly economic point of view, it is rational to do nothing. But Pareto adds to this result, known as the paradox of collective action (Olson 1966), that if consumers feel that they are the victim of an injustice, then it is possible to have them fight against this spoliation, even if this action is more costly than the extra cost resulting from the protectionist policy. Actions guided by motives other than economic ends (passion for justice, or anger at injustice) may thus be necessary to account for concrete economic phenomena. Finally, still on the subject of protectionism, Pareto uses his socio-economic approach to account for a paradox that becomes apparent to him when he observes that protectionist Germany is developing at a greater speed than free-trade England, while pure economics demonstrates the advantages of the latter policy. To account for this, Pareto puts forward a general methodological principle involving the interdependence between economic and social domains, in this case political, facts (Steiner 1995). Indeed, he says, the introduction of a protectionist policy will favor an elite (entrepreneurs, trade unionists) different from the one (the Prussian junkers) that was at the head of the country. More skillful entrepreneurs (“foxes” in his language), able to trick the prohibitive laws, will be selected and innovated instead of less apt the old nobility (the “lions”). As a result of this phenomenon, which Pareto calls the circulation of elites, these wiser entrepreneurs will be the source of a powerful economic dynamism, capable of explaining why a harmful customs policy results in more vigorous economic development. This combination of economic and sociological considerations highlights the general socio-economic mechanism that is valid in many circumstances: economic change leads to social change (first-order change), which in turn leads to economic change (second-order change) to such a point that the negative effect of the first change can be more than compensated by the second.
Losing momentum After the contributions of Durkheim and the Durkheimians, Weber and Pareto, economic sociology gradually lost its momentum in the 1930s. The founders of classical economic sociology disappeared in the brief period from 1917 to 1923, while the next
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generation was faced with new problems in the aftermath of the World War and the economic and political instability in Europe. The most productive economists developed a series of works allowing for the development of macroeconomics and econometrics, the taking into account of uncertainty, imperfect competition and finally Keynesian theory, in a period qualified as the years of the high theory (Shackle 1967). However, economic sociology leaves traces in authors of primary importance, as is the case of the vast synthesis proposed by Talcott Parsons (1937) based on the work of Durkheim, Weber, Pareto and Alfred Marshall. It is then developed by taking into account the work of John Maynard Keynes (Parsons and Smelser 1956) while leaving room for the “Parsonsian peace” according to which economists deal with value, while sociologists deal with values (Stark 2009: 7). While in the tradition of Weber Joseph Schumpeter gives a place to economic sociology alongside economic thought by considering “economic analysis deals with the questions how people behave at any time and what the economic effects are they produce by so behaving; economic sociology deals with the question how they came to behave as they do” (Schumpeter 1954: 20). On a very different basis, nourished by reflections on the political state of European society, Karl Polanyi pursued the critical dimension put forward by the Durkheimians in The Great Transformation (Polanyi 1944), a work that was to have an enormous influence at the time when the new economic sociology emerged in the 1970s and 1980s.
Bibliography Bagehot, W., 1885. The Postulates of English Political Economy. London: Longmans, Green and C°. Cairnes, J. E., 1875. The Character and Logical Method of Political Economy, 2nd edn. Cambridge: Macmillan. Cliffe, L., T., 1879 [1888]. Political economy and sociology. In T. Cliffe Leslie (ed.) Essays in Political Economy. London: Longmans, Green and Co, 190–220. Comte, A., 1830–1842 [1975]. Cours de philosophie positive. Paris: Hermann. Comte, A., 1851–1853 [1895]. Système de politique positive ou traité de sociologie instituant la religion de l’humanité. Paris: Larousse. Durkheim, É., 1888. Cours de science sociale. Leçon d’ouverture. In Durkheim La science sociale et l’action. Paris, Presses universitaires de France, 77–110. Durkheim, É., 1893 [1984]. The Division of Labour in Society. Basingstoke: Palgrave. Durkheim, É., 1897 [2006]. On Suicide. London: Penguin books. Durkheim, É., 1898–1900 [2001]. Professional Ethics and Civil Morals. London: Routledge. Durkheim, É., 1909. Sociology and the social sciences. In K. Thompson (ed.) Readings in Emile Durkheim. London, Routledge. Gislain, J. -J. and Steiner, P., 1995. La sociologie économique: 1890–1920. Durkheim, Pareto, Schumpeter, Simiand, Veblen et Weber. Paris: Presses universitaires de France. Gislain, J. -J. and Steiner, P., 1999. American institutionalism and Durkheimian positive economics. History of Political Economy, 31 (2): 273–296, DOI 10.1215/00182702-31-2–273. Halbwachs, M., 1912 [1970]. La classe ouvrière et les niveaux de vie. Recherches sur la hiérarchie des besoins dans les sociétés industrielles. Paris and New York: Gordon & Breach. Hennis, W., 2000. Max Weber’s Science of Man. New Studies for a Biography of the Work. Newbury: Threshold Press. Jevons, W. S., 1876 [1965]. The future of political economy. In H. Higgs (ed.) The Principle of Economics. A Fragment of a Treatise on the Industrial Mechanism of Society. New York: Kelley, 187–206.
Classical economic sociology 203 Jevons, W. S., 1879 [1965]. The Theory of Political Economy, 2nd edn. New York: Kelley. Keynes, J. N., 1890 [1955]. The Scope and Method of Political Economy. New York: Kelley. Mauss, M., 1925 [1980]. Essai sur le don. Forme et raison de l’échange dans les sociétés archaïques. In Sociologie et anthropologie. Paris: Presses universitaires de France. Mill, J. S, 1848 [1900]. Principles of Political Economy with Some of their Applications to Social Philosophy. New York: The Colonial Press. Olson, M., 1966. The Logic of Collective Action. Cambridge: Harvard University Press. Pareto, V., 1896–1897 [1964]. Cours d’économie politique, Œuvres complètes, vol. I. Geneva: Droz. Pareto, V., 1899. I problemi della sociologia, in Écrits sociologiques mineurs. Œuvres complètes, vol. XXII. Geneva: Droz, 165–177. Pareto, V., 1909 [1981]. Manuel d’économie politique, Œuvres complètes. vol. VII. Geneva: Droz. Pareto, V., 1916 [1968]. Traité de sociologie générale, Œuvres complètes. vol. VIII. Geneva: Droz. Parsons, T., 1937 [1949]. The Structure of Social Action. A Study in Social Theory with Special References to a Group of Recent European Writers. Glencoe: The Free Press. Parsons, T., and Smelser, N. J., 1956. Economy and Society. A Study in the Integration of Economic and Social Theory, London: Routledge and Kegan Paul Polanyi, K., 1944 [2001]. The Great Transformation. The Political and Economic Origins of Our Time. Boston, MA: Beacon Press. Schumpeter, J., 1954. History of Economic Analysis. London: George Allen and Unwin. Shackle, G. L., 1967. The Years of High Theory. Invention and Tradition in Economic Thought, 1926– 1939. Cambridge: Cambridge University Press. Simmel, G., 1900 [1990]. The Philosophy of Money, London: Routledge. Simiand, F., 1907. Le salaire des ouvriers des mines de charbon en France. Contribution à une théorie économique du salaire. Paris: Cornély. Simiand, F., 1912. La méthode positive en économie. Paris: Alcan. Simiand, F., 1932. Le salaire, l’évolution sociale et la monnaie. Essai de théorie expérimentale du salaire. Paris: Alcan. Simiand, F., 1934. La monnaie, réalité sociale, Annales sociologiques, D (1): 1–86. Smelser, N. J. and Swedberg, R., 1994. The sociological perspective on the economy. In N. J. Smelser and R. Swedberg (eds.) The Handbook on Economic Sociology. Princeton, NJ: Princeton University Press, 3–26. Stark, D., 2009. The Sense of Dissonance. Accounts of Worth in Economic Life. Princeton, NJ: Princeton University Press. Steiner, P., 1995. Vilfredo Pareto et le protectionnisme : l’économie politique appliquée, la sociologie générale et quelques paradoxes, Revue économique, 46 (5): 1241–1262, DOI: 10.3406/ reco.1995.409732. Steiner, P., 2011. Durkheim and the Birth of Economic Sociology, Princeton, NJ: Princeton University Press. Steiner, P., 2017. Religion and the sociological critique of political economy: Altruism and gift, European Journal of the History of Economic Thought, 24 (4): 876–906, DOI: 10.1080/09672567.2017.1332664. Steiner, P., 2021. Durkheim and economic sociology. In H. Joas and P. Petenkoffer (eds.) The Oxford Handbook on Émile Durkheim, oxfordhandbook.com, DOI: 10.1093/oxfordhb/ 9780190679354.013.15. Steiner, P., 2022. The sociological critique to liberal political economy. In G. Faccarello and C. Silvan (eds.) A History of Economic Thought in France. The heyday of French political economy, 1695–1914, London: Routledge, forthcoming. Swedberg, R., 1987. Economic sociology: Past and present, Current Sociology, 35 (1): 1–144, DOI: 10.1177/001139287035001003. Swedberg, R., 1990. Economics and Sociology. Princeton, NJ: Princeton University Press. Swedberg, R., 1998. Max Weber and the Idea of Economic Sociology. Princeton, NJ: Princeton University Press.
204 Philippe Steiner Swedberg, R., 2003. Principles of Economic Sociology. Princeton, NJ: Princeton University Press. Tribe, K., 2019. Introduction to Max Weber’s Economy and Society. In M. Weber (ed.) Economy and Society. Cambridge: Harvard University Press, 1–73. Weber, M., 1904. Die “Objectivität” sozialwissenschaftlicher und sozialpolitischer Erkenntniss, Archiv für Sozialwissenschaft und Sozialpolitik, 1 (1): 22–87. Weber, M., 1920 [2002]. The Protestant Ethic and the Spirit of Capitalism. London: Penguin Books. Weber, M., 1922 [2019]. Economy and Society. Cambridge: Harvard University Press. Weber, M., 1927 [1930]. General Economic History. Glencoe: The Free Press.
9 Neoclassical economic approaches to economic sociology Alexander W. Craig and Nathan P. Goodman
Introduction In the history of economic thought, a number of “movements”, “periods”, “schools”, etc. have developed that had significant sway over the profession during their heyday. Classical, Marxist, Institutionalist, Historical, and other forms of economics have had varied relationships with other social sciences, from the Marxist insistence that all social phenomena are ultimately determined by the economic relations of society to the Historicist insistence that there are no economic laws whatsoever, and thus economics can only proceed after the manner of History. This chapter will consider how schools within a broadly defined neoclassical economics can contribute to research in economic sociology. How does neoclassical economics relate to economic sociology? What aspects of neoclassical economics can helpfully contribute to a fruitful research program in economic sociology? To answer these questions, we must first clarify what the terms mean. “Neoclassical economics” can refer to a variety of things. The “Neoclassical Synthesis” refers to a post-World War II synthesis between Keynesian macroeconomics and neoclassical microeconomics. Other users of the term “neoclassical” use it as an antithesis to interventionist macroeconomic policy, as recommended by neo-Keynesian and New Keynesian economists. Still, others think of neoclassicism as being primarily about the positivist use of rational choice theory to generate models that are then tested against quantitative empirics. None of these are the referent of “neoclassical economics” as we mean it in this chapter. Instead, we focus on neoclassical microeconomics, which we trace back to the Marginal Revolution. For current purposes, neoclassical economics refers to economics that focuses on purposive action by individuals whose choices are shaped by costs and benefits at the margin. “Economic sociology” also has multiple definitions in the literature. Some may define “economic sociology” as a sort of “sociological imperialism”, just as “economic imperialists” like Gary Becker applied the tools of economics to phenomena that had primarily been studied by other social sciences. On this definition, economic sociologists apply the tools and theories of sociology to economic phenomena and seek to supplant economists’ explanations with others grounded in sociological theory that may or may not be reconcilable with economic reasoning more broadly. Others may define economic sociology in terms of adding sociological nuance to economic models, such as by observing the effect of discrimination in labor markets. For our purposes in discussing economic sociology within economics, economic sociology is an approach to explaining social phenomena that uses economic reasoning while preserving a central concern for human embeddedness in cultural frames (in the spirit of Goffman 1974) and institutions, i.e. human-devised constraints on human social interaction (North 1991). DOI: 10.4324/9780367817152-11
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Economic sociology’s limited influence on mainstream economics may reflect incompatibilities between economic sociology and neoclassical economics. Is there hope for a research program that combines these two approaches? We argue that economic sociology and neoclassical economics can be complementary research programs but the most fruitful complementarity comes from synthesizing economic sociology with a particular tradition in neoclassical economics, namely, the “Austrian” school of economics. There are multiple strands of neoclassical economics that arose from the Marginal Revolution. The mainstream strand of the literature, derived from the work of William Stanley Jevons and Leon Walras, focused on equilibrium and tended to use physics metaphors and mathematical methods. However, another Marginal Revolutionary, Carl Menger, largely eschewed physics metaphors, equilibrium approaches, and mathematical modeling (Mirowski 1984). Instead, his approach focused on subjectivism, social processes rather than equilibria, and verbal reasoning more than mathematical modeling. This approach has been carried on by scholars associated with the Austrians. We argue that mainstream neoclassical economics tends to abstract away from many of the core issues of economic sociology, whereas Austrian economics provides a framework that is better suited for studying socially embedded human action. This chapter will proceed as follows. Section II, “Classical and neoclassical economics”, describes the origins of neoclassical economics, tracing three approaches to the study of markets back to the three originators of the Marginal Revolution. These three revolutionaries inaugurated approaches to economics that we then take up in Section III “Neoclassical economics and economic sociology”, noting that the approach flowing from the work of Carl Menger, market process theory or “Austrian economics”, holds special promise for economic sociologists. Section IV “Economic sociology and Austrian economics today” describes contemporary economic sociology work in the Austrian tradition. Section V concludes with thoughts on the future of economic sociology and neoclassical economics.
Classical and neoclassical economics Classical political economy asked big questions. Adam Smith asked perhaps the biggest (1976 [1776]): what explains the nature and causes of the wealth and poverty of nations? Smith challenged the power of mercantilists and the protectionist interventions that they relied on. He elucidated how social cooperation under the division of labor can produce a social order not intended by the participants. Rather than treating this as some automatic result of self-interest, he emphasized that alternative institutional arrangements shape the incentives and therefore the patterns of action we observe. After Smith, David Ricardo further deepened our understanding of political economy by introducing the law of comparative advantage. Smith had already seriously challenged the case for protectionism, and Ricardo’s work further strengthened the case for free trade. Other classical economists continued to build up a body of knowledge, an edifice of political economy that exposed harmful public policies, explained social cooperation and gains from trade, and helped us understand the social world. But classical economics still had a weak spot. Classical economists largely relied on the labor theory of value. Price determination was seen as rooted in objective costs. But paradoxes, such as the “diamond-water paradox”, continued to pose serious challenges to this theory. In the late 19th century, several economists began to propound an alternative. Rather than explaining value simply in terms of labor or costs, they began
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to focus on the marginal utility of a good. This elegant theory had already been articulated to some extent by previous theorists, such as some German subjectivist writers. However, the economics profession as a whole began to accept it after the “Marginal Revolution”, led by a trio of scholars: William Stanley Jevons, Leon Walras, and Carl Menger. While all three of these theorists explained value in terms of marginal utility, their theories of the market differed in significant ways. Leon Walras advanced a “general equilibrium” understanding of the market. Rather than simply focusing on a market for a single good, a general equilibrium theory offers a “mathematical theory of a network of interrelated markets” ( Jaffe 1976: 513). General equilibrium theory derives its name from two features of the approach: it is “general” in that it attempts to account for all changes in all agents’ choices whenever economic circumstances change. For example, when a farmer discovers a new fertilizer that increases the output of his farmland, customers may experience substantial quality of life improvements from consuming larger quantities of produce at cheaper prices, but they may also find that the increase in farmland productivity has increased the demand for land in general, which increases their home’s rent, which leaves them only modestly better off overall. Furthermore, with any degree of market imperfections, customers may find themselves worse off in general. For example, the farmer’s fertilizer might be produced in a factory that pollutes the air of the customers who can exert no influence (monetary or otherwise) over the factory owner’s level of pollution. General equilibrium theory focuses on “equilibrium” in the sense of a Nash equilibrium: no agent wishes to alter their choices unless at least one other agent alters their choices as well. This means that the situation of an economy in general equilibrium is static. General equilibrium theory attempts to study change after the change has taken place, not the process by which it has taken place. Resources may continue to flow from producer to consumer over time in general equilibrium, but no plans require revision, no unexpected events occur, etc. Time is purely a directional notion, not a substantive component of the model. Walras’s theory was able to “derive individual demand and offer functions which, when aggregated over all individuals, served to determine equilibrium prices in a pre-specified perfectly competitive market system” ( Jaffe 1976: 517). Walras derived his theory of marginal utility in order to make his general equilibrium theory work, rather than building up his general equilibrium theory from marginalist foundations. Jaffe explains that “instead of climbing up from marginal utility to the level of general equilibrium system, Walras actually climbed down from that to marginal utility” ( Jaffe 1976: 513). Walras explained his general equilibrium model using a hypothetical auctioneer shouting out prices. Rather than studying price formation through the interactions of agents, the construct of the Walrasian auctioneer treats all individuals as price-takers solely interacting with the auctioneer. As De Vroey (2012: 778–779) explains: The auctioneer economy is a set of bilateral relationships between the auctioneer and isolated individual agents. Before the attainment of equilibrium, agents’ exclusive social link is with the auctioneer. They do not interact or communicate with each other. As a result, whenever a given agent makes a trading offer by responding to the prices announced by the auctioneer, he or she does not know how many other agents are making a similar offer. An agent can be in a monopolistic position
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without being aware of it and so is unable to take advantage of it! The same point can be made by looking at things from the information point of view. In an auctioneer economy, agents have no knowledge of market excess demand functions. This feature runs counter to the central trait of monopoly or oligopoly theory, that the agent with market power knows the objective demand function for the good he or she is selling. Hence the tâtonnement set-up itself guarantees the ‘perfectness’ of competition, whatever monopolistic factors may be present in the economy. (De Vroey 2012: 778–779) Perfect competition and general equilibrium are simply built into the assumptions of the auctioneer model. “The auctioneer is a deus ex machina, the presence of which can be defended only on the grounds of a lack of alternative trade organisation assumption fitting the Walrasian analysis of the logical existence of equilibrium” (De Vroey 2012: 778). Walras offers a way to explain interconnected markets, but it is highly stylized and unrealistic. By contrast, William Stanley Jevons, and even more so his extremely influential student, Alfred Marshall, developed a partial equilibrium model (Hébert 1998). A partial equilibrium model studies a single market, holding conditions in other markets constant to tease out the effects of specific changes within the market and figure out what the equilibrium is. Jevons’ work laid the groundwork for Marshall, who developed the most famous partial equilibrium model: supply and demand. The supply and demand model, taught in economics classrooms worldwide, enables economists to examine how shifts in the demand for or supply of a specific good impact the price and quantity of that good (all else held constant). Mirowski (1984) notes that Jevons and Walras both frequently used metaphors between economics and physics. Mirowski provides multiple examples of this from both Jevons and Walras. For example, he describes how Jevons compared the equality of the ratios of marginal utility of two goods and their inverted trading ratio to the law of the lever, where in equilibrium the point masses at each end are inversely proportional to the ratio of their respective distances from the fulcrum. (Mirowski 1984: 363) Similarly, in Elements of Pure Economics, Walras argues that “the pure theory of economics is a science which resembles the physico-mathematical sciences in every respect” (quoted in Mirowski 1984: 363). Jevons, Walras, and other early marginalists “were concerned to differentiate their handiwork from previous political economy on the explicit ground that it was of a scientific character” (Mirowski 1984: 362). To them, science was defined in terms of mathematical formalism and other characteristics shared with 19th-century physics. In practice, this definition restricted which aspects of human action could truly be subjected to scientific inquiry. For example, “Walras insists that there exists a limited subset of economic phenomena which could be the objects of a pure scientific inquiry: they are the configurations of prices in a regime of ‘perfect competition’” (Mirowski 1984: 364). These phenomena for Walras, demand the application of the same mathematical techniques as those deployed in mid-nineteenth century physics; other social phenomena tainted by
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the influence of human will would be relegated to studies employing non-scientific rhetorical techniques. (Mirowski 1984: 364) By defining science around physics, the subjectivity and messiness of human action are presumed to be non-scientific. The social is squeezed out of social science in the name of making it scientific. Unlike his fellow Marginal Revolutionaries, Carl Menger did not define scientific economics in terms of physics metaphors, equilibrium, or formal mathematical techniques. Menger’s work primarily employed verbal reasoning, attention to subjectivity, purposive human action, and a focus on processes rather than equilibria. As Mirowski (1984: 370–371) puts it, “Menger did not conform to Walras’s main criteria for a neoclassical theorist: he was not mathematical, he did not adhere to the norms of physical science, and therefore he was not ‘scientific’”. Menger’s approach enabled him to study issues that his fellow Marginal Revolutionaries largely overlooked. For example, Menger studied how fallible human beings engage in learning, discovery, and error correction. “Contrary to those two other marginal thinkers with whom he is often associated, Jevons and Walras, Menger devotes much attention to errors of judgment and planning” (Dekker 2016: 51). These errors are then weeded out through processes of learning, discovery, and error correction. So rather than just focusing on equilibrium, Menger brought the process to the foreground. Streissler (1990) argues that this focus on process was Menger’s distinctive contribution. Indeed, Streissler contends that subjective value had already been present in German economic theory. “German economics specialized in a strong subjective value mood, a protoneoclassical tradition, from which Menger could amply borrow; and he did so, citing mainly German authors in his Principles of economics” (Streissler 1990: 32). While many see Menger as the third Marginal Revolutionary, Streissler argues that the neoclassical elements of Menger’s research program were already present in prior German economists. However, Streissler (1990: 61) argues that several elements of Menger’s research, namely, “the process-analytic approach, the ‘time error’ paradigm, capital theory, the strict methodological individualism”, did not have predecessors in German economics. These were Menger’s core innovations, and they continue to represent signature features of the Austrian approach that he pioneered. However, despite his differences with Jevons and Walras, Menger is widely considered part of the triumvirate of Marginal Revolutionaries. For a while, the Austrian tradition that Menger founded sat relatively comfortably within the neoclassical mainstream. F.A. Hayek, for example, treated neoclassical marginalist economics as a unified body of theory in his “The Trend of Economic Thinking” (1933). He saw neoclassical economics as a body of theory that put constraints on utopian proposals. But when the socialist calculation debate commenced, the rift between the Austrians and other neoclassical again became apparent. Many neoclassical economists, most notably Oskar Lange and Abba Lerner, used equilibrium models to argue that there exists a formal equivalence between socialism and capitalism. The institutional context did not matter to them because regardless of that institutional context, the system of simultaneous equations would work out to the same equilibrium solution as that which the market would arrive at emergently. This led Austrian economists like Ludwig von Mises and F.A. Hayek to further develop a theory of the market process. Laying out the key role of private property rights in economic calculation and the discovery and
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transfer of knowledge made it clear that Austrians had a different understanding of equilibrium, disequilibrium, and the market process than their fellow neoclassical economists (see Boettke 2018: 124–133). With this theory elucidated, it was clear that Austrian economists offered a theory of dynamic change, in which alert entrepreneurs discover profit opportunities, use prices as guides, and face the discipline of losses. This results in processes of error correction through time, rather than placing the analytical attention solely on an equilibrium solution drawn from a 19th-century physics textbook.
Neoclassical economics and economic sociology The three approaches within neoclassical economics – general equilibrium theory, partial equilibrium theory, and market process theory – each represent one avenue of research that might generate a useful program at the borderland between economics and sociology. However, we will argue, the equilibrium theory that forms the basis of two of these approaches necessarily makes their interface with the first personal, subjective experience of economic activity, and especially market activity, rather limited. This is not to say that only market process theory is of any use. The other approaches have clearly demonstrated enormous use in the analysis of many economic phenomena. However, for use in research on topics in economic sociology, market process theory is best equipped. 1 General equilibrium cannot answer the questions of economic sociology General equilibrium theory is, in general, blind to substantive issues of time. Because of the emphasis on simultaneous action and equilibrium constructs, diachronic processes are left out of the analysis. For a social scientist attempting to understand the on-theground, concrete actions that humans take to build economies and societies, general equilibrium theory will either require extensive modification and complex shoehorning or be unsatisfactory entirely. Because of the need to ensure that circumstances at time one fully determine the equilibrium at time two, strategic action between the two periods must be disallowed, lest the rearrangement of goods in the intervening period lead to wealth redistribution that alters the final equilibrium. Therefore, if a social scientist wishes to understand, for example, how someone might negotiate an economic transaction, a political maneuver, a social overture, etc. that requires certain circumstances to remain constant over the duration of the action, general equilibrium theory will miss any strategic choices the agents make in accordance with the need to deal with potential unexpected changes in the intervening period. Institutions, both formal and informal, often have features intended to deal with the issue of navigating potentially changing circumstances, such as contracts with escape clauses, constitutions with guaranteed representation for certain social groups, or even simple etiquette norms dealing with reliability. Agents’ attempts to navigate their world, socially construct means of coordinating their understandings, and live together with an open-ended future are conceptually precluded from analysis in general equilibrium theorizing. That is, it is not necessary for agents to share an understanding of the goods they trade. They must regard an amount of good X as the same amount of good X that others do, but they need not understand what X is in the same way, value it similarly, measure using the same units, etc. Indeed, the depiction of goods traded between agents in general equilibrium theory is not
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substantially different from water flowing between puddles in an uneven parking lot. Furthermore, agents’ constraints must be known to some definable degree of precision (risk is conceptually permissible) by all parties, their preferences equally well-specified and known, their potential choices equally public and visible, etc. This limitation on general equilibrium creates analytic tractability and wide applicability, but it removes from view any efforts to build shared understanding. That is, the way agents arrive at an understanding of good X such that it can be exchanged is simply assumed to already be in place before exchange begins. As an illustration of this limitation of general equilibrium theory, consider a hypothetical exchange of land between a nomadic society and a non-nomadic one. The nomads may regard land “ownership” very differently from the stationary society. They may regard land ownership as merely conferring a right to peacefully co-exist with others who likewise use the land in the traditional way of the nomads, whereas the stationary society may regard ownership as entailing the right to exclude the nomads. Until the groups build a common understanding of the extent of the ownership rights being transferred, they simply will not be in anything worth referring to as “equilibrium”, so general equilibrium theory cannot examine the process by which this understanding is constructed. This problem extends beyond the negotiation of the terms of property exchanges to include indispensable components of modern markets like prices. Agents must understand not only what the prices available to them are but also what prices are as a general, conceptual matter and how they work. General equilibrium theory precludes any analysis of these kinds of “cultural frames”. The two foregoing issues with general equilibrium theory point to what is perhaps the most unfortunate feature of the theory for those wishing to study how economic phenomena actually take place and how social structures impact them: general equilibrium theory can have no actual depiction of market activity in it. In prosaic, everyday terms, general equilibrium theory might depict the pocketbook and pantry of a consumer unit before and after their trip to a grocery store, but it contains no description of what a family might do together to go to the grocery store and make the purchases that engender the changes. As one commenter described the matter, “The market, it turns out, is the hollow core at the heart of economics” (Lie 1997). 2 Partial equilibrium theory is still too limited The problems of general equilibrium theory come in large part from the assumptions and simplifications necessary to make tractable a comprehensive depiction of economic activity. One might reasonably hope, therefore, that partial equilibrium theorizing is better suited to answering economic sociology’s questions, as with more variables left unspecified and a less stringent set of requirements for the analysis to go through, more varied questions might be possible to answer. Unfortunately, there is still reason to think even partial equilibrium theorizing will not suffice for the purposes of economic sociology. Partial equilibrium theory, a depiction of the market in which only a subset of economic interactions is traced out to their equilibrium conclusion, still places many important economic phenomena outside the analysis. For one, institutions are largely taken for granted and placed in the background as either prerequisites to the analysis that are assumed to be in place or are taken to be irrelevant. Equilibrium-based theorizing about economically relevant institutions is perfectly well possible, as demonstrated by many
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theorists in the new institutionalist tradition (Cheung 1968, Barzel 1977, Greif 1994). However, for any depictions of exchange activity, partial equilibrium can generally only offer an examination of optimization conditions with given preferences and constraints, rational agents, etc. Questions commonplace in economic sociology, such as “How do the relationships between business owners change the behavior of those owners?” are simply outside of the model itself. Partial equilibrium theory, furthermore, still has no place for cultural frames within its analysis. Even if agents no longer necessarily understand every good in the same way (instead only understanding at least two goods the same way), there is still no explicit way to address how agents arrive at any shared understanding of what they are doing. Assuming that agents’ utility functions and/or production constraints are shaped so as to result in the behavior observed is, at best, an ad hoc method of explaining away the problem. The place of money in a transaction, for example, though the subject of much research in economic sociology (see for example Zelizer 2021), is simply understood through the rather limited definition of a medium of exchange. In principle, most partial equilibrium models of exchange could be wholly agnostic as to whether any particular good in the model is money, if any is at all. 3 Austrian economics is better equipped for economic sociology One of the core problems with general equilibrium and partial equilibrium theorizing for answering questions in economic sociology is their focus on comparative statics. Rather than any kind of picture of change, these theories explicitly avoid dealing with the process of moving between equilibria. Instead, they analyze phenomena by calculating the change in variables before and after the change takes place, i.e. comparing static situations. A more satisfying depiction of market activity for the purpose of studying human beings as they actually go about their economic activities would include the gradual adjustment of real people’s activities to new material circumstances, unexpected changes, newly observed information, and more. This is the task Austrian economists place at the center of economic analysis. In contrast with equilibrium approaches, Austrian economists’ approach to market exchange has been referred to as “market process theory”. This approach seeks to analyze economic phenomena as they are produced by a system with a tendency toward some equilibrium construct but without necessarily assuming the economic system is in equilibrium. This emphasis on process and evolutionary change within an economic system diverts analytical attention away from topics like the determination of prices, final wealth distribution, and optimality conditions toward topics like plan coordination, expectation formation, and pattern explanation. F. A. Hayek famously argued that economists ought to focus on “pattern predictions”, rather than point predictions, in analyzing their subject, stating that economists had become mired in “a vain search for quantitative or numerical constants” where a more appropriate methodology would center “predictions of some of the general attributes of the structures that will form themselves” (Hayek 1989). This emphasis on process permits market process theory, and Austrian economics more generally, to examine the concrete behaviors of actual market participants by examining many subjects, including, but not limited to, entrepreneurial profit-seeking (Kirzner 1973), capitalist expectation formation (Lachmann 1978), and the interplay of time and ignorance (O’Driscoll and Rizzo 2014). This last is important in that it
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illustrates a key theme of market process theory: social systems evolve over time as humans build institutions to manage the pervasive risk and uncertainty of our social world. Absent here is the focus on end states except insofar as they inform the general direction of any social system’s evolutionary tendency. In addition to the emphasis on time and process, Austrian economists emphasize several themes that draw attention to questions relevant to economic sociology, like the Austrian emphasis on “subjectivism”. One of the implications of the findings of the Marginal Revolutionaries was that the worth of a good cannot be defined by how many resources went into its production. For example, Marx’s “socially necessary labor time” has no well-defined meaning when the production of the 100th unit of a good requires a different set of resources from those necessary to produce the first, and when the first unit of a good has a greater worth to the end consumer than the 100th unit. This latter point, that the value of a good is wholly and exclusively dependent on the consumer’s preferences, is the subjectivist insight, now commonly accepted in all neoclassical schools of economics. However, Austrians take the subjectivist insight further than other schools and maintain it as a cornerstone of their investigations. Whereas some other approaches may adopt an assumption of “rational expectations”, the modeling choice to set agents’ expectations to a distribution centered on the true future value with zero mean error, Austrians wish to inquire into the process forming individuals’ expectations and whether that process is ultimately contributing to plan coordination or discoordination. Furthermore, given the diachronic setting of market process theory, Austrians are loathe to assume that currently existing economic circumstances perfectly incorporate all existing knowledge. Given that prices may not perfectly reflect the valuations individuals assign to the goods up for sale, Austrians point out that an observer of markets is much more likely to observe ongoing exchange, mutual adjustment, and an evolutionary tendency toward equilibrium. This tendency is unlikely to be quite fast enough to put a market into equilibrium before new circumstances shift the nature of the equilibrium, redirecting the directional tendency of the evolutionary process. This evolutionary pattern and tendency, Austrians emphasize, is shaping and reshaping of a network of human plans. Rather than prices being the backward-looking expression of idealized equilibrium exchange ratios, they are forward-looking guides to decision-making. Rather than disequilibrium prices being disallowed by construction, they are key signals to potential improvements in the use of scarce resources. Likewise, outside of prices, many forms of economically relevant social phenomena can be studied through the lens of understanding how they economize on information and encourage or discourage plan coordination (Hayek 1945, Chamlee-Wright and Meyers 2008, Martin 2010). Equilibrium thus ceases to be about the allocation of goods as much as it is about the lack of need for plan revision (Hayek 1937). The Austrian emphasis on the study of evolution toward solutions to social problems is one example of Austrians’ commitment to explaining broad social phenomena in terms of the desires, constraints, and beliefs of individuals. This is not, however, a procrustean insistence on modeling atomic human beings. This strong commitment to methodological individualism and universally applicable social scientific principles comes alongside an emphasis on the institutional contingency of individuals’ interests. In this sense, the Austrian market process approach is an example of what Peter Boettke (2012) calls “mainline economics”. Boettke sees mainline economics as a core tradition within economic research that stretches back to Adam Smith. Mainline economists
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embrace Smith’s “invisible hand”. That is, they emphasize plan coordination and social cooperation under the division of labor. However, importantly, mainline economists derive this “invisible hand theorem” from rational choice theory by paying special attention to institutional analysis. Unlike the general equilibrium theorists, who often ignore institutions and instead treat the invisible hand theorem as a mathematical result of a system of equations, mainline economists focus on which institutions foster social cooperation. In this regard, the Austrian market process theorists carry on some of the best insights of classical political economy. They are neoclassical in that they are marginalists, but as mainline economists, they carry on the classical political economists’ project of studying the institutions that enable or hamper social cooperation. Other research communities that carry on this mainline tradition include public choice theory, New Institutional Economics, the “Bloomington school” of Elinor and Vincent Ostrom, UCLA price theory, and the law & economics movement. Under our definitions, arguably, Boettke’s mainline economics is simply economics that demonstrates the existence of the invisible hand by engaging seriously with economic sociology.
Economic sociology and Austrian economics today Contemporary Austrian economics has examined several areas today accurately categorized under the heading of economic sociology. In this section, we will describe only three: sociality within markets, institutional change, and disaster recovery. These three themes illustrate the natural applicability of Austrian economics to economic sociology given the Austrian emphasis on subjectivism, plan coordination, and process. a
Sociality exists in the marketplace
One area of Austrian research into economic sociology has been to investigate the existence and implications of socialization in market settings. One popular communitarian criticism of market-based social organization posits that as spheres of social activity become more integrated with markets, important social relationships may degrade (Polanyi 1944, Sandel 2012). However, if the market is, in addition to being a site of anonymous exchange and concatenated chains of cooperation, a site of sociality and relationship formation, then this criticism may be much weaker than the strict dichotomous view would lead one to believe. There has been a great deal of research among Austrians on the relationship between sociality and the market. Noting that the conventional neoclassical depiction of a market has no depiction of “souls or sounds”, Storr (2008) argues that markets can be understood as social spaces with their own meanings and practices. In keeping with the Austrian emphasis on subjectivism and process, Storr points out that this insight pushes to the fore the question of how people construct market spaces. How do people build shared expectations about what is appropriate or inappropriate within these spaces? How do they enable economic and noneconomic relationships to exist alongside each other? From tight social bonds between women in Ghanaian markets, centrally important to economic life in the country, to office romances in developed nations, a commonplace familiar to any white-collar worker, participation in markets facilitates the creation of many kinds of non-economic relationships. In a similar vein of responding to communitarian criticisms of market-based social organization, other Austrians have argued that markets do not necessarily cause a
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decline in social capital, only a restructuring of it (Meadowcroft and Pennington 2008). They argue that rather than requiring social capital be degraded, abandoned, or allowed to wither, markets merely require that bonding social capital, such as families and other tight-knit associations, decline in importance relative to looser connections, i.e. bridging social capital. Here, the importance of the Austrian emphasis on process and subjectivism is once again on display. Because markets are the result of many individuals interacting in complex ways with no pre-coordinated goals or shared understanding of their circumstances, they require a social setting in which cooperation is possible without the cooperators necessarily intending the same end goal or sharing the same values. That is, the economic process must be facilitated, not merely assumed. This reframing of the relationship between markets and social ties highlights that market-facilitating social ties are an expansion, not a retrenchment, of social connectivity. It is simply that the ties between those in markets are not of the sort that requires a shared set of values to be pursued intentionally. Indeed, the writers argue, “there is no substance to the claims [that the market] requires the replacement of family-like bonds with norms based entirely on exchange” (pg. 128) and instead argue that markets merely require the existence of a network of relationships in addition to those that facilitate non-market interactions. Continuing on the theme of space and social ties, Ikeda (2012) explores the relevance of market process theory, social relations, and urban design for each other. In market process theory, the driving force behind the changes made in the tendency toward equilibrium is the entrepreneur and their pursuit of profit (Kirzner 1973). Ikeda notes the similarity between Burt (1995) and Kirzner (1973) in that both explicitly describe competition as a process of entrepreneurial action, not merely a result thereof or a state of affairs. The Austrian theory of the entrepreneur theorizes the entrepreneur as the eliminator of uncertainty, the agent who drives the market process forward by obtaining new knowledge or reconciling others’ inconsistent beliefs. Of course, this raises the question of where the entrepreneur might gather knowledge about others’ plans, beliefs, circumstances, etc. One source, naturally apparent to those steeped in the literature on social ties, could be ties to socially distant agents. Following Burt (1995), we may observe that the non-redundancy of social ties is key to entrepreneurs’ potential access to information their competitors might not have, and therefore entrepreneurs are likely to find a diversity of ties more valuable than a large number of redundant ties. Furthermore, entrepreneurs are likely to pursue new ties that are potentially profitable and therefore be more likely to succeed in areas with substantial opportunities to develop non-redundant ties. Ikeda argues that this may help to explain why population density in regions smaller than metropolitan areas does not correlate substantially with economic development. It is not density per se that enables the development process, but the diversity of informal ties due to their information role in the market process, something that is only loosely associated with spatial population density. The implications for urban design are that cities should adopt permissive, open-ended approaches that enable a large variety of potential future directions for development, ones that enable private entrepreneurs with local knowledge to make their disparate contributions to building a city with diverse, appropriately scaled, trust-facilitating communities, and urban landscapes, much as envisioned by Jane Jacobs (1961, 1970 [1969]). b Institutional development takes place via an evolutionary process
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The Austrian emphasis on process has also yielded fruit in the pursuit of an understanding of cultural change. Interestingly, the origins of this insight may go back to Menger himself, whose 1892 article “On the Origin of Money” hints at what was developed in Ludwig von Mises’ The Theory of Money and Credit (1980). When considering an unbacked currency, such as the US dollar, UK Pound, or Japanese Yen, it is natural to ask why the currency would have any value. The answer “because other people want it” is unsatisfying, as they only want it because others do. The question can be asked more pointedly by considering the evolution of the currency: Why would the first person to be offered payment in an unbacked currency accept it? Austrians’ answer is that at some point, the currency was not unbacked, and so one may “regress” through the chain of transactions to some non-monetary use of the money that explains its initial acceptance. This is often termed the “regression theorem”, and it is the market process at play in the market for money – i.e. the market for highly saleable assets (Menger 1892). An analogous question arises when one asks the question of why institutional change takes place. If two people must interact according to known norms, what explains why some norm changes “stick”, while others unravel and older norms reassert themselves? The regression theorem can give us insight into the matter (Boettke et al. 2008). Just as currencies only hold value if they are accepted by other members of one’s trading network, norm adherence only matters if other members of one’s social community recognize the norm. Thus, norm change becomes a question of legitimacy. Diachronic change in institutions, just as diachronic change in money, requires that the first actors to behave according to the changed standard believe that subsequent actors will recognize the new standard and respond beneficially. This regression theorem of institutions then renders predictions borne out by historical data about institutional change. In particular, it points to the need for new institutions to accord with the local self-understanding, values, narratives, etc. that make up the mētis of the local culture. Only institutions that match the local mētis are likely to be “sticky”. Others are likely to be outcompeted over time by other ways of life, including the institutions they might originally have been intended to replace. What kinds of institutions are likely to fit a community’s mētis? Clearly, any institution that the people develop themselves and adopt of their own accord is very likely to stick. Those that the people adopt of their own accord but have not developed themselves are moderately likely to stick. Those that are imposed by outsiders who developed the institutions in a fashion completely disconnected from the community in question are unlikely to stick at all. This pattern can help explain why areas settled and subsequently populated by European colonists maintained Europe-like institutions, whereas many areas invaded by US military forces who subsequently withdrew have not maintained US-style institutions. In the sequence of insights that leads from the Austrian theory of the history of currency to the explanation of contemporary international policy’s failure, one can see the central role of process and subjectivism. Rather than radical breaks from one equilibrium currency to another, or comparative statics of institutional incentives, careful attention to how individuals with idiosyncratic plans coordinate their activities, interact, and evolve their social systems toward a solution to their problems is key to deriving the insight. The conceptual distance between the two questions – how currency obtains its value and why institutional change sticks (or doesn’t) – is neatly bridged by the Austrian methodology that emphasizes individuals, plans, and the process which coordinates them.
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c
Disaster recovery depends on sociocultural resources
One of the largest areas of research in economic sociology in the Austrian tradition has been recovery following a natural disaster. Given that the market process depends on a human-produced social setting, it is insightful to investigate the process of re-establishing economic normalcy in that setting after a crisis disrupts it. Naturally, the return to normalcy depends on the extent of damage to pre-existing material resources, but it also depends on the existence of entrepreneurs and social networks they can mobilize to rebuild their communities. The key role of entrepreneurs, construed broadly as change agents irrespective of their employment sector, is the primary subject of Storr et al. (2015). Disaster recovery can be understood as a massive collective action problem, requiring the cooperation of many different community members to re-establish the features of a community that made it a desirable place to live. Especially after natural disasters on the scale of Hurricane Katrina, communities may have been displaced and their ability to contact one another limited. This can make coordinating on recovery a difficult project, as agents need to share a credible expectation that others will return home and rebuild in order for their own return to be worthwhile. Entrepreneurs contribute to this coordination in several ways. The most obvious is that they own businesses, encourage resource reallocation, and otherwise enable the efficient use of goods and services. For example, one entrepreneur in the Lower Ninth Ward described himself as providing discount roof repair services for those who couldn’t afford more experienced, faster crews. Furthermore, his trust in his neighbors enabled him to accept payment from them over time and at irregular intervals as their disrupted cash flow returned to normal (p. 75). More directly relevant to economic sociology is the observation that entrepreneurs drive the re-establishment of social networks in their communities and signal that recovery is underway. Examples of this phenomenon abound, from Fr. Vien, a Vietnamese Catholic priest who directed his parishioners at Mary Queen of Vietnam Catholic Church to return and begin rebuilding their “second homeland” (p. 107), to Casey Kasim, whose business strategy explicitly took into account the role he could play in signaling community rebound: “[I]f there is a gas station or convenience store in your place, you feel that there is life in it, if there is none — it would look… dead” (p. 115). These entrepreneurial activities help advance the recovery process by coordinating people’s plans on the choice to return. For each person who returns, others’ benefit from returning also grows, further incentivizing disaster recovery. These increasing returns create a coordination problem for those considering whether to return. If you do not know whether others will return, you may not know whether it is worth it to return. Entrepreneurs who help solve this coordination problem therefore play a particularly important role in promoting disaster recovery. Further research has highlighted that for-profit and socially relevant businesses are not neatly separable (Haeffele and Craig 2020). Many for-profit entrepreneurs after disaster produce spaces in which socialization can take place. These spaces then in turn facilitate recovery by enabling customers to reconstruct their social networks, use their social ties to obtain useful information, or even just relax and maintain their own well-being through time spent enjoying others’ company. Whether a coffee shop, clothing store, grocery store, or gas station, many businesses after Hurricane Katrina became sites where locals could share best practices about dealing with the bureaucracy surrounding official recovery aid, inquire about trustworthy contractors, reconnect with
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returned community members, and engage in social activities that facilitated recovery. The entrepreneurs who started these businesses often explicitly recognized this overlaid social content of their business decisions, such as when one noted “I want to say that we’re like a little heartbeat in the city… It has been instrumental in bringing people back here”.
Conclusions Economic sociology and Austrian economics stand to benefit substantially from incorporating insights from each other into one coherent picture of social life in a market society. This chapter has investigated a handful of these projects taking place within contemporary Austrian economics, but many other areas of investigation exist, such as the effect of markets on people’s values (McCloskey 2006, Storr and Choi 2019), the evolution of family structure (Horwitz 2015), and the ontology of markets (Lewis 2011, Stein and Storr 2021), with more being added every year. Economic sociologists who wish to investigate the nature of markets without losing touch with the broader social structures within which markets are embedded, or who wish to engage with economics without giving up attention to the subjective experiences of real agents within them, can find this in the Austrian tradition. Rather than economic sociology needing to be a kind of reaction, a mere rebellion against economic imperialism, it can contest the very bases of the challenge provided by those who would subsume all social science under mainstream economic theory. F. A. Hayek once suggested that the name “economics” for his primary field of study was inappropriate. The Greek root word from which “economics” derives translates to “household management”. This approach to economics as the study of something that can be wholly grasped and planned within the mind of a single actor, whether ruler or researcher, Hayek argued, was antithetical to the proper approach. Instead, he suggested the name “catallactics” from a Greek word meaning “to exchange”. However, he noted, the word can also be translated as “to admit into community” or “to convert from enemy into friend” (Hayek 1976). This suggestion illustrates that for the better part of half a century, and in actual fact much longer than that, Austrian economists and their forerunners have been profoundly concerned with not just the conventionally economic subject matter their peers also studied but, further, with the social relationships that stand behind, within, and downstream from economic activities. Uniting this program with the insights of contemporary economic sociologists working in sociology departments will no doubt be of great benefit to both.
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Neoclassical economic approaches to economic sociology 219 Burt, R., 1995. Structural Holes: The Social Structure of Competition. Cambridge, MA: Harvard University Press. Chamlee-Wright, E. and Meyers, J., 2008. Discovery and social learning in non-priced environments: An Austrian view of social network theory. The Review of Austrian Economics. 21(2) pp. 151–166. Cheung, S. N., 1968. Private property rights and sharecropping. Journal of Political Economy, 76(6), pp. 1107–1122. Dekker, E., 2016. The Viennese Students of Civilization. New York: Cambridge University Press. De Vroey, M., 2012. Marshall and Walras: Incompatible bedfellows? The European Journal of the History of Economic Thought, 19(5), pp. 765–783. Goffman, I., 1974. Frame Analysis: An Essay on the Organization of Experience. Cambridge, MA: Harvard University Press. Greif, A., 1994. Cultural beliefs and the organization of society: A historical and theoretical reflection on collectivist and individualist societies. The Journal of Political Economy, 102(5), pp. 912–950. Hayek, F. A., 1933. The trend of economic thinking. Economica, 40, pp. 121–137. Hayek, F. A., 1937. Economics and knowledge. Economica, 4(13), pp. 33–54. Hayek, F. A., 1945. The use of knowledge in society. The American Economic Review. 35(4), pp. 519–530. Hayek, F. A., 1976. Law, Legislation and Liberty Volume 2: The Mirage of Social Justice. Chicago, IL: University of Chicago Press. Hayek, F. A., 1989. The pretence of knowledge. American Economic Review. 79(6), pp. 3–7. Hébert, R., 1998. Jevons and Menger re-homogenized: Who is the real “odd man out”? A comment on Peart. American Journal of Economics and Sociology, 57(3) pp. 327–332. Horwitz, S., 2015. Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions. New York: Palgrave Macmillan US. Ikeda, S., 2012. Entrepreneurship in action space. The Spatial Market Process (Advances in Austrian Economics, Vol. 16. Emerald Group Publishing Limited. Jacobs, J., 1961. The Death and Life of Great American Cities. New York: Random House. Jacobs, J., 1970 [1969]. The Economy of Cities. New York: Vintage Books. Jaffe, W., 1976. Menger, Jevons, and Walras de-homogenized. Economic Inquiry, 14(4) pp. 511–524. Kirzner, I., 1973. Competition and Entrepreneurship. Chicago, IL: University of Chicago Press. Lachmann, L. M., 1978. Capital and Its Structure. Kansas City: Sheed, Andrews and McMeel. Lewis, P., 2011. Far from a nihilistic crowd: The theoretical contribution of radical subjectivist Austrian economics. Review of Austrian Economics, 24(2), pp. 185–198. Lie, J., 1997. Sociology of markets. Annual Review of Sociology, 23, pp. 341–360. Martin, A., 2010. Emergent politics and the power of ideas. Studies in Emergent Order, 3, pp. 212–245. McCloskey, D. N., 2006. The Bourgeois Virtues. Chicago, IL: University of Chicago Press. Meadowcroft, J. and Pennington, M., 2008. Bonding and bridging: Social capital and the communitarian critique of liberal markets. Review of Austrian Economics, 21, pp. 119–133. Menger, K., 1892. On the origin of money. The Economic Journal, 2(6), pp. 239–255. Mises, L., 1980. The Theory of Money and Credit. Indianapolis, IN: Liberty Fund. Mirowski, P., 1984. Physics and the ‘marginalist revolution.’ Cambridge Journal of Economics, 8(4), pp. 361–379. North, D., 1991. Institutions. Journal of Economic Perspectives, 5(1), pp. 97–112. O’Driscoll, G. P. and Rizzo, M. J., 2014. Austrian Economics Re-examined: The Economics of Time and Ignorance. New York: Routledge. Polanyi, K., 1944. The Great Transformation. First Beacon paperback edition. Boston, MA: Beacon Press.
220 Alexander W. Craig and Nathan P. Goodman Sandel, M., 2012. What Money Can’t Buy: The Moral Limits of Markets. New York: Farrar, Status and Giroux. Smith, A., 1976 [1776]. An Inquiry into the Nature and Causes of the Wealth of Nations. Indianapolis, IN: Liberty Fund. Stein, S. and Storr, V. H., 2021. The market as foreground: The ontological status of the market in market process theory. Review of Austrian Economics, https://doi.org/10.1007/ s11138-020-00535-4. Stigler, G., 1937. The economics of Carl Menger. Journal of Political Economy, 45(2), pp. 229–250. Storr, V. H., 2008. The market as a social space: On the meaningful extraeconomic conversations that can occur in markets. Review of Austrian Economics, 21, pp. 135–150. Storr, V. H. and Choi, G. S., 2019. Do Markets Corrupt Our Morals? Cham: Palgrave Macmillan. Storr, V. H., Haeffele-Balch, S. and Grube, L. E., 2015. Community Revival in the Wake of Disaster. New York: Palgrave Macmillan US. Streissler, E. W., 1990. The influence of German economics on the work of Menger and Marshall. In B. J. Caldwell (ed.) Carl Menger and His Legacy in Economics, Durham, NC: Duke University Press, 31–68. Zelizer, V., 2021. The Social Meaning of Money. Princeton, NJ: Princeton University Press.
10 Elements of economic sociology that reframe the dominant neoclassical economic paradigm Peter D. Brandon
Introduction Most economists would argue that the world is best understood through the prism of neoclassical economics (Becker 1976). Starting with the basic maxims that individuals have agency, are rational, and behave in a self-interested manner, neoclassical economists would unapologetically contend that outcomes for an entire economy are possible to derive simply from the sum of individuals’ economic transactions. Although this contention is a crude abstraction from reality, the foundational maxims of neoclassical economics are widely accepted by many central banks and leaders of nations (Berman 2022). Websites of numerous central banks, for example, the Bank of England (Bank of England 2019) or the Federal Reserve Bank of St Louis (Federal Reserve Bank of St. Louis n.i.d), extol and explain the virtues of neoclassical economic “laws” leading to efficiency in markets, such as wage determination in labor markets. Indeed, neoclassical economics has persuaded nations to view citizens as calculating machines (homo economicus)—well-greased “cogs” in demarcated contexts (Coyle 2021)—who respond to economic stimuli such as prices. This dominant paradigm for organizing economic life has provided nations with the raison d’être for policies deregulating markets, minimizing environmental protections, limiting taxation, and curtailing spending on health and human services and education while maximizing individual and corporate wealth (Berman 2022). The reductionism inherent in neoclassical economics, which has bordered on farcicality at times (Becker and Murphy 1988; Røgeberg 2004), has undermined its championing of individualism. Since the Enlightenment, much of society’s gains in science and the arts have been through the insights and creativity of individuals, even when those individuals were threatened with banishment, imprisonment, and even death. Yet, a realistic and refined understanding of human motives and behavior requires more than the over-simplified approach that neoclassical economics presents. Economic sociology provides those richer and more elaborate insights into society’s economic organization and individuals’ economic behaviors, thereby offering an informative alternative to the pared-down calculus of neoclassical economics (Granovetter 1973, 1985; Swedberg 2009). The primary aims of this chapter are to highlight key contributions economic sociology has made to understanding the economy and illuminate how those contributions reinstate the complexities of economic life ignored by neoclassical economics. These key contributions laid the solid foundation upon which many other economic sociology
DOI: 10.4324/9780367817152-12
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studies have been built. Among a now voluminous literature, see, for example, Nee (2005), Ford (2010), Zafirovski (2007), and Granovetter (1985). However, the two aims of this chapter cannot be fully appreciated without first contrasting the methodological approach of economic sociology to analyzing the economy with the neoclassical economic approach. So, this chapter begins by delineating the differences in both disciplines’ methodologies. Then, three major contributions of economic sociology are examined; contributions that demonstrably expand and improve upon insights gained from neoclassical economics. Finally, the chapter concludes by considering whether the two disciplines can work together to produce a richer, more realistic portrayal of economic life.
Differences in methodologies Methodologically, the underpinnings of these two disciplines could not be more different. Economic sociology assumes that the individual and society are synergistically linked. That synergism, which economic sociology argues is ever-present, means that individuals’ economic decisions are influenced by social factors, such as culture, norms, and traditions. Likewise, the outcomes of individuals’ economic decisions made by a group of like-minded individuals can transform these same sorts of social factors. Furthermore, interactions among individuals or individuals’ interactions with societal institutions can produce an effect on economic life that is greater than the sum of the parts (Swedberg, Himmelstrand and Brulin 1987; Parsons and Smelser 1956). This methodological path economic sociology takes means that economic outcomes result from an interdependence between the individual, or a group, and society. Furthermore, that interdependence reflects the social dimensions of economic cooperation, not necessarily competition or individual economic self-interest. Individuals can band together, acting collectively to maximize the group’s economic and social well-being. Collaboration, teamwork, and reciprocal altruism not only benefit the individual, but society as well. Such cooperative group behavior is influenced by the norms and values of the group and the broader society. Thus, a natural extrapolation of the methodology of economic sociology is that the motives, structures, norms, and values of groups to economic life are as important to identify and study as the exclusive focus of neoclassical economics on the utility-maximizing behavior of individuals. The solitary focus on individual utility maximization—the commanding methodology of neoclassical economics—leaves no room for society’s role in an individual’s economic decision-making. That is, the methodology and mathematical operationalization of neoclassical economics (Samuelson 1947; Hurwicz 1963) treat society as the sum of individuals’ utility-maximizing behaviors. Society is an outcome rather than an autonomous entity interacting with individuals (Morgan 2016). The closest that neoclassical economics has come to incorporating individual interactions is through game theory (von Neumann and Morgenstern 1944; Nash 1950; Von Neumann 1959). Here, human interactions are assumed to be games, with repeated games sometimes leading to cooperation between the individuals (i.e., the players), rather than competition. But again, the methodological assumption is that the outcome of summing all games between individuals is society. Society is an aggregation of games. This methodology fails to conceptualize individual actions within society; the methodology presumes that societal values, institutions, and norms play no role in determining economic outcomes. No amount of mathematics associated with game
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theory changes the underlying neoclassical axiom that human economic interactions only require self-interest, not society. A clear implication of this methodological focus on the individual only is that groups and institutions cannot influence or shape that individual’s utility-maximization problem. Groups are simply the sum of individuals who make them up and while institutions have key functions, they are assumed not to influence individual economic decision-making. In contrast to the sociological methodological approach, the methodology of neoclassical economists circumscribes institutions to mere transactional entities. Institutions exist only to ensure efficient transactions. Institutions like trade unions exist only to reduce the costs of negotiating with employers. Government agencies exist simply because they can more efficiently provide services. And the institution of the family exists essentially because parenting is the most efficient and cost-effective way of bringing forth the next generation of productive workers and responsible voters. Only in the rarest cases, would neoclassical economists argue that the state has a comparative advantage in parenting relative to parents (Brandon 2001). In this scenario, the possibilities for group norms or conventions, or practices have no role in economic decisions. In other words, groups cannot shape the individual’s economic calculus or lead to collective action.
Three contributions economic sociology has made to neoclassical economics The contrast between the methodological approaches of economic sociology and neoclassical economics establishes a useful backdrop for describing contributions that economic sociology has made to understanding economic life. Three contributions in each one’s historical settings illustrate how economic sociology considerably broadens and contextualizes the insights gained from neoclassical economics. The fundamental assumption underlying these contributions is that individuals are parts of society, with both influencing each other. Further, these three sociological contributions to understanding economic life expose the paucity of realism in neoclassical economics analyses due to it ignoring the roles that social structures play in economic life. The three contributions underscore how institutions and groups are more than just transactional parties. Rather, both are “economic players” in their own right. Each contribution suggests to varying degrees that the economy is influenced by systems of institutional conventions, group values, and cultural norms. For example, individual members of a group may choose to protect the very existence of the group even if that choice is not in their own self-interest. Economic sociology seeks to incorporate the values and motives manifested in groups and institutions, like group identification and adherence to the mores and norms of a group, instead of accepting the lacunae in analyses of neoclassical economics. From these contributions discussed forthwith, it is clear that economic sociology aims to situate economic life within a broader social, institutional, and cultural context, thereby challenging the orthodoxy of homo economicus. This repositioning is demonstrated by economic sociology’s analysis of how communities have influenced and have been influenced by economic systems, by examining the interaction between capitalism and society, and by investigating the relationship of the market to society (Swedberg 2009).
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The economy and community Neoclassical economics has promoted the misguided view that markets self-regulate. Essentially, contracts between buyers and sellers, (i.e., economic transactions) are honored and enforceable without reference to the societal milieu, (i.e., society’s customs, norms, or values). As a result, calculating individuals making rational choices will ensure that societies efficiently allocate scarce resources to optimal use. Economic sociology has demonstrated that this view overlooks that economic transactions are embedded in social institutions and within communities and that economic transactions reveal much about the social structure. Dating back to the 19th century, numerous sociologists have argued that economic transactions were more than mutually agreed upon contracts among utilitymaximization individuals. Rather, sociologists such as Max Weber (1905) and Ferdinand Tönnies (1887) contended that economic exchanges revealed much more than simply attesting to the power of rational choice in economic exchanges. Economic transactions themselves offered valuable information about the types of relationships evident in communities. Tönnies (1887) described two types of relationships in communities within which economic exchanges occurred. Relationships based on affective and customary ties only he labeled as Gemeinschaft. Relationships based on mutual gain or interests he called, Gesellschaft. Gemeinschaft, most sociologists agree, reflects a pre-capitalist society. Economic exchanges happen, but trust, affective ties, and a palpable communal identity override individual self-interest. Weber (1905), influenced by Tönnies’ thinking (1887), referred to these relationships as “communal,” or as he described, the existence of individuals was mutually shared. Gesellschaft, on the other hand, reflects the evolution into a modern capitalist society. Economic exchanges again take place, but the only motive for interaction is exchanged. There is an association of interest. Weber also described these other types of relationships as “associative,” ones that rested solely on a rational choice and were motivated by mutually agreed-upon interests. Neoclassical economics may not take issue with the label Gesellschaft as the framework within which economic exchanges occur. The argument would be that it is in the parties’ own interests to honor economic contracts, plus laws and regulations ensure their enforcement. Thus, calling upon social systems and social forces to ensure contract adherence is unnecessary. However, another 19th/20th-century sociologist, Emile Durkheim (1897) asserted that economic contracts are only as enforceable as the strength of societal conventions and traditions. Durkheim in his Professional Ethics and Civic Morals (1897) claimed that contracts were not sustainable unless they were based on higher-order principles and mores rooted in a social origin. Even money contracts were ineffectual without money being seen as trustworthy. Self-interest alone would be insufficient to sustain a society of contracts since individual self-interest would cause contract violations. Instead, a society based on morality and norms that no individual could avoid, feign ignorance of, or change was needed. Contemporary sociologists continue to document the growing divide between the social dimensions of local community life and an expanding global economy. Increasingly, values, morals, and customs needed for community relations bear little resemblance to the tools needed nowadays for economic exchange (Habermas 1985). Sociologists continue to debate whether, as neoclassical economics claims, self-interest and laws are sufficient to guarantee economic obligations and contracts.
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Capitalism and society Neoclassical economics claims to explain many aspects of economic activity. Rightly, the explanations are not conditioned on any economic system because the assumptions of neoclassical economics go deeper, relating to the nature of the human condition, not the structure of any particular economic system. Indeed, neoclassical economics’ three basic assumptions as conveyed by E. Roy Weintraub—rational preferences, maximization of utility or profits, and independent action based on full information—are not meant to explain the rise of the world’s most dominant economic system: market capitalism (Weintraub 1985, 2002). Notwithstanding these provisos, neoclassical economics has offered little in the way of explaining the rise of capitalism. The bland argument that neoclassical economics falls back upon is that capitalism is the manifestation of human nature’s unrelenting thirst, a vice perhaps, for greater control of resources. But if true, then arguably modern-day capitalism and wealth acquisition would have arisen before it did in the mid-18th century, even if the needed political institutions were not fully developed. An explanation for the rise of capitalism is found, however, in Weber’s The Protestant Ethic and the Spirit of Capitalism (1905). His sociological analysis of capitalism’s ascent is a powerful example of economic sociology illustrating how economic systems are influenced by ever-changing social forces. In The Protestant Ethic and the Spirit of Capitalism (1905), Weber studied the relationship between the ethics of ascetic Protestantism and the emergence of modern capitalism. He argued that the religious ideas of groups played a pivotal role in creating capitalism. Weber hypothesized that religion was a potential cause of the business conditions he observed at that time in Europe and pursuing profit was not a vice like society had supposed in earlier times, but a virtue. He saw Protestantism as a potential explanation since it promoted the concept of being “called” by God to perform one’s worldly activity. Calvinism, a branch of Protestantism, believed in predestination—that God had already determined who would be saved and who would be damned. But Calvinists needed clues about whether a follower was headed for salvation or damnation, and so Calvinists looked to their successes in their worldly activities for those clues. Profit in commerce and material gain meant that God looked favorably upon them. Thus, success in work and accumulated wealth were taken as signs of grace. Other protestant branches followed suit. Weber argued that this reframing of vice into virtue dismantled the traditional economic system in Europe, paving the way for modern capitalism. Once capitalism took root in the cultural psyche of society, Protestant values were no longer necessary. Even if we debate the generalizability of Weber’s thesis since capitalism has arisen in many non-European, non-Christian countries, he recognized where neoclassical economics has not, that institutions in society and norms are both variables, not immutable constants. Markets and society The market economy is a modern phenomenon. Before its emergence, other forms of economic systems existed such as mercantilism, feudalism, the enclosure movement, and other forms of agrarian capitalism. Regardless of the label ascribed to an economic system, economic sociology has drawn attention to the change in the nature of markets
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before and after the emergence of the modern market economy. Neoclassical economics by contrast regards the market as a basic and necessary part of the natural order which has remained constant over time. According to the doctrine of neoclassical economics, the market in any economic system will self-regulate if the state leaves it unencumbered and unfettered. Karl Polanyi, an economic anthropologist, and economic sociologist, in The Great Transformation (1944), offers an alternative position about markets to that of neoclassical economics. He argued that markets have changed over time and that markets were distinguishable from the market economy. He explained that the interplay between the market and capitalist market economy had profound consequences for the social structure of the modern nation-state. Polanyi contended that rather than natural, the capitalist market economy was, in fact, unnatural. Before the modern-day market economy markets were “embedded” in society to be governed by morals, norms, and customs. Erstwhile exchange in markets meant closer communal ties, reciprocity, and a celebration of trust and faithfulness. Profits and material gain were not the objects of exchange. Though Polanyi and most other economic sociologists agreed that markets were natural, they rejected the capitalistic market economy as natural. Furthermore, Polanyi argued in The Great Transformation (1944) that the market economy had been successful in untethering markets from their moorings in communities. Capitalism’s unleashing of markets transformed previously unmarketable factors of production, namely, labor, land, and capital, into “fictitious commodities” subject to trade just like crafts, clothes, and cattle. By letting loose these new factors of production, Polanyi argues, states could create and plunder national market economies. Society was mutating into a “market society” in which social relations were embedded in the economy rather than the opposite. This portentous transformation into a market society needed checking, a complete laissez-faire market society could not stand. Somewhat ironically, it was society that curbed the market economy. Through purposeful state interventions, such as economic protectionism, or via political ideology, such as social democracy, moral societies rich in traditions and customs could prevail and dominate the market economy. What was unnatural was the idea of self-regulating markets and that societal non-market values were commodifiable. Ultimately, social progress was not through the market economy, but through collective human action fueled by moral principles and restraint of the wantonness of the market economy (Somers and Block 2014). Polanyi’s The Great Transformation (1944) shows that the role of social institutions is to tame the market economy, not validate the naturalness of the free market.
Can economic sociology and neoclassical economics unite? Is it possible to imagine a melding of neoclassical economics with economic sociology? I think not for two reasons. First, the methodologies of both demand a singular, dedicated focus to a particular orthodoxy. The academic training and resulting reasoning schemas of economic sociologists and neoclassical economists leave little room to none for considering other social science perspectives and analytical frameworks. On the one hand, the only explanation for behavior is individual rational choice; on the other, the only explanation is choices nested in a societal superstructure. Neoclassical economics
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assembles society, essentially from the bottom up, while economic sociology presumes society coexists with the individual. These initial positions make the possibility of a synthesis between the two approaches hard to envision. Second, an amalgamation of the two approaches seems inconceivable given the imperialistic proclivities and haughtiness of neoclassical economics (Zafirovski 2000). Neoclassical economics is not in the habit of recognizing the contributions of economic sociology. Economists perceive economic sociology as an inexact, inferior branch of social science that lacks mathematical rigor. By studying society with all its complexities and intricacies, prediction and replication are thwarted, thereby rendering policy prescriptions essentially vacuous or woefully imprecise. The latter two activities are considered essential to neoclassical economics which prides itself on being an exact science, even if exactly wrong. The seduction of believing, as Lionel Robbins (2007) asserted, that all choices have an “economic aspect,” i.e., a price, that is amenable to measurement and modeling, keeps neoclassical economics shielded from considering economic sociology’s broader perspectives. Furthermore, neoclassical economics is notorious for acting imperialistically toward the other social sciences. If economic sociology has insights worth considering, the reflexive reaction of economics is to absorb, reduce, and repackage so the insight remains consistent with rational choice theory. A good example of this colonization is the new institutional economics. Neoclassical economics studies the institutions of society only from orthodoxy: homo economicus. Although economic sociology has valuable insights into the importance of property rights and the costs of economic transactions to society, neoclassical economics ignores them. Admittedly, there are brilliant instances of economists who have sought to understand the relationship between the self-interested individual and society. Among a coterie of economists, three are briefly noted here: Thorstein Veblen, George Akerlof, and Gary Becker. Veblen (1899), for example, a consumer behavior theorist and critic of capitalism founded the field of institutional economics. (See Coase 1937, 1960; Akerlof 1978, 1984; Williamson 2010.) Veblen too rejected the notion that the economy was an autonomous, self-regulating entity. Veblen (1899) claimed that the economy was embedded in social institutions and the market economy interacted with social forces and cultural phenomena. His perspectives allowed economists to analyze the market economy while incorporating social and cultural phenomena. He devised and defined terms still used across the social sciences, including economic sociology; phrases like “status symbols” and “conspicuous consumption,” by which he meant the consumption people make to display superior status. Regrettably, economic institutionalism was never elevated to becoming a major school of economic thought which, no doubt, would have attracted economic sociologists. In a similar vein, economists Akerlof and Becker have drawn neoclassical economists’ attention to the importance of social norms, market failures, and the economic behavior of persons in the social environment. For example, Akerlof (2007) proposed that decision-makers possess endowed norms that can moderate how they should behave. These norms, Akerlof argued, can explain discrepancies between economic theory and empirical patterns observed in the macroeconomy. Likewise, Becker, one of the economists contributing foundationally to social economics, (Coleman 1993), addressed many social issues, (e.g., discrimination, marriage, and fertility), offering a framework to
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analyze how changes in the social environment affected individuals’ economic choices (Becker 1976; Becker and Murphy 2009). A final observation is that any confederacy between the two has been historically hampered by economic sociologists’ reticence to tread on neoclassical economists’ territory. That introversion was not because economic sociology lacked the theoretical rigor to rival price theory. Social theorists of the economy, such as Marx (1867), Durkheim (1897), Simmel (1900), Weber (1905), and Parsons and Smelser (1956), as well as others, had laid a solid foundation from which economic sociology could build. But as Granovetter stated, sociologists had “implicitly accepted” the “presumption” that the nature of markets was unsuitable for sociological study (Granovetter 1985: 504). Hence, with notable exceptions, the gulf between the two will remain, largely driven by the dominant position neoclassical economics holds in the social sciences and its allure to policymakers. Some even argue that neoclassical economics represents a “new scholastic totalitarianism … detached from reality” (Aliáis 1989:13). However, this chapter demonstrates that economic sociology has provided and will continue to offer valuable insights into how the collective—society—matters to an understanding of economic behavior. Both methodologies help with understanding economic behavior but could offer even more if a marriage between the two was ever consummated.
Bibliography Aliáis, M., 1989. My life philosophy. The American Economist, Fall, pp. 3–17. https://doi.org/10. 1177%2F056943458903300201. Akerlof, G., 1978. The market for lemons: Quality uncertainty and the market mechanism. In Uncertainty in Economics. Academic Press, 235–251. https://doi.org/10.1016/ B978-0-12-214850-7.50022-X. Akerlof, G., 1984. An Economic Theorist’s Book of Tales. Cambridge University Press. Akerlof, G., 2007. The missing motivation in macroeconomics. The American Economic Review, 97(1), pp. 5–36. https://doi.org/10.1257/000282807780323488. Bank of England., 2019. Why are Football Players Paid So Much? Retrieved from < https://www. bankofengland.co.uk/knowledgebank/why-are-football-players-paid-so-much > [Accessed 5 March 2022]. Becker, G., 1973. A theory of marriage: Part I. Journal of Political Economy, 81(4), pp. 813–846. https://doi.org/10.1086/260084. Becker, G., 1976. The Economic Approach to Human Behavior. Chicago, IL: University of Chicago Press. Becker, G. and Murphy, K., 1988. A theory of rational addiction. Journal of Political Economy, 96(4), pp. 675–700. https://doi.org/10.1086/261558. Becker, G. and Murphy, K., 2009. Social Economics. Cambridge and London: Harvard University Press. Berman, E., 2022. Thinking Like an Economist: How Efficiency Replaced Equality in US Public Policy. Princeton, NJ: Princeton University Press. Brandon, P., 2001. State intervention in imperfect families: The child, the state, and imperfect parenting reconsidered from a theory of comparative advantage. Rationality and Society, 13(3), pp. 285–303. https://doi.org/10.1177%2F104346301013003001. Coase, R., 1937. The nature of the firm. Economica, 4(16), pp. 386–405. https://doi. org/10.1111/j.1468-0335.1937.tb00002.x. Coase, R., 1960. The problem of social cost. Journal of Law and Economics, 3, 1–44. https://doi. org/10.1086/674872.
Elements of economic sociology 229 Coleman, J., 1993. The impact of Gary Becker’s work on sociology. Acta Sociologica, 36(3), pp. 169–178. https://doi.org/10.1177/000169939303600302. Coyle, D., 2021. Cogs and Monsters. Princeton, NJ: Princeton University Press. Durkheim, E., 1897. On Suicide. London: Penguin. Federal Reserve Bank of St. Louis., Board of Governors of the Federal Reserve System. n.i.d. The Labor Market-The Economic Lowdown Video Series. [online] Available at: < https:// www.stlouisfed.org/education/economic-lowdown-video-series/episode-4-the-labormarket > [Accessed 5 March 2022]. Ford, L., 2010. Max Weber on property: An effort in interpretative understanding. Socio-Legal Review, 6, pp. 24–100. http://dx.doi.org/10.2139/ssrn.1560042. Granovetter, M., 1973. The strength of weak ties. American Journal of Sociology, 78(6), pp. 1360– 1380. https://doi.org/10.1086/225469. Granovetter, M., 1985. Economic action and social structure: The problem of embeddedness. American Journal of Sociology, 91(3), pp. 481–510. https://doi.org/10.1086/228311. Habermas, J., 1985. The Theory of Communicative Action: Volume 1: Reason and the Rationalization of Society (Vol. 1). Boston, MA: Beacon Press. Hurwicz, L., 1963. Mathematics in economics: Language and instrument. In J. Charlesworth (ed.) Mathematics and the Social Sciences. The American Academy of Political Science. Cambridge: Cambridge University Press, 1–11. Lazear, E., 2000. Economic imperialism. The Quarterly Journal of Economics, 115(1), pp. 99–146. https://doi.org/10.1162/003355300554683. Marx, K., 1867. Capital: A Critique of Political Economy. Volume 1, Part 1: The Process of Capitalist Production. New York, NY: Cosimo. Morgan, J., 2016. What is Neoclassical Economics? Debating the Origins, Meaning and Significance. London: Routledge. Nash, Jr, J., 1950. Equilibrium points in n-person games. Proceedings of the National Academy of Sciences, 36(1), pp. 48–49. https://doi.org/10.1073/pnas.36.1.48. Nee, V., 2005. The new institutionalisms in economics and sociology. In N. Smelser and R. Swedberg (eds.) The Handbook of Economic Sociology. Princeton, NJ: Princeton University Press, 49–74. https://doi.org/10.1515/9781400835584.49. Olson, M. 1965. The Logic of Collective Action. Cambridge, MA: Harvard University Press. https://doi.org/10.1007/978-0-306-47828-4_136. Parsons, T. and Smelser, N., 1956. Economy and Society: A Study in the Integration of Economic and Social Theory. London: Routledge. https://doi.org/10.4324/9780203981030. Polanyi, K., 1944. The Great Transformation. Boston, MA: Beacon. Robbins, L., 2007. An Essay on the Nature and Significance of Economic Science. Auburn: Ludwig von Mises Institute. Røgeberg, O., 2004. Taking absurd theories seriously: Economics and the case of rational addiction theories. Philosophy of Science, 71(3), pp. 263–285. https://doi.org/10.1086/421535. Samuelson, P., 1947. Foundations of Economic Analysis. Cambridge: . Harvard University Press. Simmel, G., 1900. Philosophie des Geldes. Leipzig: Duncker & Humblot. Stigler, G., 1982. The Economist as Preacher, and Other Essays. Chicago, IL: University of Chicago Press. Somers, M. and Block, F., 2014. The Power of Market Fundamentalism: Karl Polanyi’s Critique. Harvard University Press. https://doi.org/10.4159/harvard.9780674416345. Swedberg, R., 2009. Principles of Economic Sociology. Princeton, NJ: Princeton University Press. Swedberg, R., Himmelstrand, U. and Brulin, G., 1987. The paradigm of economic sociology: Premises and promises. Theory and Society, 16(2), pp. 169–213. https://doi.org/10.1007/ BF00135694. Tönnies, F., 1887. Community and Society [Gemeinschaft and Gesellschaft]. Oxford: Michigan State University Press.
230 Peter D. Brandon Veblen, T., 1899. The Theory of the Leisure Class|Theory of the Leisure Class: An Economic Study in the Evolution of Institutions. New York: Macmillan. Veblen, T., 1994. The Theory of the Leisure Class. New York, N.Y., U.S.A.: Penguin Books. https://doi.org/10.4324/9781315135373. von Neumann, J., 1959. On the theory of games of strategy. In A. W. Tucker and R. D. Luce (eds.) Contributions to the Theory of Games, 4, 13–42. https://doi.org/10.1515/9781400882168-003. von Neumann, J. and Morgenstern, O. 1944. Theory of Games and Economic Behavior. NJ: Princeton University Press. https://doi.org/10.1515/9781400829460. Weber, M., 2001. [1905] The Protestant Ethic and the Spirit of Capitalism. Routledge. https://doi. org/10.4324/9780203995808. Weintraub, E., 2002. How Economics Became a Mathematical Science. Duke University Press. https://doi.org/10.2307/1061666. Weintraub, E., 1985. General Equilibrium Analysis: Studies in Appraisal. https://doi.org/10.2307/ 2232998. Williamson, O., 2010. Transaction cost economics: The natural progression. American Economic Review, 100(3), pp. 673–690. https://doi.org/10.1257/aer.100.3.673. Zafirovski, M., 2000. The rational choice generalization of neoclassical economics reconsidered: Any theoretical legitimation for economic imperialism? Sociological Theory, 18(3), pp. 448–471. https://doi.org/10.1111/0735-2751.00111. Zafirovski, M., 2007. The Protestant Ethic and the Spirit of Authoritarianism: Puritanism, Democracy, and Society. Springer Science & Business Media. https://doi.org/10.1007/978-0-387-49321-3.
Part III
Main problematics of economic sociology
11 The economy, social status, and solidarity David Weakliem
Introduction In recent years, there has been a growth in research on solidarity. To some extent, this interest is another expression of sociology’s long-standing concern with the concept of community. However, “solidarity” is not just a synonym for “community” but a specific form of community. It does not involve personal relations, but a willingness to sacrifice for the benefit of people who are part of some larger group. This willingness is not just a matter of humanitarian concern, but also a belief that members of the group have mutual rights and obligations toward each other.1 That is, solidarity involves “imagined communities” of people who do not know each other personally but nevertheless feel that they are connected (Anderson 1991). Although people may feel some degree of solidarity with many different communities, most attention has focused on the national level, since the nation is the primary level at which government policy operates. This chapter will also focus on the national level, although it will give some attention to the relationship between national and other levels of solidarity. It is generally agreed that solidarity has been an important factor in the growth and survival of the modern welfare state. To some extent, welfare state programs serve individual interests by providing insurance against risks. However, there is a substantial amount of systematic redistribution—partly from the rich to the poor, but also among other groups, such as parents and people without children or healthy people and people with chronic health problems. Therefore, many people would do better in a private system which charged premiums that reflected their individual risks rather than relying on broad-based taxes. Support for the welfare state may reflect group rather than individual interests—that is, solidarity with a class or other group that benefits on the average. However, many programs have gained widespread support across classes: examples include Social Security in the United States and the National Health Service in Britain. Thus, popular support for the welfare state cannot be fully explained by either individual or group interests: there must also be a more general sense of solidarity with other members of the national community. Solidarity can also be manifested in other actions, such as charitable donations or compliance with measures to stop the spread of infectious diseases (West-Oram 2021). The common element is a willingness to sacrifice to benefit people with whom one has no direct ties, but who are regarded as part of some community. Banting and Kymlicka (2017: 10) observe that there is “a widespread perception, both in public debate and academic writing, that solidarity is in decline.” The rise of right-wing populist parties and anti-immigrant movements is often seen as a symptom of this decline. Although these movements also appeal to a kind of solidarity, they
DOI: 10.4324/9780367817152-14
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define it more narrowly: for example, natives rather than all residents of a country. Some observers believe that there has also been a general increase in self-interested behavior and a decline in willingness to sacrifice for the benefit of others. For example, Sreedhar and Gopal (2021), discussing resistance to the Covid vaccine, say that “an important source of vaccine hesitancy is the erosion of the idea of a common good.” Banting and Kymlicka (2017: 11) conclude that the perception of a decline in solidarity is generally correct, although they believe it has been gradual rather than sudden: “solidarity is eroding… although not as dramatically or comprehensively as widely assumed. Solidarity seems to change slowly, perhaps over generations.” Similarly, Putnam (2020: 162) attempts to trace the course of solidarity within the United States over more than a century and finds a long rise followed by “a steady, unrelenting decline… over the last half century.” In this view, dramatic recent events such as the election of Donald Trump are the result of strains that have been building for many years. Another source of concern about a decline in solidarity is an increase in pressure on the welfare state. Since the 1970s, growth in wages and benefits has been slow for people with low and moderate incomes. At the same time, the minimum cost of participation in society has grown, with rising standards in areas such as education, health care, communications technology, and transportation. For example, reliable access to the internet is now becoming necessary to apply for a job or even to obtain information about available jobs. Moreover, the aging of the population in Western nations means more spending on retirement and health benefits. As a result of these developments, there is upward pressure on spending: more people need more assistance. At the same time, both popular and elite support for the welfare state seem less solid than they once were. Right-wing populist parties, which favor cutting benefits to groups that they regard as “undeserving,” have gained support, particularly among the working classes. Among elites, there is growing support for “neoliberalism,” a philosophy that sees the welfare state, and the high tax rates required to support it, as a threat to economic growth. Some neoliberals argue that there should simply be less government intervention, but others favor a shift from universal to means-tested programs (Weakliem 2020). However, a shift of this kind may reduce solidarity: as more affluent people come to rely on the private provision of services such as education, health care, and retirement security, they may take less interest in public programs (Busemeyer and Iversen 2020). These growing pressures raise the question of whether the welfare state can maintain enough popular support to continue in its present form. Solidarity can operate at many levels: for example, religions, ethnic groups, social classes, and the nation. The relationship among these different levels of solidarity is an important question. There clearly are cases in which hostility between ethnic and religious groups has limited the development of national solidarity. Even if there is no hostility, ethnic or religious solidarity can compete with national solidarity—for example, if there is a high level of mutual aid within a group, its members will not have as much need for national welfare programs and may regard those programs as rivals to the group’s own institutions. On the other hand, there is a long tradition holding that national solidarity is built out of solidarity within smaller groups. In the late 1700s, Edmund Burke (1910: 44) famously wrote that to be attached to the subdivision, to love the little platoon we belong to in society, is the first principle (the germ as it were) of public affections. It is the first link in the series by which we proceed towards a love to our country, and to mankind.
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A century later, Durkheim (1933) proposed that the division of labor could create “organic solidarity,” in which saw different occupations as working together to promote the general welfare. Tocqueville (1969) proposed that participation in voluntary organizations helped to promote a sense of solidarity with the larger society, and Putnam (2000) has mustered a wide range of data in support of this claim. It is safe to say that the effect of solidarity with smaller groups is contingent: it sometimes reduces national solidarity, sometimes enhances it, and sometimes may make no difference. However, this observation does not take us far unless we can specify the conditions under which the different effects occur. The issue is of practical as well as theoretical interest since it is relevant to contemporary debates over multiculturalism: whether immigrant groups should be encouraged to assimilate or retain their own culture.
Potential influences on solidarity One factor that has often been proposed as an important influence on solidarity is economic inequality. Greater inequality could be expected to lead to greater differences in style of life and lower levels of social contact between people with relatively low and relatively high incomes: therefore, it could be expected to reduce solidarity. Higher inequality also means that more people will be able to afford alternatives to public services—for example, private medical care or private schools. The development of private services may start a self-reinforcing process. As affluent people make less use of public services, they may become less willing to help pay for them (Busemeyer and Iversen 2020). Moreover, affluent people will tend to have high standards and political influence, so as they shift to private alternatives, the public programs will face less pressure to maintain the quality of their services. The resulting decline in quality will cause more people to opt out, leading to further declines in quality. The result could be a two-track system, with low-quality public services used mostly by the poor and higher quality private services used by the middle and upper classes. A decline in solidarity will not necessarily be uniform across classes. Some accounts suggest that it will be larger in lower income groups, because they have fewer resources to protect themselves (Putnam 2020). Magni (2021) holds that lower income people will turn toward “selective solidarity,” in which benefits are limited to native-born citizens. That is, inequality leads low-income people to narrow their focus and concentrate on helping people who are more like themselves. A change of this kind would help to explain the growth of working-class support for right-wing populist parties. Solidarity may depend on the nature as well as the amount of economic inequality. One potentially important factor is the degree of social mobility. A high level of social mobility means that many people will have grown up in a different class than the one they now occupy and may still have family or friends from their class of origin. Therefore, high levels of social mobility could be expected to lead to high levels of solidarity. Another potential influence involves the process of social mobility. Some observers argue that “meritocracy”—a system in which advancement depends on educational credentials—reduces solidarity. An emphasis on individual merit as the source of success means that people who get ahead will believe in their own superiority. As Michael Young (1958: 106) wrote in imagining a meritocratic future society: “the upper classes… are no longer weakened by self-doubt and self-criticism. Today the eminent know that their success is just reward for their own capacity, for their own efforts, and for their own undeniable achievement.” For their part, the lower classes may become
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demoralized and blame themselves for their failure to get ahead, may resent the arrogance of the upper classes, or may swing between the two poles. The result will be what Sandel (2021: 118) calls a “toxic brew of hubris and resentment.” In this analysis, a system in which there are more paths to success or failure—one in which chance and circumstance play a clear part and in which there is more chance of moving up or down over the course of one’s working life—will create a higher level of solidarity. People in all classes will recognize that their lives could have gone differently, and that talent can be found at all levels of society. A second factor that is often said to affect solidarity is ethnic diversity (with “ethnic” understood in a broad sense as including religious and linguistic differences). The underlying idea is simply that people will usually feel less solidarity across ethnic lines, so that in ethnically diverse societies, they will identify with their ethnic group and have less attachment to the nation as a whole. This argument is connected to the general issue of the relationship between solidarity at different levels of society—it holds that the relationship between ethnic and national solidarity will generally be competitive rather than supportive. A third potentially important factor is the nature of political institutions: different institutions may enhance or undermine solidarity. One prominent hypothesis is that universal and comprehensive social programs will build solidarity, while means-tested programs will reduce it. This is partly a matter of self-interest—if there is a comprehensive and universal program, the only way to improve the quality of the services that one receives is by improving that program. In contrast, means-tested programs usually provide a “safety net”—a minimum standard of service that people will make use of only if they have no alternative. Universal programs also have a symbolic effect—they send a message that participation is a general right of citizenship. They are often structured as insurance, in which people pay a special tax in return for benefits that they may later receive. This design reinforces the sense that when people receive benefits, they are simply getting a return for their own contribution. In contrast, means-tested programs openly redistribute from high to low incomes, so getting benefits from one may be stigmatized as dependence on charity or “freeloading.” Korpi and Palme (1998) noted an irony: although means-tested programs have more redistributive impact relative to spending, the total amount of redistribution was larger in nations which relied on universal social programs. The reason that nations with universal programs had more redistribution is that they simply spent more on social welfare programs. Korpi and Palme (1998: 622) explained the difference in spending levels as the result of differences in public support: “surveys have shown that universal and encompassing programs receive considerably more support among citizens than do means-tested or incometested programs.” Hall (2017: 207) extends this analysis, suggesting that “programme design can… reinforce or erode worldviews that are central to redistributive solidarity.” That is, universal programs promote a sense of solidarity, which leads support for further redistribution; means-tested programs promote a sense of separation between the poor and the rest of society, which reduces support for redistribution. As a result, public opinion may evolve in different directions depending on the kind of programs that are adopted in the early stages of the development of the welfare state. Another institutional factor that may affect solidarity is the honesty and efficiency of the government: people will be less willing to help others if they think that aid will be wasted or misallocated (Rothstein 2017). A related factor is the complexity of programs: more complex programs involve more decisions about eligibility or benefit
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levels that may seem unfair or arbitrary and may create opportunities for unscrupulous or well-connected people to exploit the system (Tanzi 2017). Therefore, complexity means that people will be less likely to see the beneficiaries as deserving, and less confident that they will get aid if they need it themselves. Means-tested programs necessarily tend to be more complex than universal ones, since they require applications and proof of eligibility. This relationship may create another vicious cycle: if there is a perception that benefits are not given out fairly, new rules will be established to prevent abuse, but additional rules will increase the complexity of the programs, leading to further declines in public support.
Research Methodological issues There are a number of important difficulties that affect research on solidarity. The most basic one involves measurement: there is no generally accepted direct measure of solidarity. Some studies consider a question on trust—whether “people can be trusted” or “you can’t be too careful when dealing with people,” which has the important practical advantage of being included in many surveys. However, although trust and solidarity are related, they are not the same. In principle, a combination of low trust and high solidarity seems unlikely, but the combination of high trust and low solidarity seems more plausible: that is, people can trust others without feeling any special obligations toward them. There are many studies of opinions about redistribution and social welfare spending, but as discussed in the introduction, these may be affected by self-interest as well as solidarity. Some authors understand solidarity as a specific kind of opinion about redistribution—for example, Arts and Gelissen (2001) distinguish between solidarity and “justice principles,” and Sandel (2021: 64) proposes that debates over the welfare state can be conducted in terms of either solidarity or personal responsibility. Other studies measure solidarity by willingness to take action to help others. Paskov and Dewilde (2012) use reports of whether you would “actually be prepared to do something to improve the conditions of ” various groups. However, even if this is accepted as the right approach in principle, the reliability of answers seems questionable, especially since the nature of the action is unspecified. Lahusen and Grasso (2018), in a survey conducted in 2016–2017, measured solidarity by reports of action taken in support of various groups: people were counted as showing solidarity if they who reported attending protests, donating money or time, buying or boycotting a product, or belonging to an organization in support of a group. This measure has the advantage of considering actual rather than hypothetical actions, but a potential problem is that action may be more likely when there is a threat. That is, in a nation with high levels of solidarity, public programs might be so effective and secure that it would not be necessary to take action in support of them. Even if we can agree on a measure of solidarity, research will still be affected by several other problems. When comparing nations, the number of cases is necessarily small. Moreover, the cases are not independent: different nations influence each other. These limitations mean that it is difficult to get decisive results from statistical analyses. It is possible to increase the number of cases by comparing smaller units, such as localities, but that approach raises the question of whether any relationships involving solidarity are the same at different levels. For example, Putnam (2007) finds that more ethnically
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diverse neighborhoods in the United States have lower levels of solidarity, but it is not clear if this relationship holds at the national level. One reason that the relationship might be different at the local and national level is that individual decisions about where to live may be influenced by both neighborhood composition and sense of solidarity. A second is that the effect of ethnic diversity on feelings of solidarity might depend on the closeness of the contact: having members of a different ethnic group as immediate neighbors might affect people differently than having them in a different neighborhood of the same town, or in a different part of the country.2 Another problem is that there might be a difference between the long-term and short-term effects of any influences. Putnam (2007) argues that increases in ethnic diversity reduce solidarity in the short term, but in the long term they may increase it as people come to appreciate and value the contributions of other ethnic groups. Hall’s (2017) model suggests that the effects of welfare state institutions will grow gradually over time—that they will produce outlooks that enhance or undermine solidarity. In order to identify long-term effects, a study must extend over time, but this requirement imposes further limits on the availability of data. Opinion surveys began only in the 1930s and were scarce until the 1970s—that is, there is very little data from the early stages of welfare state development when institutional structures were established. Another problem with over-time studies is that many important variables—for example, income inequality—change slowly, gradually increasing or declining over a period of decades. If this is case, studies of a single nation will not have much statistical power, even if they cover a substantial period of time. An ideal quantitative study would involve panel data covering a large number of nations over a long period of time—for example, with measures of solidarity in different nations from the 1930s to today. However, the data required to conduct a study of this kind are simply not available. Consequently, quantitative studies of solidarity must either limit themselves to cross-sectional comparisons from recent years or use indirect measures of solidarity such as levels of social spending. Historical studies that draw on a variety of sources of information to offer an account of change over a long period of time in a single nation can offer more detailed and comprehensive pictures. Some historical studies, such as Putnam (2020), make use of quantitative data, but they do not estimate statistical models or carry out hypothesis tests—their goal is to show how different pieces of evidence fit into a pattern. Any general account of solidarity must take account of both types of studies and try to reconcile the results of contemporary quantitative research with the evidence of historical research. This chapter will discuss the two different kinds of studies separately and conclude by offering some tentative conclusions and questions for future research. Quantitative studies There are many studies of the effect of inequality on different kinds of attitudes related to solidarity. On the national level, it seems fairly clear that greater income inequality is associated with lower levels of trust (Barone and Mocetti 2016) and has little relation to support for redistribution (Kenworthy and McCall 2008). These results are both consistent with the hypothesis that inequality reduces solidarity. Although trust is not identical with solidarity, it is reasonable to think that their relationship is close enough so that if inequality reduces trust, it also reduces solidarity. Self-interest suggests that higher inequality will increase support for redistribution, so the absence of
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a clear relationship suggests that there is an offsetting negative effect through reduced solidarity. A study by Paskov and Dewilde (2012) investigated the relationship using a direct measure of solidarity: answers to questions about whether you would be willing to “do something to improve the conditions” of people in your community, elderly people in your country, sick and disabled people in your country, and immigrants to your country. Using data for 26 nations of Europe, they found that in nations with greater income inequality, there was less reported willingness to do something to help people in your community, the elderly, and sick and disabled people; there was no clear relationship to willingness to help immigrants. At the national level, there was almost a perfect correlation between willingness to help the elderly and sick and disabled people; the correlations involving willingness to help immigrants were lower but still positive (ranging from 0.5 to 0.7). Thus, according to this measure, nations in which the general sense of solidarity is strongest tend to be more accepting of immigrants. The highest levels of general solidarity (willingness to help the elderly and sick and disabled people) were found in Sweden, Italy, and Ireland, while the lowest were in Lithuania and Estonia. Relative to their general level of solidarity Hungary, Poland, and the Czech Republic had low levels of solidarity with immigrants, while Sweden had a notably high level. Paskov and Dewilde (2012), using data from the European Values Survey, find some evidence that negative effect of inequality is stronger among low-income people. However, this relationship occurred for solidarity with the elderly and sick, not for solidarity with immigrants, contrary to Magni’s (2021) hypothesis. The data used by Paskov and Dewilde (2012) were from 1999, so it would be interesting to see whether there have been changes in the relationship as a result of the recession of 2008–2009, increased levels of immigration, or other developments since that time. However, later versions of the EVS have not included the question they use to measure solidarity. Lahusen and Grasso (2018) calculate a measure of solidarity using a survey from 2016 to 2017, which included questions about actions taken in support of various groups. The national averages of solidarity using the Lahusen-Grasso measure have essentially no correlation with income inequality as measured by the Gini coefficient, but their survey included only eight nations, so it cannot provide much evidence on this point.3 Taking all of these studies together, there is some evidence that economic inequality reduces solidarity, although it is not definitive. Reliable measurements of social mobility in different nations are scarce, and there are no generally accepted measures of “meritocracy.” As a result, there are no quantitative studies on the effects of social mobility or meritocracy on solidarity. Steele (2015), however, finds some evidence on a related point—attitudes toward redistribution are more favorable in nations with a higher level of social mobility. Arguments based on self-interest suggest that high levels of social mobility could be expected to reduce support for redistribution, so Steele’s results support the idea that social mobility leads to increased solidarity. Her measure of social mobility is subjective—based on recollection of family circumstances when growing up—but perceptions are arguably more relevant than objective conditions for the purpose of explaining attitudes. There are many studies of the effect of ethnic diversity on a variety of outcomes related to solidarity. Schaeffer (2013) undertakes a systematic review of this body of research and concludes that there is strong evidence that diversity reduces trust and support for redistribution. However, the type of diversity matters: linguistic and racial diversity have more consistent effects than immigrant status or general ethnic diversity.
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There are also differences by place—studies of the United States find negative effects more frequently than do studies of Australia, Canada, and New Zealand. One possible explanation for this difference is that racial diversity, which appears to have stronger negative effects, is more important in the United States. An alternative possibility involves policy differences—Australia, Canada, and New Zealand, unlike the United States, have made clear commitments to multiculturalism. Arts and Gelissen (2001) and Paskov and Dewilde (2012) consider the effects of welfare state type on solidarity, using a classification derived from Esping-Andersen (1991). The most important distinction is between “social democratic” welfare states, which make extensive use of universal programs, and “liberal” welfare states, which rely on meanstested programs. The two studies come to opposite conclusions: Arts and Gelissen find that solidarity is higher in nations with social democratic welfare states, while Paskov and Dewilde find that it is higher in nations with liberal welfare states. The difference in conclusions may be a result of differences in the measurement of solidarity: Arts and Gelissen (2001) use an index based on questions about the government’s responsibility, while Paskov and Dewilde use questions on whether the respondent would act to help different groups. It is possible that people in liberal welfare states do not expect the government to do as much to help people and therefore feel more responsibility for taking action themselves. Historical studies As noted by Banting and Kymlicka (2017: 10), there is a widespread perception that solidarity is in decline. In recent years, several accounts have made this case in detail. This section will focus on three notable examples: Lamont (2019), Putnam (2020), and Sandel (2021). All of these studies focus on the United States; there do not seem to be any equally detailed accounts of other nations, although Collier (2020) suggests that a similar decline has occurred in Britain. These accounts agree in their general explanation of the causes of the decline in solidarity, which they see as beginning in the 1970s. Since that time, there has been a dramatic rise in economic inequality: income gains have been small or nonexistent for the working and lower middle classes, larger for the educated middle class, and very large for the upper class—top executives and professionals. Moreover, there has been a decline in job security, especially for people in working class jobs, as unionization has declined and more companies have come to rely on contingent and contract workers. Therefore, stable working-class jobs have become scarce: even workers who are currently earning good incomes have less confidence that they will continue to do so. Another change that these accounts see as eroding solidarity is an increase in the importance of educational credentials. The economic gap between people with and without college degrees has grown substantially over the last 50 years. Moreover, the importance of college “quality” appears to have increased. Although there is not much systematic evidence on the occupations or earnings of graduates of different colleges, it is clear that some of the most visible elite positions are increasingly dominated by graduates of a few institutions. Sandel (2021: 90) observes that at one point, more than half of the members of Barack Obama’s cabinet were graduates of just two universities, Harvard and Yale. In any case, it seems clear that people are becoming more concerned with college quality: parents are no longer satisfied if their children go to college but want them to go to a “good” college. The competition for admission to high-prestige colleges has grown
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substantially: for example, Stanford University admitted almost a third of its undergraduate applicants in the mid-1970s, but only about 5% today (Sandel 2021: 61). Another factor has been a decline in social mobility (Carr and Wiemers 2016). This decline may be connected to the rising importance of educational credentials—the cost of higher education has increased substantially since the 1970s, so that low-income students find it more difficult to attend, and the lack of a college degree is a bigger handicap than it used to be. The decline in social mobility means less contact across class levels: fewer managers and professionals who grew up in working-class households, and fewer manual workers who grew up in middle-class families. There is general agreement that these changes have had had a negative effect on the quality of life for people in the working class. In a narrow sense, their material conditions have continued to improve, although more slowly than before, but the decline in security has made it more difficult for them to form and maintain families (Cherlin 2019). Moreover, manufacturing jobs have been replaced by low-skilled service jobs that do not provide as much sense of pride or accomplishment (Lamont 2019). An increasing number of working-class men have simply dropped out of the labor force, and “deaths of despair” from suicide, alcohol, and drugs have increased (Case and Deaton 2020). Some observers hold that the changes have also had a negative effect on the quality of life for the upper classes: although they are more affluent, they also suffer more stress and anxiety. As inequality has grown, affluent parents have become more concerned with making sure that their children maintain their class position. Lamont (2019: 672) sees an “intensified concern with status, material success, and competition in the upper-income group.” Similarly, Sandel (2021: 180) believes that “the meritocratic imperative—the unrelenting pressure to perform, to achieve, to succeed” has led to increased levels of depression and anxiety among upper class youth. Other observers have a more positive view of conditions in the upper classes. Putnam (2016) shows that educational differences have increased for many indicators of quality of life, such as self-reported happiness: they have remained constant or improved for people with a college degree while declining for those who do not have one. Fischer (2019: 763) questions the claim of growing materialism, suggesting that “any change over the generations has probably been toward somewhat less materialism” (emphasis in original) and points to recent surveys showing that young people are becoming less likely to say that becoming wealthy is a priority for them. However, the more positive interpretation of trends in the upper classes does not necessarily contradict the general claim of a decline in solidarity. That is, people in the upper classes may be growing more interested in pursuing their own goals, whatever those goals might be, rather than paying attention to the interests of other members of the community. A more direct challenge to the idea of a decline in solidarity is the observation that college-educated people have shifted toward the Democratic party in recent decades— that is, they have become more inclined to vote for the party whose policies apparently go against their immediate self-interest.4 Universities and major corporations have also become increasingly likely to proclaim a commitment to “diversity” and a desire to include more people from underrepresented groups. One could interpret these developments as evidence that the sense of solidarity has increased rather than declined, at least among college-educated people. Observers such as Lamont (2019) and Sandel (2021), however, hold that the change in party alignments reflects a change in the orientation of the parties—that the Democrats have adopted a “neoliberal” ideology that
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favors free trade and competition. People with higher education do relatively well in a neoliberal economy; moreover, many professionals work in industries that rely on government spending, such as education and health care. Consequently, the policies of the Democrats are more consistent with the material interests of college graduates than they were in the middle of the century, when the party was oriented toward labor unions in manufacturing industries. The concern with “diversity” can be regarded as symbolic—part of a self-image of open-mindedness and cosmopolitanism. It may even be a way to exclude less educated people, who are more likely to be attached to specific cultures and places. A central claim in the critique of meritocracy is that it produces an exaggerated sense of accomplishment among those who get ahead: they believe that their success is entirely due to their own efforts. There are a few survey questions that bear on this issue and have been repeated over a substantial period of time. Since 1973, the General Social Survey (GSS) has included the following item: “Some people say that people get ahead by their own hard work; others say that lucky breaks or help from other people are more important. Which do you think is most important?” Figure 11.1 shows the average response among college graduates and people without a college degree, with higher numbers representing “hard work.”5 Until about 1990, there was little difference in opinions; since that time, people without a college degree have shifted toward “hard work,” while people with a college degree have shifted toward “lucky breaks or help from others.” This is the opposite of the pattern suggested by Sandel’s analysis. Another part of the critique of meritocracy is that the belief that success depends on hard work demoralizes among those who do not get ahead, because they blame themselves for their own failure (Sandel 2021: 74). The GSS data does not support this claim either: even among people without college degrees, a belief that success depends on hard work is correlated with greater self-reported happiness. There is no evidence that this relationship has changed over time. College graduates are a large and heterogeneous group, and it is possible that there is a growing sense of hubris among graduates of the most selective universities or members of elite occupations. However, the evidence of the GSS data counts against the idea of a general decline in solidarity. It is certainly possible to find contemporary examples of elites expressing contempt or condescension toward the working classes, but it is not clear that these are more common than they were in the past. Moreover, some widely cited examples of elite contempt do not hold up under closer examination. Hillary Clinton’s reference to supporters of Donald Trump as a “basket of deplorables” has become notorious, but the point of her remarks was that there were two kinds of Trump supporters—those who were motivated by racism and xenophobia and those who were had reasonable economic grievances. That is, rather than an expression of contempt for working-class Trump supporters, it was a clumsy attempt to express sympathy with them. The expression “flyover country” is sometimes cited as an example of elite contempt (Collier 2020), but a search of the New York Times archive shows that most occurrences in that newspaper are ironic or self-critical: for example, Sullivan (2014) calls for “coverage of ‘flyover country’ that always strives to understand and reflect its audience without cliché or condescension.” Overall, the historical studies have made a case that solidarity has declined in the United States, but it is not conclusive. An alternative view is that college-educated people have become more aware of social inequities and more interested in helping disadvantaged groups. To this point, there has been no systematic effort to consider the evidence supporting each perspective.
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Figure 11.1 Beliefs about how people get ahead in the United States, 1973–2018. Source: Created by author using data from the GSS.
Conclusions The research on solidarity has produced many hypotheses and suggestive findings, but few clear conclusions. In some cases, the results of different studies are in direct conflict, as with Arts and Gelissen (2001) and Paskov and Dewilde (2012) on the relationship between welfare state type and solidarity. A major reason for this situation is that there is no agreement on how to measure solidarity—different researchers make different choices, often without much attempt to justify them or consider alternatives. The absence of a standard measure is partly because solidarity is one of a group of related concepts, including community, social cohesion, and social capital. It is difficult to draw precise distinctions among these concepts, and sometimes they are used more or less interchangeably. For example, the title of one of Putnam’s (2020) chapters is “between isolation and solidarity.” This formulation suggests that solidarity is equivalent to social connectedness, but it is possible to have strong social connections without caring about people outside one’s circle of friends and family. It may not be possible to reach consensus on usage, but researchers should try to be clear on how they define solidarity and how they distinguish it from related concepts. However, sometimes concepts that are distinct in principle cannot be distinguished in practice. For example, two survey questions might be intended to measure different concepts, but if respondents do not pay attention to the exact words that are used, they might react to them as if they were the same. Therefore, it might be useful to approach solidarity as a latent variable: that is, to begin with a variety of proposed measures and see which ones vary together. In this approach, decisions about whether and how to distinguish solidarity from related concepts are made partly on an empirical basis.
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As discussed in the introduction, most contemporary discussions of solidarity focus on the national level. Although it is widely recognized that solidarity can operate at different levels, there has not been much theory or research about the conditions under which these will compete or reinforce each other. The most prominent hypothesis is from Putnam (2000), who distinguishes between “bonding” and “bridging” social capital—ties within and across groups. He proposes that “bridging” social capital will help to create solidarity between groups. This general idea underlies his more recent (Putnam 2020) account of declining solidarity—he holds that the growth of economic inequality and decline of social mobility has reduced the level of personal connections across classes, which has produced a decline in the sense of solidarity. However, although his idea is plausible, it has not been systematically tested, partly because of the scarcity of good data, especially historical data, on social ties. Other observers have noted that the importance and definition of ethnic and religious boundaries often changes over time—for example, the distinction between Catholic and Protestant was much more important in the United States in 1900 than it is today. To some extent, this change may be the result of an increase in contact across the groups, but it may also reflect cultural and political changes. A related issue is that research has focused on solidarity with disadvantaged groups, although people can also feel solidarity to groups at similar or higher social positions. For example, Durkheim (1933) saw “organic solidarity” as a way to overcome conflict between capitalists and workers—each side would recognize that they shared common interests. On the other side, the socialist movement was traditionally suspicious of appeals to national solidarity, seeing them as an obstacle to the development of class consciousness. A comprehensive account of solidarity needs to consider solidarity among all levels of society. As discussed in the previous section, there are two major types of research on solidarity: quantitative studies of the recent past, and historical studies of single countries. These two lines of research have developed separately, and future work should make more effort to bring them together. One way to do this would be to look for data that can support or challenge the analysis offered in the historical works, as in the analysis of the GSS data in the previous section. In addition to standard academic surveys, there are a large number of commercial surveys dating back many years. Because these surveys tend to ask about issues in the news, they provide an opportunity to look at the evolution of opinions toward various social programs, and thus to evaluate the arguments offered by authors such as Hall (2017) or Korpi and Palme (1998). For example, such data might make it possible to see if major changes in the scope or eligibility requirements of different programs were followed by changes in public support. Another opportunity is provided by the availability of a large number of historical texts that have been digitized in recent years. Sandel (2021: 22–23) draws on this kind of data to make some interesting observations about changes in the language used by presidents, such as a rise in what he calls the “rhetoric of rising” since the 1990s. Another approach would be to undertake historical studies of other nations and make systematic comparisons to the American case. Finally, research on solidarity has been closely tied to research on the welfare state. Although there are good reasons for this connection, it would be desirable to broaden the focus to consider other kinds of voluntary action and pro-social behavior. The ongoing Covid epidemic provides opportunities for this kind of research, for example, by considering patterns of vaccination or compliance with various restrictions. More
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generally, solidarity may be revealed most clearly in the response to unexpected challenges or crises—the response may be unity and mutual aid, or conflict and division. Covid provides one example of an unexpected challenge—others include terrorist events, natural disasters, and political crises. It would also be useful to broaden the focus from social welfare institutions to include other political institutions. For example, Lijphart’s (1969) work on “consociational democracy” as a structure for managing ethnic divisions is relevant to contemporary debates over multiculturalism. Durkheim’s (1933) Division of Labor in Society asked whether increases in social diversity would lead to a decline in solidarity. His answer was that they would not: that rather than a decline, there would be a new kind of solidarity. Since Durkheim wrote, the occupational division of labor has continued to increase and other kinds of diversity have grown, so the general question that he addressed is more important than ever. It is to be hoped that, even if many specific features of his analysis are wrong or have been overtaken by events, his answer to the general question was correct.
Notes 1 Banting and Kymlicka (2017: 4) distinguish three kinds of solidarity, which they call civic, democratic, and redistributive. This chapter will focus on redistributive solidarity. Civic and democratic norms are important but do not necessarily involve a positive sense of obligation to help others, so it is not clear that they should be regarded as forms of solidarity. 2 See Schaeffer (2013) for further discussion of the reasons that relationships involving ethnic diversity may be different at the national and local levels. 3 Author’s calculations using data on solidarity from Lahusen and Grasso (2018) and income inequality from World Bank (2021). 4 Gethin, Martinez-Toledano, and Piketty (2021) show that similar changes have occurred in many other nations. 5 “Hard work” is counted as three and “luck and help” as one; people who volunteered that it depends on both were given a score of two.
Bibliography Anderson, B., 1991. Imagined Communities: Reflections on the Origins and Spread of Nationalism. London: Verso. Arts, W. and Gelissen, J., 2001. Welfare states, solidarity, and justice principles: Does the type really matter? Acta Sociologica 44(4), pp. 283–299. Banting, K. and Kymlicka, W., 2017. Introduction: The political sources of solidarity in diverse societies. In K. Banting and W. Kymlicka (eds.), The Strains of Commitment. Oxford: Oxford University Press, 1–58. Barone, G. and Mocetti, S., 2016. Inequality and trust: New evidence from panel data. Economic Inquiry 54(2), pp. 794–809. Burke, E., 1910. Reflections on the Revolution in France. London: Dent. Busemeyer, M. R. and Iversen, T., 2020. The welfare state with private alternatives: The transformation of popular support for social insurance. Journal of Politics 82(2), pp. 671–686. Carr, M. D. and Wiemers, E. E., 2016. The Decline in Lifetime Earnings Mobility in the U. S. Washington, DC: Washington Center for Equitable Growth. Case, A. and Deaton, A., 2020. Deaths of Despair and the Future of Capitalism. Princeton, NJ: Princeton University Press. Cherlin, A. J., 2019. Beyond the neoliberal moment: Self-worth and the changing nature of work. British Journal of Sociology 70(3), pp. 747–754. Collier, P., 2020. The Future of Capitalism. New York: HarperCollins.
246 David Weakliem Durkheim, E., 1933. The Division of Labor in Society. New York: Macmillan. Esping-Andersen, G., 1991. The Three Worlds of Welfare Capitalism. Princeton, NJ: Princeton University Press. Fischer, C. S., 2019. A second opinion: Diagnosis and prescription of the American case. British Journal of Sociology 70(3), pp. 761–768. Gethin, A., Martinez-Toledano, C. and Piketty, T., 2021. Political cleavages and social inequalities in fifty democracies, 1948–2020. In A. Gethin, C. Martinez-Toledano and T. Piketty (eds.), Political Cleavages and Social Inequalities. Cambridge, MA: Harvard University Press, 7–84. Hall, P., 2017. The political sources of social solidarity. In In K. Banting and W. Kymlicka (eds.), The Strains of Commitment. Oxford: Oxford University Press, 201–232. Kenworthy, L. and McCall, L., 2008. Inequality, public opinion and redistribution. SocioEconomic Review 6(1), pp. 35–68. Korpi, W. and Palme, J., 1998. The paradox of redistribution and strategies of equality. American Sociological Review 63(5), pp. 661–687. Lahusen, C. and Grasso, M. (eds.), 2018. Solidarity in Europe: Citizens’ Response in Times of Crisis. Cham: Palgrave Macmillan. Lamont, M., 2019. From “having” to “being”: Self-worth and the current crisis of American society. British Journal of Sociology 70(3), pp. 660–707. Lijphart, A., 1969. Consociational democracy. World Politics 21(2), pp. 207–225. Magni, G., 2021. Economic inequality, migrants, and selective solidarity. British Journal of Political Science 51(4), pp. 1357–1380. Paskov, M. and Dewilde, C., 2012. Income inequality and solidarity in Europe. Research in Social Stratification and Mobility 30, pp. 415–432. Putnam, R. D., 2000. Bowling Alone: The Collapse and Revival of American Community. New York: Simon & Schuster. Putnam, R. D., 2007. E pluribus unum: Diversity and community in the twenty-first century. Scandinavian Political Studies 30(2), pp. 137–174. Putnam, R. D., 2016. Our Kids: The American Dream in Crisis. New York: Simon & Schuster. Putnam, R. D., 2020. The Upswing. New York: Simon & Schuster. Rothstein, B., 2017. Solidarity, diversity, and the quality of government. In K. Banting and W. Kymlicka (eds.), The Strains of Commitment. Oxford: Oxford University Press, 300–326. Sandel, M. J., 2021. The Tyranny of Merit. New York: Picador. Schaeffer, M., 2013. Ethnic diversity, public goods provision and social cohesion: Lessons from an inconclusive literature. WZB Discussion Paper, SP VI 2013 103. Berlin: Wissenschaftszentrum Berlin für Sozialforschung. Sreedhar, A. and Gopal, A., 2021. What causes vaccine hesitancy? New York Times, 5 December. Steele, L. G., 2015. Income inequality, equal opportunity, and attitudes about redistribution. Social Science Quarterly 96(2), pp. 444–464. Sullivan, M., 2014. Seventeen hopes and dreams for the Times in the new year. New York Times, 31 December. Tanzi, V., 2017. Termites of the State: Why Complexity Leads to Inequality. Cambridge, UK: Cambridge University Press. Tocqueville, A. de, 1969. Democracy in America. Garden City, NY: Doubleday. Weakliem, D., 2020. Politics, ideology, and the economy. In M. Zafirovski (ed.), A Modern Guide to Economic Sociology. Cheltenham, UK: Elgar, 108–124. West-Oram, P., 2021. Solidarity is for other people: Identifying derelictions of solidarity in responses to COVID-19. Journal of Medical Ethics 47(2), pp. 65–68. World Bank, 2021. Gini Index (World Bank estimate). https://data.worldbank.org/. Young, M., 1958. The Rise of the Meritocracy. Harmondsworth, UK: Penguin.
12 Social rationality and economic sociology Siegwart Lindenberg
Introduction What we study in economic sociology depends largely on how we view humans to function. Social rationality is a particular approach to human behavior1 that impacts many aspects of economics sociology, including phenomena on the dyadic level (such as contracting), the group level (such as reputation effects); the organizational level (such as governance and opportunism); and the level of formal institutions. It mainly denotes an approach to human decision-making that focuses on the co-evolution of goal-directed behavior and sociality. The “smartness” of the brain developed together with abilities to deal adaptively with living in a social world. There are, roughly speaking, three different social rationality approaches, and all three contradict models of rationality linked to homo economicus for which no such co-evolution is assumed. First, there is the approach of fast and frugal heuristics (Gigerenzer and Todd 2001; Hertwig and Herzog 2009). The main idea is that the human mind evolved in such a way that it is adapted to its social and non-social environments. During the course of evolution, social and nonsocial environments and human cognition “have learned to come to terms with each other by mutual adaptation” (Hertwig and Herzog, p. 668). This means that the human mind has evolved to deal with complex situations and uncertainty, not by executing complex calculations and optimizations, but by what people can easily and quickly do to come to a decision that may not be perfect but smart: applying simple domain-specific rules of thumb (heuristics), both in the social and in the non-social world. These rules of thumb allow fast decision-making in complex and uncertain situations, by focusing only on information that has proven relevant for specific situations in the past. For the social world, examples of such heuristics are “imitate the successful”, “imitate the majority”, or “cooperate first, cooperate if your partner cooperates, otherwise defect” (Hertwig and Herzog 2009). Social rationality in this sense is the smartness that derives from applying social heuristics in complex and/or uncertain social situations, just as “ecological rationality” makes people smart by applying rules of thumb regarding the physical world. A second approach to social rationality (Gintis 2016) concerns the evolution of two sets of social preferences next to self-centered preferences: one for the “private persona” (relations with others) and one for the “public persona” (relations with the public sphere). The former evolved on the basis of the need for cooperation also with non-kin in child rearing, sanctioning non-cooperators, defending against hostile neighbors, and sharing information. The latter evolved (a) on the basis of the ability to devise new rules, leading to view the public social world as a game and its participants game players
DOI: 10.4324/9780367817152-15
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(homo ludens); and (b) on the basis of being able to make lethal weapons, thereby undermining dominance hierarchies grounded in physical prowess, and opening possibilities for socially determined hierarchies subject to the reign of rules. A third approach focuses on the evolved adaptive capacity that has sometimes been called “the third speed” of change on the level of the individual as an organism or as a member of a species (thus excluding historical change): flexible situational activation of mental constructs, especially of overarching goals (Lindenberg 2015a) that resulted from the co-evolution of human rationality and sociality. Mental constructs (such as goals, norms, heuristics, preferences) only affect behavior when they are activated (salient). Activation can change rather quickly. This contrasts with the first speed, the very slow phylogenetic change in the course of evolution, and with the much faster second speed of ontogenetic learning that is, in turn, still slower than the third speed. Of course, all three speeds of adaptation are interrelated but they can be distinguished and entail linked but different mechanisms2. For the social sciences in general, and for economic sociology in particular, tracing social influences on decision-making is of prime importance, and these influences involve first and foremost the shifting salience of mental constructs. For example, even internalized norms (acquired via the second speed of learning) will not influence behavior unless they are activated in a given situation and thereby salient in a person’s mind (Cialdini et al. 1990). It is certainly important to realize that people use heuristics (Gigerenzer 2004) and that there are different types of social preferences (Gintis 2016). However, without any specification of the conditions under which a particular kind of heuristic or social preference is activated, the usefulness of these kinds of approaches to social rationality for economic sociology is very limited. For this reason, the remainder of this exposition will mainly focus on the third approach involving mechanisms of shifting salience. I will first introduce the goalframing theory and its evolutionary base and then turn to what is the main condition for economic development according to this theory: mild solidarity.
Goal-framing theory To understand the applicability of this approach to economic sociology, we need first a minimum of familiarity with the shifting salience dynamics of overarching goals. Decision-making is goal-directed, and goals, like other mental constructs, need to be salient to influence decision-making. The goal architecture of the human mind is hierarchical (Kruglanski and Köpetz 2009) and that creates a crucial link to shifting salience effects: when the salience of an overarching goal (that is, a goal high in the hierarchy) shifts, whole classes of lower level goals shift in salience as well. For example, when the most salient overarching goal is material gain (resources), attention will go especially to affordances and opportunities for realizing lower level goals of increasing or protecting resources (such as profit, cost saving, getting a higher position, increasing income), at the same time other classes of lower level goals pertaining to norm conformity or to pleasure are pushed into the cognitive background. The overarching goal most salient at a given moment is called a “goal-frame”. Goal-framing theory (Lindenberg and Steg 2007; Lindenberg 2008; Lindenberg and Foss 2011) details the dynamics of overarching goals in the shifting salience framework. When an overarching goal is salient, it guides what we attend to and what we ignore, what kinds of information we are sensitive to, and how information is being processed. Three overarching goals can be distinguished. First, there is the hedonic goal, for which
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“maintaining and improving the way one feels” is the guiding aim. This goal is related to the satisfaction of fundamental needs, both physical and social, and to how one feels in general. Its focus is on the short term. Importantly, when it is salient, people try to avoid effort that makes one feel worse, try to seek pleasure that improves the way one feels, and seek ways to avoid situations of fear and anxiety. The second overarching goal is the gain goal, which focuses on “maintaining and improving one’s resources”. This goal is focused on the longer term, and, when it is salient, it makes people particularly attentive and sensitive to affordances and opportunities to get more material benefits and to avoid costs. The third overarching goal is the normative goal oriented toward “doing the right thing” in terms of a particular collective of which one feels to be a part at that moment. Since norms are for a collective the chief way to code what is “the right thing” to do in a given situation, this goal was called “normative”. However, it does not just pursue norm conformity but also the realization of the goals of the collective. For example, a member of a football team will not only follow the rules and informal norms governing the team and the contest but also try to contribute intelligently to making the team perform well. In terms of time perspective, norms that developed over time mostly reflect collective learning with regard to combining shortand longer-term perspectives. For example, the norm to be honest is often advantageous in both the short and the longer run. How did this architecture of overarching goals come about? Social rationality deals with the co-evolution of rationality and sociality. This process must be seen in terms of at least 2 million years, with a big jump to homo sapience and language capacity in the last 150–200 thousand years. In terms of evolution, the most plausible account is that the gain and normative goals developed much later than the hedonic goal, but all three have common roots in dyadic co-regulation. Co-regulation refers to a wide range of mutual (but not necessarily symmetric) advantageous influences, including bodily, cognitive, and motivational regulations. Examples are various kinds of sharing mental processes (attention, reality, goals, cognitive burdens); turntaking; supportive verbal communication; mutual perspective taking, including mirror neurons, imitation, and joint intentionality; mutual influences on goals, values, and preferences; mutual influence on emotions, and collaborative learning. The primary social relation is dyadic co-regulation, first and foremost on the basis of affective signals between infant and caregiver (including bodily, cognitive, and motivational synchronization between the two), a development that evolved to co-regulation in pair-bonding and with other closely related others, including non-kind helpers and cooperative breeding (Decety and Svetlova 2012; Schildbach et al. 2013; Hrdy and Burkart 2020; Reihani 2021). Co-regulation evolved thus mainly on the basis of increasing sophistication of co-regulating with one’s present self, with increasing the awareness of one’s own feelings and the sensitivity to the feelings and intentions of others (Chick et al. 2020). The adaptive advantages of this development led to an increasingly elaborate brain capacity for the overarching hedonic goal and joint intentionality. This development also involved more elaborate links between emotions and goals (Griskevicius, Shiota and Nowlis 2010; Maglio, Gollwitzer and Oettingen 2014), a form of co-regulation with one’s present self. The adaptive advantages of these co-regulatory capacities facilitated in the course of evolution two important developments: (a) the generalization of the dyadic co-regulation capacities to co-regulation with the group as a whole, creating the capacity to experience being a member of a “we” (the basis for the normative goal), and
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(b) co-regulation with one’s own future self, creating the capacity for planning and concern for resources for one’s own future self (the basis for the gain goal) (Lindenberg 2015b; Brinck, Reddy and Zahavi 2017; Tomasello and Gonzales-Cabrera 2017; Szanto and Krueger 2019). In turn, the co-regulation with the “we” provided adaptive advantages that supported further selective pressures for brain capacity for co-regulation involving the “I” (with the present and future selves, Tomasello and Gonzales-Cabrera 2017), concerning aspects of self-regulation, such as a sense of self identity, reading one’s own feelings, agency and accountability. This, in turn, increased the capacity to experience a “we” with collective goals and one’s own role in reaching them. The latter thus involved an important additional change: next to the capacity for the depersonalizing we-feeling (a sense of belonging), there evolved a “constructive we” in terms of pursuing joint goals in joint production (Tomasello 2020), with individual role(s) and responsibility for contributing to collective goals (“joint production motivation”, see Lindenberg and Foss 2011). What does it mean to “co-regulate with one’s present or future self, or with a collective? People develop representations of themselves (present self, future self, we-self ). These representations are influenced by others and they are not passive but exert an influence on what one thinks of, what goals one pursues, what conflicts one experiences, etc. Often this is accompanied by an internal dialogue (Hermans 2001; Alderson-Day and Fernyhough 2015). In short, the co-evolution of rationality and sociality does not mean that co-regulations with the collective(s) and with one’s
Hedonic goal: co-regulate with present self
Capacities for dyadic coregulation
support
generalize support
Normative goal: Co-regulate with collective
generalize
Gain goal: Co-regulate with future self
Figure 12.1 Dynamic interdependencies between different kinds of co-regulation.
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own present and future selves developed as separate capacities, but that they developed as interdependent capacities, driven by with dyadic co-regulation, see Figure 12.1. With regards to ontogeny, the same interdependencies between forms of co-regulation apply. There is no autonomous individual that in the course of socialization learns to be social. Rather, the individual is virtually at all times co-regulated and co-regulating with others (including with collectives and one’s own present and future selves) and dyadic co-regulation with close others has a special importance for keeping the interdependencies depicted in Figure 12.1 going. Thus even self-regulatory abilities depend on on-going co-regulation (Feldman 2007). For social dynamics, the crucial question is which kind of co-regulation (and thus which overarching goal) is the most salient one at a given moment and to what degree is it supported by the other kinds of co-regulation (avoiding co-dysregulation). As we will see later on, processes influencing the salience and supports of kinds of co-regulation have profound consequences also for economic sociology. Dynamics of overarching goals In general, all three overarching goals are activated to some degree, but most often, one of them is more salient than the other two. The architecture of the three overarching goals is highly dynamic in four different ways. First, the goals are subject to shifting salience effects by the influence of internal or external cues. For example, the salience of the hedonic goal will increase when cues in the situation create or activate threats or affordances for the satisfaction of fundamental needs (such as hunger, sex, comfort, prestige or dominance-related status, affection), frustrate expectations (prominently expectations about fairness), or create anxiety. Thus, also increasing uncertainty will increase the salience of the hedonic goal (Faraji-Rad and Pham 2017). Given the future is predictable, the salience of the gain goal will increase when costs of behavior increase, when situations turn competitive, and quite generally when costs and benefits are expressed in terms of a medium of exchange (such as money). Clear signals that one is part of a “we”, observing generalized others’ respect for norms, and seeing that there are legitimate sanctions for not conforming to norms, as well as the closeness of a social relationship will increase the salience of the normative goal. Clear signals that one is part of a joint effort (converging interests, common goals) or that one can contribute to a meaningful collective result, will increase the salience of the special “constructive” normative goal. The latter is beyond a focus on norm conformity and involves active goal pursuits in favor of a collective. However, it is supported by periodic “depersonalizing” we experiences that foster a collective identity. For example, having “team spirit” involves both kinds of “we”. Second, the three goals differ in natural strength. Because of its link to fundamental needs and affective states in the here and now, the hedonic goal is the most fundamental and also the naturally strongest one. Feeling good may also be associated with having power and certain material goods (such as money), in which case the aim may look like a gain goal, but, being linked to feeling good and contrary to the gain goal, it is short-term and subject to the fickleness of emotional swings. The normative goal is naturally the weakest one, since, in evolutionary terms, the collective is there for the adaptive advantage of the individual in it, and not the other way around (Dunbar 2003). In terms of natural strength, the gain goal, focused on resources for the satisfaction of fundamental needs, is between the hedonic and normative goals. The importance of this natural pecking order cannot be overrated, because it contains a strong dynamic force. In order to be more salient
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than the hedonic goal, the normative goal constantly needs considerable support, such as through a collective orientation experienced as a shared value, embedding in a community, embedding in joint projects, and frequent observation of generalized others respecting shared norms. Though less precarious than the normative goal, the gain goal also needs considerable support to be able to trump the hedonic goal, such as through gain as a shared value, institutional arrangements that create a stable planning horizon, including property rights and the rule of law, competition, and clear opportunities for gain. When support for the normative goal weakens, the chance goes up that the salience of the gain or hedonic goal increases. For example, an organization may emphasize profit-making with, say, bonuses and internal competition to such a degree that the support for the normative goal declines, and, that at first, even the hedonic goal will lose salience in favor of the gain goal. By contrast, when the institutional arrangements that support predictability and the rule of law decline, the salience of the gain goal will decline as well in favor of the short-term oriented hedonic goal, even if gain is a shared value. Then, self-administered justice and corruption are likely to be on the rise. One important consequence of the difference in the natural strength of overarching goals is that the sustainability of a salient normative goal is very precarious. Often, awareness of the need for the constant support of the normative goal will decline over time, and the support arrangements will be subject to cost or effort cutting. As a consequence, the salience of the normative goal is often likely to decay over time in favor of a salient gain or hedonic goal or both, be that in economic relationships, inside teams, inside organizations, or even for societies as a whole. Third, there is a difference between foreground and background goals. The most salient overarching goal is in the cognitive foreground, calling the shots in terms of attention and information processing, but the other two can still exert some influence from the background. In this sense, motivation is almost always mixed. The three overarching goals imply that people have conflictful preferences: concerning the self vs the collective; short-term vs longer term; focus on feeling vs focus on result or obligation. In principle, the three overarching goals compete for the place in the foreground and weaken each other’s salience. Shifting salience dynamics generally mitigates this conflict by making one overarching goal more salient than another. But this mitigation is only partial. A salient gain goal may be weakened by a normative goal in the cognitive background; and the salience of a normative goal may be weakened by gain aspects (such as out-ofpocket costs) in the background. Fortunately, certain aspects of each overarching goal may actually support the goal in the foreground rather than weaken it. For example, the sense of obligation to help somebody in need (in the foreground) may be supported by getting social approval for doing so (in the background) (Aknin, Van de Vondervoort and Hamlin 2018). Social approval is a hedonic aspect that feels good, and, in the literature, it is often referred to as “warm glow”, supporting the salience of the normative goal. Similarly, receiving fair compensation for doing one’s best to fulfill one’s job obligations is likely to support the salience of one’s normative goal (Ghosh et al. 2016). Note that these supporting background aspects are a matter of calibration: they must remain in a supportive role. The more emphasis there is on recognition and/or compensation, the larger the likelihood that the hedonic or gain goal will become the most salient one, pressing the normative goal into the background. The goal in the foreground will largely determine how situations are perceived and interpreted. Fourth, the normative goal is flexible in two ways: (a) at any given moment, the normative goal is linked to a particular collective identity and that determines the particular
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set of norms that are covered by the goal. To take an example from organizations: at one moment, it may refer to membership in a production team (with norms covering team tasks and team relationships), in another moment it may refer to being a member of the company as a whole (with norms covering the organizational goals), and it may also refer to a profession (with particular professional norms). (b) Related to but different from the first point, the scope of the normative goal can be more or less inclusive by covering more or less nested groups (Gaertner et al. 2016). Whereas in (a) different sets of norms are applicable to different groups, in (b) the same set of norm obligations (such as “helping somebody in need”) is applied to groups of various inclusiveness. For example, soccer fans from one club often form an ingroup against the soccer fans from a rival club (outgroup). In a much cited experiment by Levine et al. (2005), fans from one club helped an injured stranger wearing an ingroup T-shirt significantly more than an injured stranger with a T-shirt from the rival club. However, when the inclusive category of “soccer fan” was made salient, this difference in helping vanished. The normative goal now covered both groups. Although “soccer fan” created a more inclusive group, it was clearly creating a new ingroup, excluding those who are not soccer fans. This could be seen by the fact that injured strangers wearing a neutral T-shirt were helped significantly less than those wearing a T-shirt that identified them as soccer fans (no matter what the club). A most inclusive collective to which the normative goal applies in the case of helping a stranger would be “fellow human beings”. How can all this be relevant to economic sociology? Arrangements that stretch the inclusiveness of the normative goal are particularly important for economic sociology because of their role in mild solidarity, as explained in the next paragraphs.
The importance of mild solidarity In economic sociology, there is a strong focus on exchange relationships. This is understandable from the point of view of the same focus in economics since Adam Smith. However, from a social rationality point of view, this strong focus on exchange is illfounded. It suggests that human beings are self-interested autonomous beings that improve their conditions by “trucking, bartering, and exchanging” with other such human beings (Smith 1976: 25). In this view, the social fabric then has to be created by social arrangements between autonomous individuals, either through dominance hierarchies or through exchange relationships that undermine such hierarchies, a thought that is nicely illustrated in Adam Smith’s work itself (Lewis 2000). In the 20th century, Simmel (1971 [1907], p. 43) followed suit and maintained that “every interaction is properly viewed as a kind of exchange”. Homans (1958) popularized viewing social relationships as exchange relationships, governed by rewards and costs. He was followed by influential others (such as Blau 1964 and Emerson 1976). When viewed from a social rationality perspective, exchange relationships, both social and economic, are by no means basic. Exchange relationships are linked to a salient gain goal. They should be analyzed on the basis of the primacy of co-regulatory relationships and the conditions under which a gain goal can be salient. This leads to the necessity to pay much attention to the social and institutional preconditions that allow exchange relationships to flourish (as also claimed in Zafirovski 2001). To do that, one has to look at differences in the kind of solidarity between people. Even economic relationships are social relationships. Only mild3 solidarity is conducive to economic development with extensive exchange relations, and it is much more difficult to bring about and maintain than
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strong solidarity. Without exaggeration, one can say that mild solidarity might be the single most important social and institutional precondition for economic development. Close groups are generally characterized by strong solidarity norms like cooperation, sharing, and helping (Lindenberg 2015b). These norms are “strong” in the sense that the legitimately expected sacrifice for following the solidarity norms is high and that, in case of conflict, the collective is of higher priority than the individuals in it. Strong solidarity norms (such as those applying to a core family or tight community) also prioritize equality, with the only legitimate deviations linked to differential needs (such as children versus grown-ups). Close groups have clear boundaries that indicate who is in it and who is a member of an outgroup. Relationships with members of the outgroup are not covered by the normative goal-frame and thus are compatible with theft, fraud, violence, and other means of extraction, all bad for economic development. A normative goal-frame with strong solidarity norms is predictably activated in members of a group when there is a “we” identity and this group is threatened from the outside, be that through discrimination, humiliation, threatened loss of identity (say through immigration), or conflicting intergroup relations (ranging from team competition to war). Strongly solidary groups have group- and dyadic co-regulations within but miss co-regulation between groups and, because of the primacy of the group, fall short of co-regulation with the future self. Despite the emphasis on equality, strong solidarity is compatible with internal power differences, legitimized by tradition or charisma. Strong solidarity does not only occur in small groups or communities but also in larger political units. For example, strong solidarity is characterized by greater “tightness” of norms also on the state level (Harrington and Gelfand 2014), meaning that norms and rules are more clearly stated and transgression is more severely enforced and punished. Harrington and Gelfand (2014) found that US states that had experienced greater threats from natural disasters, greater incidents of disease, lack of natural resources, and food insecurity also showed more tightness of norms at the state level. Compared to “loose” states, the “tight” states showed on aggregate less mobility, greater discrimination, greater political and legal inequality, less creativity, and greater endorsement of isolationist economic practices and policies, all conditions that hamper economic viability. Mild solidarity is solidarity across group boundaries, mitigating ingroup/outgroup dynamics. Its norms are superficially the same as those for strong solidarity, covering cooperation, sharing, helping, etc. However, they are different in the sense that, in case of conflict, the individual has priority over the group, the sacrifice that can be legitimately expected is quite limited, and the distributive norm is equity and not equality. The dynamics of overarching goals is much more complicated in mild compared to strong solidarity. Whereas the normative goal-frame is highly salient in contexts of strong solidarity, in the contexts of mild solidarity, the goal-frames are balanced (a) in the sense that the normative and gain goal-frames hold each other in balance: when norm conformity becomes too costly, the gain goal-frame becomes salient, and when the latter threatens to lead to much deviation from the mild solidarity norms, the normative goal-frame will be salient again; (b) in the sense that the hedonic goal-frame is legitimate, but, when it is in conflict with one of the other goal-frames, the naturally weaker goal-frames prevail. This implies that the excessive pursuit of pleasure is mitigated in favor of pursuing gain; and the excessive pursuit of gain is mitigated by mild steering from a normative embedding. With mild solidarity, dyadic and group
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co-regulations stretch across groups, and co-regulation with one’s future self is also supported. In addition, mild solidarity increases the dynamic adaptation of networks and thereby the quality of individual and collective judgments (Almaatouq et al. 2020). It is clear that contexts of strong solidarity are an obstacle for economic transactions (exchange) because the legitimately expected sacrifice for norm conformity can be high, the distributional norm is equality (which bars proportional returns for different investments), the group has priority over the member (allowing only weak co-regulation with the future self ), and the relationships to members of the outgroup (potential exchange partners) are not covered by norms. This implies that were contexts keep generating strong solidarity, exchange relations inside the ingroup are discouraged and problematic (“don’t profit from dealing with your own kind”), and, with members of the outgroup, exchange relations are fickle, lacking trust, stability and restraint, inviting unbridled opportunism and power play. Weber (1961: 261f ) paid special attention to this contrast of the moral code toward the ingroup (“Binnenmoral”: with “repression of the economic impulse”, ibid., p. 262)) and lack of any moral code toward the outgroup (“Aussenmoral”: “there is absolutely unrestricted play of the gain spirit in economic relations, every foreigner being originally an enemy with regard to whom no ethical restrictions apply”, ibid., p. 261). The result of this split is hampered economic development. It takes considerable Institutional and social development to create the conditions for mild solidarity, in which economic exchange relations can be normatively embedded: developments that break the power of close groups over their members (such as the power of tribes, clans, house- and tight religious communities); developments that reduce the material dependency of group members on their group (such as state welfare arrangement, insurance coverage; a banking system); predictability and justice (such as the rule of law); and developments that create overarching identities across groups (such as states, and global compacts – the United Nations, the World Trade Organization, the World Bank, etc.). In principle, there is nothing new about saying that overarching identities across groups are furthering economic development. What the social rationality angle adds is a dynamic factor: that exchange arrangements are extremely brittle, because ubiquitous small failures in the mild solidarity arrangements will constantly lead to backward dynamics of strong solidarity and thus ingroup/outgroup dynamics, driven by states, industries, ethnic and racial minorities, ideological, gender, and other groups. In fact, this very possibility can and is often purposefully amplified by political, industrial, and social leaders to gain group support for their power position. In short, exchange relations for economic development have always been, and will remain, precarious and cannot be taken for granted. One of the major focuses for economic sociology should therefore not just be the “social embedding” of economic transactions, but, realizing the importance of co-regulation and its different kinds, the study of the precariousness of exchange relations, and what can be done about it in the variety of situations in which it arises. In addition, it is important to realize that contracts and compacts are first and foremost social relations with varying social distance and thus dependent on co-regulatory arrangements of mild solidarity. When something goes wrong with the preconditions for mild solidarity for compacts and between contracting parties, the default for economic relationships is not strong solidarity but relationships governed by the hedonic and/or gain goals, lacking normative obligations and even lacking
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Group-level: Ingroup /outgroup dynamics with strong solidarity within, no solidarity between groups
Dyadic level: prevalence of hedonic and/or gain goal-frame, open for power effects
Figure 12.2 Different consequences of mild-solidarity failure.
the conception of co-regulation, open also to the dynamics of power differences (see Figure 12.2). Viewing social relations as exchange relations misses these dynamics. Newer developments in economic relationship research (see Devece et al.2019; Gernsheimer et al. 2021) show a rising interest in new but prototypical forms of mild solidarity in the market place and within organizations under the heading of “coopetition”, a combination of cooperation and competition between people and between economic units (teams, business units, firms). They demonstrate that the “old” view of competition and cooperation as either/or relationships in the market and within organizations is wrong. Coopetition is potentially a very important phenomenon for economic sociology (see Bengtsson et al. 2016), but for reasons of space, it will not be dealt in more detail in this entry. In the following sections, I will discuss mild solidarity issues on the dyadic level (contracting); the group level (reputation effects); the organizational level (governance and opportunism); and the level of formal institutions.
Contracting Oliver Hart got the Nobel Prize in 2016 for his work on incomplete contracts, which was solidly based on the usual assumptions in contracting economics that everybody is rational and self-interested. Shortly before his acceptance speech in Stockholm, he got to know David Frydlinger and Kate Vitasek, and in conversation with them he realized that, ironically, he had barked up the wrong tree: the behavioral assumptions he used were wrong. The three of them developed instead a conception of formal (i.e. written) relational contracting that was solidly based on the idea of co-regulation and the precariousness of exchange relationships. They worked with changing mindsets, observing that often when contract negotiations begin, representatives of companies default to an adversarial mindset because they fear a hold-up by the other party. Each party would like to shift the risks to the other side. In the case of conflict, they revert to the original agreement rather than to their relationship. This leads to contracts that aim to cover all contingencies, making it virtually impossible to adequately deal with unforeseen situations. As a consequence, the gain-goal-based relations between the contracting parties will often turn sour and break up. A formal relational contract is different. It specifies mutual goals, shared visions about the relationship, and special governance mechanisms to maintain the relationship also in the case of conflicts and unforeseen contingencies. The relational contracting approach is in fact a suggestion to embed the contract in
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mild solidarity. This has a long tradition. The idea of relational contracts goes back to Durkheim who maintained that a contract is more than exchange and needs solidarity and “the proper harmony of functions” (1964 [1893]). It has been picked up by two important legal scholars (Macaulay 1963 and Macneil 1985). The problem that remains even in the most sophisticated versions of relational contracting approaches is that the precariousness of mild solidarity is observed but not theorized. For example, Frydlinger et al. (2019: 123) maintain that “with the right mindset, the development of the contract becomes a joint problem-solving exercise rather than an adversarial contest”. Where does the “right” mindset come from? It comes from a “partner mentality” focused on problem-solving with the maxim “what’s in in for we?”. This, however, tells us neither where the partner mentality comes from, nor that this mentality, if it is present, would be precarious, and that institutional and social supports might be constantly needed to maintain its salience. In short, it is an advance to focus on shifting mentalities, but without also engaging theories that deal with shifting mindsets, the very question regarding precariousness and needed supports is at best mentioned but not theorized (see Lindenberg and de Vos 1985; Lindenberg 1988, 2015c). This leaves an important task for economic sociology. For example, the dyadic co-regulation needed for contracting needs social and institutional arrangements that also support co-regulation with the relevant collectives and with one’s own future self. Another shortcoming of the otherwise laudable relational contract tradition is that it is considered only relevant for long-term relationships. For example, Frydlinger et al. (2019: 121) state that “some relationships, such as those involving the purchase of commodity products and services, are truly transactional and only need traditional contracts”. They imply that for short-term exchange relations, contracts can be drawn up that will be successfully dealt with in the courts when trouble arises. However, this view ignores the ubiquitous asymmetry in transactional contracts between individuals and corporations (Coleman 1982) that make it is difficult for individuals to take corporations to court. It takes again special institutional arrangements to mitigate this asymmetry, such as the Federal Trade Commission, Consumer Financial Protection Bureau, Better Business Bureau, and Office of Fair Trading. But often even these institutions are not enough to protect the consumer because corporations can and do influence laws in such a way that they become practically immune from prosecution. This is even made worse by the fact that corporations can often choose the laws that protect them best by moving their headquarters from one country to another. These asymmetries have recently been described in some detail by Pistor (2019), in a study that would have adorned any reading list in economic sociology. Thus, even for transactional contracts, such as a purchase, mild solidarity is needed and requires both social and institutional support.
Reputation effects One way to explain norm conformity without having to refer to a normative goal has been to point to the effects of (anticipated) reputation. Attention to reputational effects became popular among economists first because reputation was important for the credit market (is this person a credit risk?) and for consumer markets (does investing in reputation via quality products pay?). But then economists also found these effects attractive because the twin assumptions of rationality and self-interested preferences could be used to explain norm conformity (Shapiro 1983; Wilson 1985). People both
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react to others’ reputations and try to influence their own reputation because others react to it. Sociologists became interested in this topic in the early 1990s through the link between networks and reputations: structural embedding of people had an effect on the information that would circulate about them and therefore influence behavior via reputational concerns (Raub and Weesie 1990). The idea was derived from Granovetter’s (1985) “embedding” article. Granovetter maintained that in order to study phenomena like reputation with regard to “orderly transactions”, all you need is simple rational choice assumptions and attention to structural embedding: people engage in orderly transactions not because they have a feeling of obligation to do so, but because they want to avoid getting a bad reputation when they are embedded in a social network that would pass on their transgressions. Introducing psychology for this purpose (for example, “selective rationality”) was seen by Granovetter as a mistake. Many have followed Granovetter’s lead4 (see Diekmann and Przepiorka 2019). But a crucial aspect of economic sociology is missing in this structure-cum-rational-choice approach (Lindenberg, Wittek and Giardini 2020). As Barnett and Pollock (2012: 13) summarized the state of the art of reputation research some time ago: “In order to get inside the heads of those whose perceptions determine reputation, scholars will also need to broaden their methodological repertoire”. Reputation (in terms of protecting “orderly transactions”) requires not just a structural but also a normative embeddedness, on the basis of which participants have standards of “orderly transactions” that are linked to norms about honesty, trustworthiness, helpfulness, and other solidarity norms (Lindenberg 2015b). This makes attention to the difference between strong and mild solidarity highly relevant for reputation effects. Given strong solidarity, people will not be willing to incur costs for a good reputation in the outgroup. They also don’t lose reputation “inside” by transgressions vis-à-vis the outgroup. Conversely, they will share knowledge (including gossip) with members of the ingroup but not the outgroup. Inside their ingroup, reputation may play a role but that is likely to depend also on internal power differences. A strong player’s behavior will be judged leniently and thus does not have to closely consider losing reputation in his or her own group, unless he or she clearly poses a threat to the ingroup (Brass et al. 1998; Hughes et al. 2017; Abrams et al. 2018). The mild solidarity requirement implies that, for reputational systems to work across group boundaries (which they must for economic transactions), reputation concerns may only support normative concerns, not replace them. Mild solidarity failures will lead to parochially limited reputation effects, to fraudulent manipulation of reputational systems (with a salient gain goal-frame, see Barnett et al. 2012), and to hedonic influences on knowledge sharing (based on likes/ dislikes, fear of retaliation, etc., Li 2010). Actors may manipulate information or not take reputation effects into consideration (say, for reasons of power or outgroup targets whose opinions may be ignored); the observers of transgressions may distort or not pass on what they saw (say for reasons of outgroup targets or fear of reprisals); and transmitters may be gullible or intentionally malicious about what they pass on through gossip (Lindenberg, Wittek and Giardini 2019). For example, for on-line markets, reputation systems play an important role (Diekmann and Przepiorka 2019), but they need sophisticated psychological management and complex institutional regulation to function properly (see Bolton et al. 2013, 2018). Other examples are the markets for credence goods, in which customers cannot evaluate the quality and/or pricing of the goods, such as health care services. In such markets, reputational systems require considerable
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formal and social regulation to function properly (Balafoutas and Kerschamer 2020). In sum, reputation systems are important for economic transactions, but they are highly complex systems that require social and institutional arrangements of mild solidarity. Studying these arrangements is an important task of economic sociology.
Organizations, joint production, and opportunism Organizations are vital in any economic system, both for production and for the running of the state. Economic sociology is and should be concerned with the performance of organizations dependent on the way they are governed. Just as in other research regarding the economy, exchange relations have long been the central focus for studying what goes on inside organizations. For example, research on the firm has prominently been based on the principal-agent model, so an organization is seen as a “nexus of contracts” ( Jensen and Meckling 1976). A critique of this approach as being blind with regard to the social relationship between employer and employee led to theories of organizations as a nexus of psychological contracts (Rousseau, Hansen and Tomprou 2018) in which not objective and legal obligations of employer and employee claim center stage (as in the principal-agent approach) but subjective reciprocal and relational obligations. Although this changed focus is in a way a fruitful shift, it still approaches organization from a dyadic exchange perspective of employer and employee. It thereby fails to consider important sources of motivation and their dependence on mild solidarity. From a social rationality approach, organizations are collaborative enterprises, and when they function well, the members of the organization integrate heterogeneous inputs synergistically to jointly create value by realizing shared goals. In that case, co-regulation with the collective is supported by dyadic collegial co-regulation and co-regulation with one’s own future self. In fact, organizations can, from an evolutionary point of view, be seen as heirs of the social contexts in which social rationality evolved (see Figure 12.1). Human beings have evolved to function, and be motivated to function, in projects of joint production. But what does it take to make this happen? There are recent contributions in the social rationality literature that specify the conditions under which joint production motivation is likely to emerge and be maintained (Mühlau and Lindenberg 2003; Lindenberg and Foss 2011; Lindenberg 2014). Legal contracts in organizations, far from being the main story, are at best the way people are admitted to joint production. If this contract and its embedding in rules and procedures facilitate dyadic co-regulation between employee and employer (psychological contract), it can be the beginning of a salient co-regulation with the organizational collective (realizing shared goals), supported by co-regulation with colleagues and one’s own future self (say in terms of learning, advancement, and achievement). In terms of goal-framing, we can say that a contract can facilitate the growing salience of the normative goal-frame in which the individual feels part of a joint endeavor, with own responsibility for contributing to the realization of this endeavor, and that this normative goal-frame is supported in the background by aspects of the gain and the hedonic goal (Lindenberg and Foss 2011). In short, joint production motivation is brought about and maintained by different kinds of co-regulation that support each other. It is not just the way the contracts are drawn up, but the entire governance structure (including contracts) that set the stage for this mutual support.
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Needless to say, entry into organizations via contract must facilitate the eventual salience of the normative goal-frame. When this entry already signals an organizational focus on pay-for-performance regimes and competitive tournaments for promotion, the gain goal-frame will be dominant already in the newcomer, and from then on organizational goals will only be pursued to the degree that incentives are well aligned with these goals (Mühlau and Lindenberg 2003). Yet, due to the necessity for intelligent individual effort, team-level effort, and the difficulties of monitoring these efforts, interest alignment is difficult to achieve (Lindenberg 2013), except for highly separable tasks. A focus on the hedonic goal-frame is also flawed. When the organizational focus is on making the employees feel good and avoiding stress, or on inspiring fear of being punished or dismissed, a hedonic goal-frame will be dominant in the organization, with the great disadvantage that it makes people avoid things that make them feel worse. They will thus try to avoid effort and (in the case of regimes based on fear) avoid risk-taking and initiative. Thereby the domination of a hedonic goal-frame is potentially even more damaging for economic performance than the domination of a gain goal-frame. A salient normative goal-frame by itself is also not enough for joint production, because it is compatible with a focus on conformity to rules rather than the realization of the shared goals. What is needed for joint production is a “constructive” normative goal-frame that centers on shared organizational goals with the questions: what needs to be done, and what can I do to help make it happen? This asks for a sophisticated governance structure (Lindenberg and Foss 2011; Foss and Lindenberg 2013; Birkinshaw et al. 2014). First, all employees need to feel invited to partake in joint production. For that purpose, symbolic management that creates periodic depersonalized we-feelings (through common rituals) combined with being clearly included in joint projects (for a constructive we-feeling) is necessary. Second, to facilitate taking one’s own responsibility in joint production, it is important to understand how one’s tasks link up with other employees’ tasks for the achievement of shared organizational goals, and how one’s team functions with regard to individual initiative. For this purpose, the task and team design must make it easy to understand one’s contribution to joint production. Importantly, participants’ “feasibility belief ” that the team will achieve the collective ends must be high (Lindenberg 2014). Third, authority structures may lead to mild solidarity failure by encouraging ingroup/outgroup dynamics between those in power and those who have to obey. To avoid this, authority structures need to be functionally legitimated (decision power on the basis of superior insight or expertise). Fourth, reward structures need to avoid a salient hedonic or gain goal that would sideline the normative goal. Yet, both hedonic and gain aspects must support the constructive normative goal-frame from the background. This takes careful calibration of contingent financial, symbolic and hedonic individual and team rewards, all visibly linked to contributions to joint production and accountability, as well as careful calibration of intraorganizational competition for positions and resources. Fifth, to avoid organizational profit goals to make the gain goal salient in the employees, clear and consensual mission statements need to create a shared sense of common social purpose relating to the wider society (Foss and Lindenberg 2013). When missions are not integrated into the daily operation but remain widow-dressing, they are counterproductive (Birkinshaw, Foss and Lindenberg 2014). In sum, organizations are social constructs for the realization of joint production, and, as such, they are heir to the way social rationality evolved in the first place, with a primacy of co-regulation with the collective that is supported by collegial dyadic co-regulation
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and co-regulation with one’s own present and future self. Neglecting joint production and viewing organizations as a nexus of dyadic contracts is counterproductive. Opportunism The social rationality approach to organizations can also be used to understand the circumstances under which different kinds of failures of mild solidarity (i.e. various forms of opportunistic behavior) occur in organizations. An organizational form can encourage identification with specific subunits (and thus limit the range of the normative goalframe) as well as specific forms of gain-goal-related opportunistic behavior (financial opportunism, linked to finessing financial advantages; and status opportunism, linked to finessing status advancement) and/or different forms of hedonic-goal-related opportunistic behavior (visceral opportunism linked to seeking excitement or revenge; or effort opportunism linked to withholding effort by shirking or freeriding). Space does not permit a full description of the various organizational forms and their consequences (see Weber, Foss, Lindenberg 2021 for a detailed description), but two illustrative examples will help. Ideal-typically, one can distinguish a U-form (composed of physically segregated functional units that must work together to produce a number of products or services), and an M-form (composed of different divisions or business units in each of which employees work together to produce a line or service central to the identity of the division). For example, the M-form is likely to generate identification with the division rather than with headquarters. The various divisions compete for financial resources on the basis of expected and past profitability and growth, which focuses employees’ attention on divisional performance. This puts a premium on a salient gain goal-frame with financial and status opportunism vis-à-vis other stakeholders than one’s own division. By contrast, the U-form is likely to generate identification with the functional unit, which undermines cohesiveness at the organizational level. The functional units have to work together (creating non-separability) but are competing for parts of the total budget and are physically separated and divided by local identifications. For this reason, gain-goal-related opportunism (free-riding/shirking) and visceral and effort opportunism vis-à-vis other functional units are likely to develop in relations between functional units. This creates internal mild solidarity failures with ingroup/outgroup dynamics, say, between Sales versus Marketing departments, and Design versus Manufacturing departments, that may withhold helping each other but blame the other for problems that arise and even take revenge. Here too lies a task for economic sociology: to investigate forms of governance that could counteract the negative effects of various organizational forms on mild solidarity (Weber et al. 2021). In the recent literature, this topic has also received attention with a focus on “cross-functional coopetition” (Strese et al. 2016). Coopetition is a cooperative relationship between units, combined with a certain degree of competition between these units. As mentioned above, coopetition, also between organizations, is a prototypical example of mild solidarity (Gernsheimer et al. 2021).
Environmental behavior, values, and the role of “vanguard” Environmental behavior has strong effects on the economies of the world (for example, via the prices of natural resources and the climate) and should also be considered in economic sociology. The field of environmentally friendly behavior exemplifies yet
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another way in which mild solidarity can come about: through a cascade from a vanguard to the rank and file, and from the rank and file via voting to the political process and laws that create restrictions on organizations. An ongoing public debate on the threats to our environment in which scientists, politicians, journalists, and ordinary citizens are involved (mostly via the media, but also via meetings, pubic protests, etc.) influences values (see Lindenberg and Steg 2013). Values are relatively stable, reasoned, and emotionally supported guiding principles that influence goal-frames (Steg, Lindenberg and Keizer 2016). Despite their stability, they can change, mostly in the presence of a threat to one’s way of life. Values will influence informal discussions and voting behavior, but they change slowly and this change depends on the activities of vanguards. There are people who are especially strongly influenced by the public debate and they can develop strong “biospheric” values (that is, values about saving the human environment). In fact, their normative goal then incorporates not just social values, but also biospheric values, and the emotional backing of the values supports the normative goal with hedonic aspects. They also feel part of a vanguard of people who see it as a moral obligation to save the environment, with strong solidarity and identification as a “movement”. Yet, at the same time, they represent the widest range of preached mild solidarity, spanning the earth and its interrelated living organisms. In a cascading form of social influence, it is this vanguard that is often responsible to get other people to follow norms that protect the environment. Often this does not even imply getting others to adopt the values but rather getting others involved in a social process of “going along”, “belonging”, and “joint production”, in short via community dynamics that may lean toward strong solidarity (Bain et al. 2015; Goedkoop et al. 2022). In democracies, this influence also affects voting behavior and thus legislation that restrains organizations (Lindenberg and Steg 2013). Proenvironmental behavior is thus an example of how strong and mild solidarity can become dependent on each other, and the behavior of organizations is affected by this interdependence via democratic institutions. The role of a vanguard is likely to play a role in other contexts of change as well (see, for example, Bicchieri and Funcke 2018).
Institutions Governing mild solidarity in an organization is complex, but governing it for the society at large is even more complex. For this, one has to look at the role of institutions, both the way they influence behavior and the way they influence interdependencies. Often institutions are seen as rules that influence behavior via constraining it with incentives (North 1990) and/or habits (Hodgson 2003). There is, however, an even more fundamental way in which institutions matter. A social rationality approach highlights the influence of institutions (as established rules) on goal-frames themselves, and thereby on the question under what conditions and why people follow rules: because of incentives, or because they feel like it, or because of a sense of obligation (Lindenberg 2017). A social rationality approach also focuses on the way institutions affect the groups one identifies with, and the scope of the normative goal-frame (parochial or more inclusive). With regard to following rules, goal-framing theory specifies that rules (say, those imposed by the government) will only be covered by one’s normative goal-frame if they are seen as norms. For this to happen, rules must be seen to be legitimate (Lindenberg, Six and Keizer 2021). Rules will be legitimate if, first, the regulating actor is seen as a legitimate authority, who, importantly, is not seen to be violating its own rules. Second,
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the rules are seen as getting widespread support among those who have to comply with the rule. Third, the rules “make sense” for those who are supposed to comply with them. Lacking legitimacy, rules may still be followed but then not on the basis of obligation but because one wants to avoid being fined (gain goal), or because one is afraid of being accused or arrested or punished (hedonic goal). When rules are not seen as norms, rule compliance depends on close monitoring, which is often impossible. Institutions can influence the collective(s) with which one identifies. First, a country may have laws concerning the formation of collectives, such as the right to found an organization, the right to form an association, and the right to assemble. Institutions may also encourage the foundation of certain organizations and associations (such as sports clubs, choirs, and interest groups) and protect the collective goods that are being produced by them. The more secure rights there are to form and join collectives and protect their collective goods, the more likely that an individual will be a member of different collectives, which will facilitate mild solidarity across collectives. Thereby institutions can also create the preconditions for public debate, which, in turn, influence values (see above). Second, institutions can reduce dependence on close others for one’s livelihood and risk sharing (such as the rule of law; welfare institutions; and large insurance companies) thereby rendering strong solidarity less necessary for social and material support. Weaker identification with close social groups aids mild solidarity. In a similar vein, institutions are important supports for “coopetitive” relationships between economic units (Mariani 2018). Institutions that can also support mild solidarity and thereby economic activity by helping to create a balance of goal-frames in the populace by creating “space” not just for the gain goal-frame but also for the hedonic goal-frame and a sense of belonging in “nested” groupings, balanced by the reign of legitimate rules in such spaces (such as rule-governed festivals, carnival, organized sports competitions). Regulated international competition keeps groups nested within the larger society rather than becoming its rivals. In this light, international sports competitions (such as Olympic Games and soccer championships) can actually play a facilitating role for mild solidarity also within each country. Institutions can also actively stretch the scope of the normative goal-frame by the formation of political or religious realms that claim priority over loyalty to groupings within these realms. A “stretched” normative goal-frame does not do away with parochial normative goal-frames, but it gets cognitive and motivational priority when in conflict with parochial goal-frames. For example, coalitions can succeed in establishing a monopoly on physical force in a realm, imposing membership requirements and taxes, and establishing homogeneity of rules and administration (state-building). But they are likely to also explicitly create narratives, symbols, and rituals that encourage identification with the state so successfully that the priority of loyalty to the state above other groupings can be realized. This is the basis for a “stretched” normative goal-frame that cognitively establishes, and qua norms cover “the society” when it is in conflict with loyalties at lower levels. Many of the institutions with regard to identity formation mentioned above depend on a state and its powers. In turn, organizations that coordinate and unite nation states for certain purposes (about defense, economy, health, science, environment) can stretch the scope of the normative goal-frame beyond states, enlarging the reach of mild solidarity. However, without mild solidarity on the state level, interstate organizations are not likely to work properly for economic transactions.
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Sustainability problems concerning mild solidarity As argued above, a normative goal-frame is vital for economic activity, but it is naturally the weakest of the goal-frames and thus needs strong support to remain salient. This focuses economic sociology on questions of sustainability. There are many potential issues, but I will single out two that are interrelated and that I consider particularly important: first, the question of vanishing supports for stretched normative goal-frames in capitalistic democracies; and second, the question of whether the normative goalframe can be stretched without bounds. I will discuss them in order. Missing support for the normative goal. Capitalist democratic systems provide much room for institutions and policies that boost the goal-frames that are most central to the economy (Lindenberg 2006). For economic growth, consumers should be in a salient hedonic goal-frame, buying things because it feels good rather than because they are deemed necessary. For economic growth, producers should be in a salient gain goalframe, focusing on profitability. Even though the economic system depends on mild solidarity for its functioning, there is nothing in the economic system itself that boosts a normative goal-frame. The prevalence of the capitalistic system will have supported secularization, so that religious institutions will not be strong enough to supply a strong basis for the normative goal-frame. Schools will cater increasingly to a heterogeneous populace and thus will not easily succeed in being also a place for normative socialization. This puts capitalist democracies at risk of declining mild solidarity. State size. Not just capitalist democracies are at risk of declining mild solidarity. The size of a state may pose a threat to mild solidarity no matter what the economic system is. How large can a state become and still successfully claim state loyalty above loyalty for subgroups? There is no clear answer to that, but given the precariousness of the normative goal-frame, it stands to reason that a large state is quite generally in trouble with maintaining a salient stretched normative goal-frame that wins out against more parochial normative goal-frames. Next to the (often costly) balancing kinds of institutions for mild solidarity mentioned above, there are a number of alternative means by which states can (and often do) try to keep a stretched normative goal-frame salient, but they all have to do with reducing the possible variety of parochial normative goal-frames. For one, a state can try to make opinions about the primacy of state loyalty more favorably homogenous by suppressing dissenting opinions and/or by enticing fear of threats to the state from abroad. Another possibility is to increase homogeneity by restricting the influx of “foreign” cultural influences (by dominating the media and blocking immigration) and/or by eliminating parts of the population (as in ethnic cleansing). All of these measures are both good and bad for the economy. They are good in the sense that they enforce the semblance of mild solidarity within the state, but they are bad in the sense that they create potential for strife and human suffering, possibly reduced innovation internally, and ingroup/outgroup dynamics across states, all endangering economic prosperity on the longer term. If a large state fails to successfully use any of these means, it is likely to be subject to fragmentation on dimensions that indicate the strongest parochial loyalties, be that political, religious, ideological, ethnic, or otherwise. If this happens, mild solidarity will be greatly reduced in favor of parochial ingroup/outgroup dynamics, and the sustainability of economic activity will suffer. Both state activities with regard to increasing homogeneity and failing to succeed in doing so are thus important issues for economic sociology.
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Conclusion This chapter dealt with the important consequences for economic sociology of the co-evolution of human rationality and sociality, based on dyadic co-regulation, co-regulation with a collective, and co-regulation with one’s own future self, culminating in the dynamics of overarching goals. In light of this approach, the most important issues for economic sociology pertain to the preconditions for a form of solidarity that is compatible with economic transactions (“mild solidarity”) and the issues pertaining to the sustainability of this kind of solidarity. As elaborated in goal-framing theory, overarching goals are subject to shifting salience, meaning that circumstances can make one of them more salient than the other, thereby determining what we attend to, what kinds of information we are sensitive to, how information is being processed, and what preferences are being activated at the moment. Two overarching goals pertain to self-regarding aspects: the hedonic goal is focused on improving the way one feels, and the gain goal is focused on increasing one’s resources (such as money and status). A third overarching goal (the normative goal) pertains to a sense of “we”, to being part of a collective, and it is focused on behaving appropriately and realizing the goals of the collective. In this light, it is clear that exchange relations are not the most basic relation between humans. Rather, relations of co-regulation and joint production are basic, so the focus in economic sociology should be on co-regulation and joint production and on the conditions under which exchange relations can prosper on the basis of co-regulation. These conditions are related to the dynamics of overarching goals. The most important aspect of these dynamics is the fact that the goals differ in natural strength: the hedonic goal is naturally the strongest and the normative goal the weakest. This implies that the weaker goals need extra social and institutional support to become and remain salient. For economic activity, it is important that the normative goal is salient, that it covers not just parochially the ingroup but also other groups, a form of “mild” solidarity across group boundaries that allows constrained “space” for gain and hedonic goals. This allows for analyzing contracting, reputation effects, and the governance of organizations in a new light. Institutions that help foster mild solidarity are the most important institutions for economic activity, but these institutions are also in danger of failing due to the inherent natural weakness of the normative goal in comparison to the other two goals, and due to the fact that the normative goal cannot be “stretched” to cover very large collectives and still remain salient. Economic sociology is by now well-equipped to study these social and institutional preconditions of economic activity in the light of the dynamics of overarching goals.
Notes 1 Part of this entry is based on my book in preparation, called Social Rationality. 2 Observe that all three accounts of social rationality make use of evolutionary arguments. A hurdle to appreciating the importance of considering such arguments is the frequent (and mostly uninformed and misplaced) mistrust of many sociologists regarding evolutionary theory (Takács 2018). For sociology, and for economic sociology in particular, to move forward, familiarization with evolutionary arguments and their impact seems mandatory. 3 In contrast to “strong” solidarity, mild solidarity was generally referred to as “weak solidarity”, but that led to misunderstandings. For this reason, I now use the term “mild solidarity”. 4 Granovetter abandoned this line of reasoning later on, see Granovetter (2017).
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Bibliography Adolphs, R. 2009 The social brain: Its neural basis of social knowledge. Annual Review of Psychology, 60, pp. 693–716. Abrams, D., Travaglino, G. A., Marques, J. M., Pinto, I. and Levine, J. M. 2018. Deviance credit: Tolerance of deviant ingroup leaders is mediated by their accrual of prototypicality and conferral of their right to be supported. Journal of Social Issues, 74(1), pp. 36–55. Aknin, L., Van de Vondervoort, J. W. and Hamlin, J. K. 2018. Positive feelings reward and promote prosocial behavior. Current Opinions in Psychology, 20(April), pp. 55–59. Almaatouq, A., Noriega-Campero, A., Alotaibi, A., P. M. Krafft, P. M., Moussaid, M. and Pentland, A. 2020. Adaptive social networks promote the wisdom of crowds. PNAS, 117(21), pp. j 11379–11386. Alderson-Day, B. and Fernyhough, C. 2015. Inner speech: Development, cognitive functions, phenomenology, and neurobiology. Psychological Bulletin, 141(5), pp. 931–965. Bain, P. G. et al. 2015. Co-benefits of addressing climate change can motivate action around the world. Nature Climate Change. doi: 10.1038/NCLIMATE2814 Balafoutas, L. and Kerschamer, R. 2020. Credence goods in the literature: What the past fifteen years have taught us about fraud, incentives, and the role of institutions. Journal of Behavior and Experimental Finance, 26(100285), pp. 1–16. Barnett, M. L., Hoepner, A., Lux, S. and Timofeeva, I. 2012. Managing reputation through collusion. Academy of Management Proceedings, 2012(1), p. 15628. Barnett, M. L. and Pollock, T. G. 2012. Charting the landscape of corporate reputation research. In M. L. Barnett and T. G. Pollock (eds.), The Oxford Handbook of Corporate Reputation. Oxford: Oxford University Press, 1–16. Bengtsson, M., Kock, S., Lundgren-Henriksson, E. and. Näsholm, M. H. 2016. Coopetition research in theory and practice: Growing new theoretical, empirical, and methodological domains. Industrial Marketing Management, 57, pp. 4–11. Berger, J., Lindenberg S., Heumann, J. and Bakker, D. (forthcoming). Calibrating competition. An experimental study on the special role of competitive intensity and winner selection rule for cooperation after competing. Under Review. Bicchieri, C. and Funcke, A. (2018). Trendsetters and social structure. Social Research, 85(1), pp. 1–21. Birkinshaw, J., Foss, N. and Lindenberg, S. 2014. Combining purpose with profits: How to make your pro-social goals pay. MIT Sloan Management Review, 55(3), pp. 49–56. Blau, P. M. 1964. Exchange and Power in Social Life. NY: Wiley. Bolton, G., Greiner, B. and Ockenfels, A. 2013. Engineering trust: Reciprocity in the production of reputation information. Management Science, 59(2), pp. 265–285. Bolton, G., Greiner, B. and Ockenfels, A. 2018. Dispute resolution or escalation? The strategic gaming of feedback withdrawal options in online markets. Management Science, 64(9), pp. 4009–4031. Brass, Daniel J., Butterfield, Kenneth D. and Skaggs, Bruce C. 1998. Relationships and unethical behavior: A social network perspective. Academy of Management Review, 23(1), pp. 14–31. Brinck, I., Reddy, V. and Zahavi, D. 2017. The primacy of “we”? In C. Durt, T. Fuchs and C. Tewes (eds.), Embodiment, Enaction, and Culture: Investigating the Constitution of the Shared World. Cambridge, MA: MIT Press, 131–147. Burkart J. M., Brügger, R. K. and van Schaik, C. P. 2018. Evolutionary origins of morality: Insights from non-human primates. Frontiers in Sociology, 3, p. 17. doi: 10.3389/fsoc.2018.00017 Cialdini, R., Reno, R. R. and Kallgren, C. A. 1990. A Focus theory of normative conduct –recycling the concept of norms to reduce littering in public places. Journal of Personality and Social Psychology, 58(6), pp. 1015–1026.
Social rationality and economic sociology 267 Chick, C. F., Rounds, J. D., Hill, A. B. and Anderson, A. K. 2020. My body, your emotions: Viscerosomatic modulation of facial expression discrimination. Biological Psychology, 149(107779), pp. 1–9. Coleman, J. S. 1982. The Asymmetric Society. Syracuse, NY: Syracuse University Press. Decety, J. and Svetlova, M. 2012. Putting together phylogenetic and ontogenetic perspectives on empathy. Developmental Cognitive Neuroscience, 2(1), pp. 1–24. Devece, C., Ribeiro-Soriano, D. E. and Palacios-Marques, D. (2019). Coopetition as the new trend in inter-firm alliances: Literature review and research patterns. Review of Managerial Science, 13(2), pp. 207–226. Diekmann, A. and Przepiorka, W. 2019. Trust and reputation in markets. In F. Giardini and R. Wittek (eds.), The Oxford Handbook of Gossip and Reputation. Oxford: Oxford University Press. Dunbar, R. I. M. 2003. The social brain: Mind, language, and society in evolutionary perspective. Annual Review of Psychology, 32, pp. 163–181. Durkheim, E. 1964 [1893]. The Division of Labor in Society. New York: Free Press. Emerson, R. M. 1976. Social exchange theory. Annual Review of Sociology, 2, pp. 335–362. Faraji-Rad, A. and Pham M. T. 2017. Uncertainty increases the reliance on affect in decisions. Journal of Consumer Research, 44(1), pp. 1–21. Feldman, R. 2007. Parent-infant synchrony and the construction of shared timing; physiological precursors, developmental outcomes, and risk conditions. Journal of Child Psychology and Psychiatry, 48(3/4), pp. 329–354 Foss, N. J. and Lindenberg, S. 2013. Microfoundations for strategy: A goal-framing perspective on value creation. Academy of Management Perspectives, 27(2), pp. 85–102. Frydlinger, D., Hart, O. and Vitasek, K. 2019. A new approach to contracts. Harvard Business Review, September-October. Gaertner, S. L., Dovidio, J. F., Guerra, R., Hehman, E. and Saguy, T. 2016. A common ingroup identity: A categorization-based approach for reducing intergroup bias. In T. Nelson (ed.), Handbook of Prejudice, Discrimination, and Stereotyping (2nd ed.). London: Psychology Press, 433–454. Gernsheimer, O., Kanbach, D. K. and Gast, J. 2021. Coopetition research - A systematic literature review on recent accomplishments and trajectories. Industrial Marketing Management, 96, pp. 113–134. Ghosh, P., Rai, A., Chauha, R., Baranwal, G. and Srivastava, D. 2016. Rewards and recognition to engage private bank employees. Exploring the “obligation dimension”. Management Research Review, 39(12), pp. 1738–1751. Gigerenzer, G. and Todd, P. M. 2001. Simple Heuristics that Make Us Smart. New York: Oxford University Press. Gigerenzer, G. 2004. Fast and frugal heuristics: The tools of bounded rationality. In D. Koehler and N. Harvey (eds.), Blackwell Handbook of Judgment and Decision Making. Oxford: Blackwell, 62–88. Gintis, H. 2016. Homo Ludens: Social rationality and political behavior. Journal of Economic Behavior & Organization, 126, pp. 95–109. Goedkoop, F, Sloot, D., Jans, L, Dijkstra, J, Flache, A. and Steg, L. (2022). The role of community in understanding involvement in community energy initiatives. Frontiers in Psychology, 12, p. 775752. doi: 10.3389/fpsyg.2021 Granovetter, M. 1985. Economic action and social structure: The problem of embeddedness. American Journal of Sociology, 91(3), pp. 481–510. Granovetter, M. 2017. Society and Economy. Framework and Principles. Cambridge, MA: Belknap Press Griskevicius, V., Shiota, M. N. and Nowlis, S. M. 2010. The many shades of rose-colored glasses: An evolutionary approach to the influence of different positive emotions. Journal of Consumer Research, 37(2), pp. 238–250.
268 Siegwart Lindenberg Harrington, J. R. and Gelfand, M. J. 2014. Tightness–looseness across the 50 united states. PNAS, 111(22), pp. 7990–7995. Hermans, H. J. M. 2001. The dialogical self: Toward a theory of personal and cultural positioning. Culture & Psychology, 7(3), pp. 243–281. Hertwig, R. and Herzog, S. M. 2009. Fast and frugal heuristics: Tools of social rationality. Social Cognition, 27(5), pp. 661–698. Hodgson, G. M. 2003. The hidden persuaders: Institutions and individuals in economic theory. Cambridge Journal of Economics, 27(2), pp. 159–175. Homans, G. C. 1958. Social behavior as exchange. American Journal of Sociology, 63(6), pp. 597–606. Hrdy, S. B. and Burkart, J. M. 2020. The emergence of emotionally modern humans: Implications for language and learning. Philosophical Transactions Royal Society, B 375, p. 20190499. Hughes, B. L., Ambady, N. and Jamil Zaki, J. 2017. Trusting outgroup, but not ingroup members, requires control: Neural and behavioral evidence. Social Cognitive and Affective Neuroscience, pp. 372–381. doi: 10.1093/scan/nsw139 Jensen, M. C. and Meckling, W. H. 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), pp. 305–360. Kruglanski, A. W. and Köpetz, C. 2009. What is so special (and non-special) about goals? A view from the cognitive perspective. In G. B. Moskowitz and H. Grant (eds.), The Psychology of Goals. New York: Guilford Press, 27–55. Levine, M., Prosser and Evans, D. 2005. Identity and emergency intervention: How social group membership and inclusiveness of group boundaries shape helping behavior. Personality and Social Psychology Bulletin, 31(4), pp. 443–453. Lewis, T. J. 2000. Persuasion, domination and exchange: Adam Smith on the political consequences of markets. Canadian Journal of Political Science, 33(2), pp. 273–289. Li, L. 2010. What is the cost of venting? Evidence from eBay. Economics Letters, 108(2), pp. 215–218. Lindenberg, S. 1988. Contractual relations and weak solidarity: The behavioral basis of restraints on gain-maximization. Journal of Institutional and Theoretical Economics/ZgS, 144(1), pp. 39–58. Lindenberg, S. 2006. What sustains market societies as open access societies? In U. Bindseil, J. Haucap and Christian Wey (eds.), Institutions in Perspective. Tübingen: Mohr Siebeck, 255–280. Lindenberg, S. 2008. Social rationality, semi-modularity and goal-framing: What is it all about? Analyse & Kritik, 30, pp. 669–687. Lindenberg, S. 2013. Cognition and governance: Why incentives have to take a back seat. In A. Grandori (ed.), Handbook of Economic Organization. Integrating Economic and Organization Theory. Cheltenham: Elgar, 41–61. Lindenberg, S. 2014. Sustainable cooperation needs tinkering with both rules and social motivation. Journal of Bioeconomics, 16(1), pp. 71–81. Lindenberg, S. 2015a. The third speed: Flexible activation and its link to self-regulation. Review of Behavioral Economics, 2(1–2), pp. 147–160. Lindenberg, S. 2015b. Solidarity: Unpacking the social brain. In A. Laitinen and A. Birgitta Pessi (eds.), Solidarity - Theory and Practice. Lanham, MD: Lexington books, 30–54. Lindenberg, S. 2015c. Social rationality and weak solidarity: A coevolutionary approach to social order. In Edward J. Lawler, Shane R. Thye and Jeongkoo Yoon (eds.), Order on the Edge of Chaos: Social Psychology and the Problem of Social Order. Cambridge: Cambridge University Press, 43–62. Lindenberg, S. 2017. The Dependence of human cognitive and motivational processes on institutional systems. In B. Jann and W. Przepiorka (eds.), Social Dilemmas, Institutions and the Evolution of Cooperation. Festschrift for Andreas Diekmann. Berlin: De Gruyter, 85–106.
Social rationality and economic sociology 269 Lindenberg, S. and De Vos, H. 1985. The limits of solidarity: Relational contracting in perspective and some criticism of traditional sociology. Journal of Institutional and Theoretical Economics (ZgS), 141(4), pp. 558–569. Lindenberg, S. and Foss, N. 2011. Managing joint production motivation: The role of goalframing and governance mechanisms. Academy of Management Review, 36(3), 500–525. Lindenberg, S. and Steg, L. 2007. Normative, gain and hedonic goal frames guiding environmental behavior. Journal of Social Issues, 65(1), pp. 117–137. Lindenberg, S. and Steg, L. 2013. What makes organizations in market democracies adopt environmentally-friendly policies? In A. H. Huffman and S. R. Klein (eds.), Green Organizations. Driving Change with I-O Psychology New York: Routledge/Psychology Press, 93–114. Lindenberg, S., Six, F. and Keizer, K. 2021. Social contagion and goal framing: The sustainability of rule compliance. In D. Daniel Sokol and Benjamin van Rooij (eds.), Cambridge Handbook of Compliance. Cambridge: Cambridge University Press, 422–437. Lindenberg, S., Wittek, R. and Giardini, F. 2020. Reputation effects, embeddedness, and Granovetter’s error. In V. Buskens, R. Corten and C. Snijders (eds.), Advances in the Sociology of Trust and Cooperation. Berlin/Boston: De Gruyter, 113–140. Macaulay, S. 1963. Non contractual relations in business: A preliminary study. American Sociological Review, 28(1), pp. 55–67. Macneil, I. R. 1985. Relational contract: What we know and do not know. Wisconsin Law Review, 4, pp. 483–525. Mariani, M. 2018. The role of policy makers and regulators in coopetition. In A. S. Fernandez, P. Chiambaretto, F. Le Roy and W. Czakon (eds.), The Routledge Companion to Coopetition Strategy. London: Routledge, 105–116. Maglio, S. J., Gollwitzer, P. M. and Oettingen, G. 2014. Emotion and control in the planning of goals. Motivation and Emotion, 38(5), pp. 620–634. Mühlau, P. and Lindenberg, S. 2003. Efficiency wages: Signals or incentives? An empirical study of the relationship between wage and commitment.” Journal of Management and Governance, 7, pp. 385–400. North, D. C. 1990. Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press. Pistor, K. 2019. The Code of Capital: How the Law Creates Wealth and Inequality. Princeton, NJ: Princeton University Press. Raub, W. and Weesie, J. 1990. Reputation and efficiency in social interactions: An example of network effects. American Journal of Sociology, 96(3), pp. 626–654. Reihani, N. 2021. The Social Instinct. How Cooperation Shaped the World. London: Jonathan Cape. Rousseau, D. M., Hansen, S. D. and Tomprou, M. 2018. A dynamic phase model of psychological contract processes. Journal of Organizational Behavior, 39(9), pp. 1081–1098. Schildbach et al. 2013. Toward a second-person neuroscience. Behavioral and Brain Sciences, 36, pp. 393–462. Shapiro, C. 1983. Premiums for High quality products as returns to reputations. The Quarterly Journal of Economics, 98(4), pp. 659–679. Simmel, G. 1971. On Individuality and Social Forms. Edited by D. N. Levine. Chicago, IL: University of Chicago Press. Smith, A. 1976 [1776]. An Inquiry into the Nature and Causes of the Wealth of Nations. Oxford: Oxford University Press. Steg, L., Lindenberg, S. and Keizer, K. (2016). Intrinsic motivation, norms and environmental behaviour: The dynamics of overarching goals. International Review of Environmental and Resource Economics, 9(1–2), pp. 179–207. Strese S., Meuer, M. W., Flatten, T. C. and Brettel, M. 2016. Organizational antecedents of cross-functional coopetition: The impact of leadership and organizational structure on cross-functional coopetition. Industrial Marketing Management, 53, pp. 42–55.
270 Siegwart Lindenberg Szanto, T. and Krueger, H. 2019. Introduction: Empathy, shared emotions, and social identity. Topoi, 38(1), pp. 153–162. Takács, K. 2018. Discounting of evolutionary explanations in sociology textbooks and curricula. Frontiers in Sociology, 3, p. 24. doi: 10.3389/fsoc.2018.00024 Tomasello, M. 2020. The role of roles in uniquely human cognition and sociality. Journal of Theory of Social Behavior, 50(1), pp. 2–19. Tomasello, M. and Gonzalez-Cabrera, I. 2017. The role of ontogeny in the evolution of human cooperation. Human Nature, 28(3), pp. 274–288. Weber, M. 1961 [1923]. General Economic History. New York: Collier Books Weber, L., Foss, N. and Lindenberg, S. 2021. The role of cognition and motivation in understanding internal governance and hierarchical failure: A discriminating alignment analysis. The Academy of Management Review. Online. https://doi.org/10.5465/amr.2019.0035. Wilson, R. 1985. Reputations in games and markets. In A. E. Roth (ed.), Game-Theoretic Models of Bargaining. Cambridge University Press. Zafirovski, M. 2001. Exchange, Action, and Social Structure. Elements of Economic Sociology. Westport CT: Greenwood Press.
13 Economy and polity Harland Prechel
Introduction This chapter reviews classical and contemporary theory and research on economy and polity in order to reinvigorate interests in how the material conditions of life are affected by their political embeddedness. Although economic sociology has made extraordinary advances in recent decades, much of economic sociology neglects the political context, which is a crucial component of the social structure that affects the production and reproduction of the material conditions of life. The first part of this chapter provides an overview of recent developments in economic sociology. The second part focuses on the relationship between economy and polity as conceptualized by the classical sociological theorists. This section includes concepts and propositions that are widely used in the field as well as concepts and theories that are useful to understand the relationships between the economy and polities but have fallen by the wayside or are infrequently utilized. The third part draws from recent research to show how organizations as polities exercise power to influence the material conditions of life. The focus on organizations as intermediary polities between the economy and political structures is particularly important in the contemporary era when the size of the largest corporations has dramatically increased their capacity to influence the political-legal arrangements in which the economy is embedded. The analysis shows that the increased size of corporations provides them with greater structural power that, in turn, increases their instrumental power. Whereas structural power increases when organizational structures permit managers to place more resources under their control, instrumental power derives from the resources that organizations hold (Levy and Egan 1998).1 Polities include national states, subnational states, and other governing bodies as well as corporations and communities. Polities are not permanent but can come and go. Social movement can be polities, but social movements vary in duration and many disperse after accomplishing their objective unless they are transformed into organizations that become a permanent part of the social structure. The core requirements of a polity entail having adequate internal cohesion and the capacity to mobilize resources. Polities are not always engaged in political behavior but have the capacity to become politically active.
Overview of recent advances in economic sociology Economic sociology has undergone an extraordinary revitalization in recent decades that resulted in important advances in the field. Notable contributions to this revitalization
DOI: 10.4324/9780367817152-16
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include a broader understanding of Polanyi’s (1944 [2001]) observations that there is no such thing as a free market in modern society and that markets are embedded in political and cultural arrangements. Directly or indirectly economic sociology maintains that social actors are constrained by bounded rationality and are only rarely “rational actors” and instead make decisions with incomplete information, which compels them to engage in satisficing: selecting a satisfactory decision from the options available to them (Simon 1947). Some contemporary economic sociologists expand Polanyi’s critique of economic determinism by raising the profile of the effects of ideational embeddedness of markets (Somers and Block 2005; Block and Somers 2014). Others take a different approach by elaborating the social character of markets and demonstrate that markets are the site of repeated social interactions that create networks and reciprocity expectations that are continually modified with an emphasis on how social position in the network creates an advantage (Granovetter 1985). Once established, routine interactions reproduce roles, which are the foundation of social structures (White 2002). Social ties in the network, in turn, mitigate market uncertainty (Powell 1990). Still other scholars have revitalized Max Weber’s (1921 [1978]) conception of interests with an emphasis on where interests are conceptualized, expressed, and realized through social relations (e.g., economic, political, religious) and how interests determine the expression and direction of social action. This line of research maintains that interests are social because they emerge from “the society into which the individual was born,” and individuals “take other social actors into account when they attempt to realize” their economic interests (Swedberg 2003: 3–4). Other economic sociologists elaborate Polanyi’s argument that norms and values associated with reciprocal and redistributive exchanges as the basis of markets and how moral considerations affect the marketability of some commodities (Zelizer 1979, 1981). The emphasis on culture in economic sociology emerged along with the cultural turn in the discipline, which placed increased emphasis on institutional norms and culture (Gray and Silbey 2014). Although norms, which embody values (Zafirovski 1999; Swedberg 2003: 29, 2011), are important, rather than integrating culture into the existing literature, this focus has displaced an analysis of structures and hierarchies and how social actors exercise power to enact policies, laws, and rules to preserve or advance their interests (Walker and Rea 2014). Clearly, norms and values as components of culture are important to sustain markets after they are created (Swedberg 2003: 28). However, despite Polanyi’s emphasis on the relationship between economy and politics in The Great Transformation: The Political and Economic Origins of Our Time, economic sociologists give less attention to how polities organize to create and modify markets and other dimensions of economic life. As a result, the relationship between economy and polity has not undergone the same level of revitalization as other aspects of the field. In addition to the cultural shift in sociology, the shift from grand theories and narratives to middle range theories in the 1970s and 1980s shifted attention away from polities and their effects on the material conditions of life. This shift was followed by increased specialization into more fields and subfields with each area of specialization focusing on increasingly narrow research questions and theories. This specialization of the discipline is manifested as the growing number of sections in the American Sociological Association (ASA) from 12 sections in 1975 (American Sociological Association 2004) to 53 sections in 2021. Although this reorganiztion of the discipline brings more attention to areas that received limited attention in the past and aids in obtaining a
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clearer conception of dimensions of society, the trend toward increased specialization creates artificial divisions that do not conform to the empirical sphere where the parts of the social structure are interconnected. This compartmentalization of the discipline is manifested as increasingly narrowly constructed theories that give limited attention to complexity of the social structure, how its component parts are interconnected, and how those relationships change over time. This is a critical shortcoming because the relationship between components of the social structure is not fix but is always in the process of change with the rate of change varying over time. Although these shifts in the discipline affected the revitalization of economic sociology, it is less vulnerable to the cultural turn and increased specialization, in part, because of the underlying epistemology established by the classical tradition is sociology. As summarized below, these foundational thinkers demonstrate that polities are central to establishing the material condition of life. The analysis here suggests that greater emphasis should be placed on research questions related to how polities affect the material conditions of life and the structures and hierarchies that emerge from political behavior. This focus is motivated, in part, by the emergence of neoliberal ideology as a guide to policy that permitted a dramatic increase in the resources held in the largest corporations where the new managerial class, corporate managers who hold and substantial share of corporate securities (Prechel 2021a), use the resources under their control to advance corporate economic agendas politically.
The classical tradition: economic sociology of the polity Karl Marx, Neo-Marxists, and polity Although many contemporary economic sociologists give limited attention to Marx’s contribution, he was a “towering figure” in the 19th century that extended into the 20th century when his ideas contributed to the development of economic sociology and inspired subsequent development in the field (Swedberg 2003: 6). Although Marx never provided a systematic analysis of the polity or the state, he makes numerous references to the state that on the surface may appear to be contradictory and have generated a great deal of debate. However, a close review of Marx and Engels demonstrates that their writings on the topic have a high degree of internal consistency. The following summarizes important insights of Marx and Engels into the complex relationship between the economy and polities, especially the relationships among states, markets, and how economic divisions within the capitalist class result in different political interests. In contrast to Hegel’s conception of the state as representing the general interests of society, in the Communist Manifesto, Marx and Engels maintained that the capitalist state manages “the common affairs of the whole bourgeoisie” (in Bottomore 1983: 466). In other places, Marx (1927 [1943]) suggests that the state is an instrument of the ruling class by virtue of its control of the means of production. This idea is further specified where Marx maintains that the dominant economic class becomes the politically dominant class (Marx and Engels 1884 [1902]). However, in the 18th Brumaire, Marx (1852 [1913]) describes the executive power of the Bonapartist state as an “immense bureaucratic and military organization” that has interests of its own. Although some critics assert that Marx explained political outcomes in social determinist ways, the above passages show that Marx and Engels conceptualized the state as a “partnership where the
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state acts with a considerable degree of autonomy” in pursuing agendas to maintain the social order that simultaneously advance the general interest of the dominant economic class (Bottomore 1983: 465–466).2 Marx and Engels’ statement about the “common affairs of the whole bourgeoisie” suggests that the bourgeoisie is made up of different elements that have “separate and specific interests as well as common ones” (Bottomore 1983: 466). Marx recognized that there are different segments in the economic base that create class fractions with different economic interests that emerge as political conflict during certain historical conditions. To resolve conflicts among capitalist class fractions, the state mediates conflict by implementing policies that typically favor the class fraction that controls the most efficient means of production. Marx illustrated these relationships in his analysis of how the manufacturing (and merchant) fractions of the capitalist class mobilized politically to displace the landed aristocracy in 19th-century England. A crucial event in this political conflict was dismantling the Corn Laws (1815–1846), which protected domestic grain markets that benefited the landed aristocracy. Given that agriculture was the dominant economic sector when these laws were passed and voting was limited to property owners, Parliament was responsive to the landowning class fraction. However, these political-legal arrangements generated economic conflict among capitalist class fractions because high grain prices that benefitted landowners resulted in high prices for food in relationship to wages that created unrest among the working class and hindered the development of global markets, which undermined profits of the urban capitalist class fractions. To overcome constraints on their capital accumulation interests, the merchant and manufacturing class fraction – whose power was enhanced when the Chartists succeeded in extending voting rights in 1832 – mobilized politically and formed the Anti-Corn Law League in 1836. After a concerted political strategy, these capitalist class fractions succeeded in pressuring the state to repeal the Corn Laws in 1846. Marx maintains that the displacement of the landed aristocracy as the politically dominant class fraction represents the final stage in the transition to industrial capitalism with manufacturing as the economically and politically dominant class fraction. Neo-Marxists: class fractions as polities As the state became increasingly vital to economic growth and development in the 20th century, Neo-Marxists elaborate Marx’s fundamental insights to further clarify the relationship between economy and polity. Implicitly or explicitly, most neoMarxists begin with the analytic distinction that Marx made between the structure and the super-structure. Whereas the economy represents the structure where class positions are defined by their relationship to the means of production, the super-structure includes those components of society that reinforce the structure with the state and ideology representing crucial components of the super-structure. Nicos Poulantzas’ structuralist framework suggests that because the structure and super-structure are part of the historical specific capitalist mode of production, the state can only be relatively autonomous from the capitalist class. This structural relationship makes the capitalist class and the capitalist state dependent on one another (Poulantzas 1974 [1978]; Levine 1988). Poulantzas’ elaboration of Marx’s conception of class fractions demonstrates that the capitalist class unity is not a given but a variable, which results in historical variation in state power and class power (Prechel 1990). Furthermore, because the economy is
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not dominated by a unified logic of capital accumulation, the political realm is not occupied by a single class or class fraction. Class fractions conform to the relationship each branch of capital has with the economy. Thus, the class fractions that emerge from economic sectors have specific political economic interests that may contradict those of other classes and capitalist class fractions (Zeitlin, Neuman and Ratcliff 1976; Poulantzas 1978; Aglietta 1979; Offe 1985). That is, capital-state relations create conflict among capitalist class fractions because state policies that facilitate capital accumulation in the economy are not uniform but conform to the divisions that exist among major economic sectors. Thus, conflict among capitalist class fractions is endemic to capitalist society because each branch of capital has a specific relationship to the economy with unique capital accumulation requirements that necessitate different political-legal arrangements. Because the economy does not have a unified logic of capital accumulation over the long term, the conflicting capital accumulation agendas of class fractions are manifested as political conflict inside the state because it is the only sphere of society with the capacity to resolve conflict among competing capitalist class fractions. Conflicts among class fractions and their resolution typically occur during economic crisis when competing class fractions pressure the state to overcome the crisis by implementing polices that facilitate growth in their respective segment of the economy. Subsequent policies create new institutional arrangements designed to facilitate capitalist growth and development within the prevailing historical conditions. However, the emergent state structure creates the basis of future conflict when the capital accumulation conditions change. Poulantzas also demonstrates that political unity within the capitalist class is not necessary to ensure capitalists control over the state. Instead, capitalist class control over the state only requires that capitalist class fractions establish sufficient class consciousness to form a power bloc, which consists of the branches of capital that agree on a strategy for capitalist growth and development. Once established, the dominant power bloc exercises its power to ensure that policies are enacted that continue to advance their capital accumulation agenda (Prechel 1990, 2000, 2021a). This structuralist framework directs researcher attention toward the resourcedependent relationship between the dominant capitalist class power bloc and the state. Whereas the dominant power bloc is dependent on the state to enact policies that facilitate capitalist growth and develop, the state has an interest in facilitating capitalist growth and development because it is dependent on resources vital to its own existence (e.g., taxes) that are controlled by social actors outside the state. That is, the state’s own goals include ensuring an adequate rate of capital accumulation in the economy in order to maintain its own legitimacy among the working and middle classes who depend on economic stability and growth to ensure employment and an adequate standard of living (O’Connor 1973; Offe and Ronge 1975). However, this resource-dependent relationship between the dominant power bloc and the state varies historically because the conditions that ensure an adequate rate of capital accumulation vary overtime. Social structure of accumulation theory: historical variation in the capitalist growth and development Although capitalism goes through long periods of growth followed by economic decline, economic sociologists give little attention to structural changes in capital-state relations. In contrast, social structure of accumulation (SSA) theorists, which was developed by
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macro-economists, provides an explanation of the cyclic character of capitalism. SSA theorists draw on long-wave theories of capitalist growth and development (Kondratieff 1935) to elaborate a conceptual framework to explain the emergence and resolution of capital accumulation crises. This line of research is consistent with Marx’s observation that crises are endemic to the capitalist mode of production and do not represent a weakness of capitalism. Instead, crises are means to strengthen the capitalist mode of production by revitalizing it (also see Schumpeter’s (1942) conception of creative destruction). SSA theorists maintain that corporations’ profitability depends on institutional arrangements external to the firm that ensure conditions favorable to capital accumulation and the reproduction of capitalist relations of production (Gordon, Edwards, and Reich 1982). However, a breakdown in one component part of the SSA disrupts the capital accumulation process and undermines unity among the institutional arrangements necessary to preserve stable capitalist growth and development. Once the relationship among the component parts of the SSA weakens, individual capitalists become more cautious and engage in less risky strategies that lower the rate of capital accumulation. SSA theory identifies three distinct stages in each economic cycle. The initial exploration phase follows periods of economic decline and profitability crisis. During this stage, capitalists and government officials experiment with restructuring the political-legal arrangements to realign the political, economic, and ideological arrangements in order to foster a new stage of growth. After they are enacted, these new institutional arrangements constitute a new SSA that provides the foundation for higher profits characterized as the consolidation stage. The last stage is decay characterized by weakening or failing markets resulting in economic decline and stagnation (Gordon et al., 1982; McDonough, Reich and Kotz 2010). The decay stage is followed by another exploration stage where capitalists and government officials experiment with new policies and laws in search of a new SSA capable of ensuring stable capitalist growth and development. In summary, SSA theory establishes a framework to explain the cyclic nature of capitalism, the relationship between the economy and the state, the emergence of capitalist polities, and changes in the political-legal arrangements that contribute to stable capitalist growth and development. Some contemporary economic sociologists that call for the development of an economic sociology of politics adopt a position similar to Marx and neo-Marxists by maintaining that the state should be conceptualized as “in the economy” rather than external to or separate from the economy (Swedberg 2003: 161 emphasis in the original). This formulation suggests that much social science research implicitly or explicitly overemphasizes state autonomy.
Max Weber and the polity Writing several decades after Marx, Max Weber developed a conceptual framework that establishes him as the most influential economic sociologist of the classical social theorists (Swedberg 1998, 2003). Weber’s comparative and historical method and ideal types are especially important components of his contributions to economic sociology. Weber’s comparative and historical methods that focus on interests, social action, and social relations lead him to examine the relationship between economy and polity in a broad range of social entities including the German stock exchange, the military, states, political parties, communities, churches, banks, joint stock companies, cartels, factories,
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and interest groups (Weber 1921 [1978]: 1399). For Weber, “the essence of politics” oriented toward the economy “is struggle, the recruitment of allies and of a voluntary following…” (1978: 1414, emphasis in the original). In this way, Weber put forth a pragmatic theory of politics where status groups and classes attempt to advance their interests. Weber’s skepticism of the search for universal social laws is fundamental to the development of his major heuristic method, ideal types, to document regularities of meaningful social action. The ideal type, which is a one-sided accentuation of the most salient characteristics arranged into a unified analytic construct (Weber 1904 [1949]: 15, 92–93), aids in identifying the regularity of social action. Thus, social action that conforms to the ideal type (e.g., Puritans’ ascetic style of life) steers the researcher away from focusing on isolated social action (Kalberg 2005: 14–15). For Weber, ideal types only exist at the abstract level, thereby providing a basis to compare historical variations. This component of Weber’s methodology is most clearly stated in his essay on “Objectivity in Social Science” where he observes that knowledge in the social sciences is historically contingent, precluding the development of universal laws (Weber 1949: 80). Weber questioned positivistic conceptions of society and maintained that the components of society are never fully integrated but, instead, are in the process of being integrated because tensions and conflicts are ongoing resulting in the exercise of power by groups and classes whose alliances and configurations vary over time and place. He, therefore, concluded that social action can only be understood in terms of probabilities. Thus, in contrast to perspectives that conceptualize society as integrated and unified, Weber’s historical method leads him to view society as fragmented with ongoing tension and conflict where the exercise power is frequent, and clearly delineated boundaries are only hypothetical cases (Kalberg 2005: 19). Because much of economic sociology is grounded in Weber’s epistemology, it is less prone to creating grand theoretical narratives that hobbled other areas of sociology (Portes 2010: 1, 3, 78). In order to avoid the problem of overestimating the effects of core concepts in a theory and underestimating the effects of others, the core concepts in a theory should be conceptualized as ideal types “that exist only rarely at the empirical level, but that serve as abstractions that provide a means to aid in the description of the empirical level” (Prechel 1990: 650). In addition to providing a framework to enhance theoretical discipline and rigor, Weber’s ideal type constructs combined with his comparative and historical method aid in avoiding errors of epistemological privilege.
Veblen and Gramsci on civil society Veblen is known in economic sociology primarily for his emphasis on institutions and consumptive behavior ([1899] 1979). However, Veblen’s conception of class provides insights into developing economic sociology of polities at the level of civil society. Veblen shared Weber’s pragmatic theory of politics and Marx’s distinction between the exploiting and exploited classes but broadened the conception of class to include multiple exploiting and exploited (subaltern) classes. Veblen also elaborates the relationship between the economic and cultural spheres to demonstrate how class conflict is mitigated by habits of mind: economic relationships that over time become understood as common-sense ways of thinking and acting that appear to be normal. Veblen’s conception of subaltern classes and habits of mind are particularly important in the contemporary era where deep political and cultural divides exist within the middle and working classes.
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Veblen’s connection between economic and cultural spheres paved the way for Gramsci’s (1971) elaboration of political and economic coercion and the perpetuation of hegemonic culture through values that become viewed as “common sense.” Gramsci also reformulated Marx’s conception of the political sphere by reintroducing Hegel’s conception of civil society. For Gramsci, whereas “political society” is the component of the state that rules through force, “civil society” consists of the public sphere where ideas and norms are established that create rule through consent. Civil society is not simply the source of hegemony but consists of public spheres where alternative ideas are shaped. This “counterhegemonic struggle” legitimates alternative ideas and norms thereby manufacturing new forms of consent. By exposing the prevailing hegemonic ideology as socially constructed and demonstrating how it serves to manufacture consent, Gramsci provides the foundation for understanding how corporations, classes, and class fractions attempt to manufacture consent and how citizen groups and other entities mobilize politically to oppose hegemonic ideology and realize their economic interests.
Toward an economic sociology of the polity in the contemporary era Although political embeddedness was identified as central to the revitalization of economic sociology (Zukin and DiMaggio 1990), core dimensions of the relationship between economy and polity have not received adequate attention. Space considerations do not permit a thorough assessment of this relationship. Therefore, the following should be considered illustrations of areas where further research on the relationship between economy and polity can advance our understanding of the contemporary era.
Organizations as intermediaries between economy and polity Although business enterprises engaged in political behavior since early stages of capitalism (e.g., the Corn Laws in 19th-century England), corporations and other organizations became increasingly important intermediaries between economy and polity after the 1970s when corporate-state relations were radically redefined. A critical turning point in this historical process in the United States was the ill-conceived political response to the investigation of President Richard Nixon that uncovered millions of dollars in illegal campaign contributions. Although the Tillman Act of 1907 prohibited national banks and corporations from contributing to federal political candidates, corporations, their trade associations, and wealthy individuals had been secretly making financial contributions to politicians for decades (Prechel 2021a: 29). Rather than enacting stricter enforcement laws and penalties to limit contributions to political candidates, Congress legalized this behavior by limiting financial contributions to individuals and enacting mandatory reporting requirements. Like many other policies, laws, and bureaucratic enforcement structures created to limit this behavior (Prechel 1990, 2021a), these political-legal arrangements were used by corporations to legitimate passage of policies and laws that extended the right to make financial contributions to corporations and permitted larger financial contributions to political candidates. After several decades of incremental changes in the law, this corporate political strategy culminated with rulings by a conservative Supreme Court on Citizens United v.
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Federal Election Commission in 2010 and McCutcheon v. Federal Election Commissions in 2014 that legitimated virtually unlimited campaign contributions under freedom of speech. These corporate-state relations permitted the managerial class and other wealthy individuals to spend enormous amounts of money to advance their agenda through lobby expenditures, contributions to political action committees (PACs), and financing media campaigns. Changes in laws governing political spending represent a turning point in history that provided corporations and wealthy individuals with greater instrumental power to advance their economic agendas politically. These changes in political embeddedness were following by a wide range of political strategies to redefine corporate-state relations including expanding corporate property rights that made the multilayer-subsidiary form viable (MLSF) (Prechel 2000), globalization of markets (Mann 2013), financialization of the economy (Davis 2009; Krippner 2011; Davis and Kim 2015; Prechel 2021a), opportunities to engage in corporate malfeasance (Prechel and Morris 2010; Prechel and Zheng 2016), and greater economic inequality (Hacker and Pierson 2010; Lin and Tomaskovic-Devey 2013). The following reviews research on these and other second-order outcomes, many of which redefined the social structure in ways that contributed to the historical transition to financialization.
Historical variation in corporate property rights and corporate power Despite the importance of corporation property rights in explaining corporations’ strategic choices, risk-taking, and other managerial behaviors, few economic sociologists examine this dimension of the social structure (Swedberg 2003). Among other things, corporate property rights affect economic inequality (Carruthers and Arivich 2004), financialization (Prechel 2003; 2021a); monopolistic behavior (Foster, McChesney and Jonna 2011), and environmental pollution (Prechel and Istvan 2016; Prechel 2021b). Although Marx, Weber, and Durkheim all emphasized the sociological importance of property (Carruthers and Arivich 2004), Berle and Means ([1932] 1991) were among the first to empirically examine the relationships among property rights, corporate structures, and the concentration and centralization of capital. Specifically, Berle and Means’ demonstrated how the property rights granted to the business enterprise in the late 19th and early 20th centuries created a structure that permitted the consolidation of many formerly independent business enterprises under a single holding company. They further observe that expanding corporate property rights contributed to the increased size and power of the corporation, which fundamentally transformed the relationship between the business enterprise and the state. The state seeks in some respects to regulate the corporation, while the corporation, steadily becoming more powerful, makes every effort to avoid such regulation. (Berle and Means ([1932] 1991 p. 313) Big business was motivated to expand corporate property rights to gain market control. Although capitalists were permitted to structure their businesses as holding companies since the middle decades of the 19th century, this structure required a corporate charter – which specified the property rights granted to the business enterprise – from the subnational state legislature where they engaged in economic activity. To avoid
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scrutinization by subnational state legislatures, many business enterprises did not use the early holding company structure and instead organized as trusts. After the federal government began to enforce the Sherman Antitrust Act of 1890, large business enterprises began to look for an alternative mechanism to organize their operations (Berle and Means [1932] 1991: 126). To advance this agenda, John D. Rockefeller assigned his attorneys to explore other options. Rockefeller’s lawyers convinced the New Jersey legislature, which was in desperate need of revenue, to pass the first laws of incorporation in 1889 that were revised in 1896, which permit business enterprises to organize as public holding companies. The New Jersey laws created the modern public corporation by granting corporate property rights including issuing stock to the investing public, creating legally independent subsidiary corporations by owning just over 50% of their stock, issuing stock in subsidiaries, and acquiring other corporations with their own stock (Prechel 2000, 2021a: 25–26) The revenues generated from company incorporations in New Jersey created a “race to the bottom” where subnational states competed with others on the cost and criteria to incorporate. Delaware prevailed in this race by creating extremely lax laws of incorporation. During this era, capitalists and their managers typically paid the owners of the previously independent business enterprises with holding company securities and hired them to manage these subsidiary corporations. Thus, Berle and Means demonstrate that the decentralization of managerial control is directly related changes in political-legal arrangements that permitted business enterprises to structure as public holding companies. This structure also facilitated corporate consolidation that created increasingly large and complex corporations (Haney 1920; Berle and Means ([1932] 1991). The subnational laws of incorporation that legitimated the late 19th and early 20th century holding company substantially increased corporate power, market control, and opportunities for financial speculation and malfeasance with the public’s capital (Prechel 2021a: 20). This holding company structure prevailed among large corporations until after the Great Depression when New Deal policies created a tax on capital transfers between holding companies and their subsidiaries. Although the taxes were minimal, they created a public record of capital transfers between legally independent subsidiaries and the holding company. To avoid government and public scrutiny of their finances, most large corporations changed to the multidivisional form (MDF) where the various corporate entities are all part of a single legal entity. Some corporations retained their subsidiaries, which operated largely independently from the central office of the MDF (Prechel 2000). Although national commercial banks and utility companies were permitted to retain the holding company structure, they were more tightly regulated than other economic sectors. Despite these changes in corporate-state relations, researchers in the managerialist tradition maintain that change to the MDF facilitated the implementation of strategies that contributed to organizational efficiency and effectiveness (Chandler 1962, 1977). Organizational and economic sociologists maintained that the emphasis on efficiency and effectiveness was overstated and examined a broader range of questions including how other variables (i.e., key actors, strategy, and corporate president’s background) contribute to spread of the MDF (Fligstein 1985) and how coercive and normative dynamics contributed to late adoption of the MDF in some industries (Palmer, Jennings and Zhou 1993). Ironically, at approximately the same historical moment when sociologists were examining the mechanisms that explain the spread of the MDF, in response to capital
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accumulation constraints caused by globalization of markets, the increased cost of energy, record-high interest rates, and the mid-1970s and early 1980s economic crises, large corporations mobilized politically to repeal the New Deal capital transfer tax. Their political strategy succeeded when a provision was added to the Tax Reform Act of 1986 that revised corporate political embeddedness in ways that made it viable to restructure divisions as legally independent subsidiary corporations. Most corporations, especially those that were the most resource-dependent, changed to the MLSF. By 2004, 84.7% of the 2002 Fortune 500 companies were structured as the MLSF (Prechel and Morris 2010: 335). This MLSF has an ultimate parent company at the top of the corporate hierarchy that operates as a financial management company of its legally independent subsidiary corporations and other corporate entities (e.g., joint ventures, partnerships) (Prechel 2000, 2021a: 18).3 This corporate form increases organizational and financial flexibility by enabling management in the ultimate parent company to wholly or partially own other legally independent corporate entities, acquire other corporations with a simple stock transfer and incorporate them as subsidiaries, and sell stock in their subsidiaries to raise capital. These financial characteristics of the MLSF reduce corporations’ dependence on banks to raise capital, which was especially important to corporate survival during the record-high interest rates of the 1980s. Further, by removing the capital transfer tax, this legislation eliminated the means to monitor capital transfers within legally independent entities in corporations structured as the MLSF. Despite the similarities in the structure of the MLSF and the late 19th- and early 20th-century holding company, there are important differences. Whereas the holding company decentralized managerial control to subsidiary management, modern computerized account controls facilitate centralizing managerial control over subsidiaries and other corporate entities (Prechel 1994). This is a crucial distinction because computerized information process techniques and controls provide top management in the MLSF with detailed risk and financial information to monitor large and complex corporations (Prechel 1994, 2000, 2021a). Most important, top management had access to information on the financial risk prior to the 2008 financial crisis.
Neoliberalism and adventure capitalism Economic sociologists have demonstrated that many forms of capitalism exist and how neoliberalism contributed to recent changes in the economy (Lane 1989; Crouch and Streeck 1997; Hall and Soskice 2001; Hall 2009; Block 2012; Jessop 2014; Morgan 2015; Streeck 2016). However, despite the similarities between contemporary capitalism and Weber’s conception of adventure capitalism, economic sociologists give little attention to this theoretical construct to explain the financial risk-taking behavior in the contemporary corporation. In contrast to rational capitalism, which contains an ethical component, adventure capitalism is characterized as irrational and speculative behavior with incalculable outcomes (Weber [1904–1905] 1958: 20–21, [1921] 1978: 1118; Swedberg 1998; Kalberg 2005: 58; Antonio 2019: 3). In the absence of an ethical norm, an orientation toward short-term profits prevails, and “constellations of interests and monopoly positions” are permitted to exploit formally free labor (Weber [1921] 1978: 637). Adventure capitalism only appears under certain historical conditions and may emerge alongside rational capitalism (Kalberg 2005). Although Weber expected the cultural values of early rational capitalism to fade, he anticipated that bureaucratic regulation would replace cultural
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values and norms to contain hedonistic-materialist consumption and hording (Streeck 2016). Given Weber’s concerns over the “iron cage” of bureaucracy, it is unlikely that he anticipated that neoliberal ideology would emerge as a guide to policy-making or that corporate-state relations would permit irrational and speculative behaviors and widespread greed, fraud, and corruption to re-emerge. Although high-risk behavior permitted under neoliberal political-legal arrangements is consistent with Weber’s conception of adventure capitalism, politicians, policy makers, and oversight agencies did not recognize these behaviors as departures from rational capitalism. One obstacle to recognizing the re-emergence of adventure capitalism is that the complex relationship between the component parts of the social structure that permitted these social actions to emerge was poorly understood. A second obstacle to understanding the re-emergence of adventure capitalism is the misleading neoliberal rhetoric used to describe markets as self-regulating. Although bankruptcies by giant corporations in the early 2000s exposed the flaws in neoliberal organizational and political-legal arrangements, they were disregarded by corporate and political elites as anomalies caused by a “few bad apples.” This explanation falsely assumes that an ethical norm exists to contain such behaviors, which is precisely what Weber maintains is absent from adventure capitalism. As a result of the false assumptions attributed to contemporary capitalism, corporate and political elites ignored the problem of adventure capitalism, which re-emerged in 2007–2008 on a much greater scale in the banking, financial, insurance, and real estate sectors (FIRE) (Prechel 2021a). Adventure capitalism in the contemporary era has its origins in the political response to the economic crisis in the mid-1970s and early 1980s. In addition to the politicallegal arrangements that made the MLSF viable, corporations succeeded in pressuring the state to enact legislation that permitted managers to engage in unregulated highrisk futures trading and use off-balance sheet partnerships to hold those assets. Prior to the 1980s, off-balance sheet partnerships were limited to banks for very specific purposes. However, in the mid-1980s, lobbyists for the manufacturing sector, which was undergoing serve capital accumulation constraints, convinced the Department of Treasury to redefine the rules governing the use of off-balance-sheet partnerships. The new rules permitted corporation to place non-managed assets, which assumes that they will not change in value, in off-balance sheet partnerships so they could use these assets to increase their cash flows (e.g., selling unused tax credits and depreciation allowances in physical assets). After the Department of Treasury approved this form of financialization, manufacturing firms created off-balance sheet partnerships to raise capital (Prechel 2000: 218–219, 2021a). Despite the opportunities to engage in adventure capitalism in the manufacturing sector, if first emerged on a widespread basis. In the energy and financial sectors (Prechel 2003). Among the most visible cases of adventure capitalism is Enron Corp., which used the MLSF to morph from natural gas pipeline company into a financial company that created a legally independent subsidiary corporation that traded derivatives in the natural gas futures market. The problem confronting Enron was little information existed on the variables that affect price in this futures market, which required that it’s traders to speculate on the future price of natural gas. Given the lack of information, traders incorporated false assumptions into many of its derivatives contracts. As a result, Enron’s trading subsidiary began to lose massive amounts of capital. To increase its revenues, which was motivated by the need to maintain or raise share price in order to access more credit, financial managers engaged in more forms of adventure
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capitalism by arranging many complex deals and placing them in off-balance sheet partnerships, which concealed its losses from the public (Prechel 2003, 2021a). Despite the severity of the Enron crisis and other corporate bankruptcies in the late 1990s and early 2000s, the “few bad apples” rhetoric prevailed, and adventure capitalism continued to expand, especially in the FIRE sector, resulting in the 2008 financial crisis and Great Recession.4 In the aftermath of the crisis, FIRE sector corporations in the United States continued to employ neoliberal ideology and mobilized political to protect their position as the dominant power bloc. Political spending by the FIRE sector in the post-crisis era reached levels that were even higher than the pre-crisis era. As a result, the only significant legislation passed by Congress to protect society was the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The primary safeguards of the watereddown version of the bill passed by Congress created the Consumer Financial Protection Bureau (CFPB) and required banks to hold more capital in reserve. Although the CFPB recovered approximately $11 billion in the first five years of its existence from corporations, credit card companies, loan sharks, and other financial predators (Shen 2017), the bill was substantially weakened over time, especially during the Trump Administration. Although the 2008 crisis appears to have strengthened the normative component, adventure capitalism continues to exist alongside rational capitalism, which creates the potential for high-risk behavior in the future (Prechel 2021a).
Economy and polity in subnational states Although many democracies have federalist structures (e.g., Australia, Belgium, Canada, India, Italy, South Africa, Switzerland, and the United States), there are important country and historical variations in the amount of political authority held by subnational states.5 In the United States, the federalist structure allocated authority over economic activity inside their boarders to subnational states. However, as interstate commerce expanded, the authority of the federal government over economic activity increased. This trend continued until the 1980s when Reagan Administration implemented the New Federalism, which shifted discretion, oversight, and enforcement authority over critical regulatory and redistributive agencies to subnational states. Neo-federalist policies created competing political agendas to ensure economic development that often entailed negotiations between federal, subnational state, and local political and economic interests (Bluestone and Harrison 1982; Shover, Clelland and Lynxwiler 1986; Yeager and Simpson 2009). In some cases, resource-dependent relationships created mutual interests among subnational states and corporations (e.g., the fossil fuel and related industries, electrical power producers) to ensure economic growth. One effect of the New Federalism is lax enforcement of environmental regulations and rising pollution rates in some state (Prechel 2021b). As federal governments shifted more power and authority to subnational states, corporate interests mobilized politically to advance their economic interest. One of the most influential organizations at the subnational state level that advance corporate interests is the conservative policy planning organization American Legislative Exchange Council (ALEC). Founded in 1973, ALEC intensified its efforts under the New Federalism to advance the neoliberal principles of limited government oversight of corporations and markets. ALEC raises money through high membership fees and from conservative donors in exchange for writing model legislation for subnational states to
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advance conservative and corporate interests. To illustrate, ALEC drafted legislation for Enron that was adopted by subnational states, which permitted Enron managers to engage in adventure capitalism in energy markets (Prechel 2021a: 116). Tax policy is one of the primary targets of organizations and wealthy individuals. To illustrate, in response to the 1980s recessions, Texas added provisions to its tax code that created incentives for corporations to invest additional capital in their operations and create jobs by placing a ceiling on the appraised value of the property. Known as Chapter 380 for cities and Chapter 381 for counties, these agreements provided corporations with more than $10 billion property tax breaks (Tedesco 2021). Furthermore, many US subnational states created tax exemptions for religious organizations that in some states include multi-million-dollar residences for the clergy. The lost tax revenues from these provisions must be derived from other sources to maintain schools and city and county governments (Dexheimer, Root and Lamm 2021), which shifts more of the tax burden to the working and middle classes. Competition for company incorporations (see above) continues to be an important component of economy and polity. To illustrate, Delaware has more than 1.6 million company incorporations that generates 25% of the state’s tax revenue. The number of company incorporations increased in recent decades as ultimate parent companies create legally independent corporate entities structured as subsidiaries. Political-legal arrangements in subnational states are also a central component of the financialization SSA. To illustrate, Delaware was one of the first subnational states to allow out-of-state banks to operate in their state. Other competitors in the race to bottom that ensued include South Dakota, Nevada, and Wyoming where corporations lobby legislators to create political-legal arrangements that facilitate the creation of new financial instruments. The revolving door has also become more widespread in subnational states. While it is widely known that former members of the US Congress and Executive Branch engage in lobby activities after leaving government employment (e.g., 59% of former members of the 115th Congress engaged in lobbying), little is known about lobby activities of former politicians at the subnational state level. There is also considerable variation on the extent to which subnational states permit former government officials from passing through the revolving door to serve corporate economic interests. Whereas some states have no restrictions on lobby activities of former government employees, others specify the conditions under which they can participate in the revolving door. Subnational states in the United States also have considerable flexibility in adopting federal policies including access to health and medical insurance. Beginning with President Truman in the 1940s, several presidents unsuccessfully attempted to pass legislation to create a national health insurance program including President Clinton’s failed effort in the 1990s (Akard 2005). However, the rapid and continued rise in health and medical costs resulted in renewed interest in passing an affordable health care plan during the early 21st century when President Obama was able to pass the 2010 Patient Protection and Affordable Care Act (PPACA). Although the initial objective of this legislation was to provide affordable health care coverage for everyone, the final version of the legislation included multiple compromises that, in the end, narrowly focused on provide a mechanism for the public to purchase private health insurance. Despite the popularity of PPACA among the public, some subnational states create obstacles for their citizens to obtain health care coverage, which makes health insurance providers reluctant to enter these markets, leaving residence in some states with few health and medical insurance options.
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Economy, polity, and inequality In their examination of the literature on the redistributional effects of the Great Recession, Redbird and Grusky (2016) ask: “Where Has All the Sociology Gone?” They express concern with the tendency in stratification research to focus on outcomes (e.g., mobility) without examining the underlying conditions that explain them. They also observe that compared to other social sciences, especially economics and political science, sociology is largely absent from policy debates on inequality. As a result, most of the analyses and proposed solutions to this urgent social problem have been done by researchers outside of sociology (e.g., Piketty 2014; Atkinson 2015; Lindert and Williamson 2016) who tend to narrowly focus on markets, assume that governments act autonomously, and give little attention to the exercise of power in the policy formation process. To illustrate, Piketty and Saez maintain that the previous widely adopted economic explanations of inequality (e.g., Malthus, Kuznets) are incorrect and assert that inequality is explained by the disparity between the rate of return to capital (r) and growth rate of the economy (g); when r is greater than g, more capital flows to the upper classes who own wealth. The disparity between these variables becomes more extreme when markets stagnate and economic growth rates decline, which is followed by a decline in the rate of wage increase. Furthermore, subsequent generations of those who are near the top of class hierarchy benefit from the accumulation of wealth through inheritance, which increases the likelihood of a better education that produces a higher return on income. Although Piketty and colleagues focus on policy, they narrowly examine tax policy and maintain that the long-term effects of a higher rate of taxation on labor income compared to capital income contributes to higher inequality. To limit rising inequality, they suggest implementing a wealth tax. Other economists confirm these findings with the exceptions of the period after the Tax Reform Act of 1986 when inequality increased even more than Piketty and Saez suggest (Mechlin, Miller and Konercny 2017). Although these scholars make important contributions, their narrow focus leaves a gap in the literature that an economic sociology of the polity is well equipped to address. Although tax policies affect inequality, states do not operate autonomously when enacting tax (or other) policies. As described above, corporate political spending and the revolving door provide the managerial class with the financial resources to influence tax and other policies that affect inequality. Furthermore, the influence of corporations and organizations that advance corporate interest in the policy formation process increased substantially after Supreme Court rulings raised the limits on campaign finance. One of the long-term consequences of the post-1970s laws and rules governing campaign financing is even wealthy politicians are dependent on resources from corporations, the managerial class, and wealthy individuals to run for political office. This resourcedependent relationship between politicians and the moneyed classes provided the later with greater capacity to influence the policy formation process. What is needed are broader and more in-depth analysis of the complex ways in which corporations and other social actors influence the government policies that affect economic inequality. While stratification research on the United States has demonstrated the rapid rise in inequality and lack of mobility in recent decades, this emphasis on outcomes does little to explain the process that created the policies and political structures responsible for record-high income and wealth inequality. Although corporate-state
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relationship enabled the financial sector to extract a larger share of the total income, the rapid rise in income and wealth inequality across multiple spheres of society cannot be explained by narrowly focusing on financialization. Understanding contemporary inequality requires a multicausal and historical analysis of the complex ways in which corporate-state relations that affect inequality have been redefined. By giving greater attention to the policy formation process, an economic sociology of the polity could explain how the managerial class and other wealthy individuals mobilize politically to pressure the state to enact policies to their economic benefit with little or no economic benefit for the majority of society.
Conclusion Although economic sociology has made important conceptual and empirical advances in recent decades, it has given insufficient attention to the relationship between economy and polity and the increasingly central role of organizations as intermediaries between economy and politics. As a result, the relationship between economy and polity is not well understood. An economic sociology of the polity could build on the foundational and subsequent developments in the field that emphasize the relationship between structures and hierarchies by employing concepts developed by Marx, Weber, Gramsci, Polanyi, and contemporary economic sociologists. Future research could focus on positing questions that explain historical variation in hierarchies and social structures and their implications for society with special focus on the inequalities they generate. Employing a multilevel and multicausal historical analysis that includes organizations as intermediaries between economy and politics is critical to explaining how both incremental and transformative changes come about. These theories and methods provide valuable tools that aid in understanding changes in social organization and hierarchy over the long-time term without compromising the complexities of the how changes in hierarchy and social structure come about. Furthermore, combining Weber’s comparative and historical method with his use of ideal types avoids the problem of treating key concepts (e.g., state autonomy, state power, and class power) as static when they, in fact, vary empirically over time. Inserting organizations as intermediaries between economy and politics provides a mechanism to connect the interest of social actors that exercise power in the policy formation process to outcomes, and address the central questions posited by Swedberg (2003: 159): How are the political and economic interests of groups and classes balanced against each other and how does one of them obtain preference? How are conflicts between various interests resolved? How do groups and classes influence political authorities and how is it that some of them gain more recognition among political authorities? Answering these questions is necessary to increase our understanding of the current hierarchies and structures and the inequalities they generate.
Notes 1 Researchers in organizational studies also focus on organizations as polities. However, these researchers focus primarily on the effects of the environmental on internal organizational polities (Weber and Waeger 2017). 2 To illustrate, the state’s military agenda benefits the capitalist class by creating demand for weapons and other commodities used in war making and limits social unrest by ensuring employment among the working classes. Along these same lines, Block (1977, 1980) maintains
Economy and polity 287 that states must have autonomy to ensure a positive “business climate” and solve internal conflicts and social problems (i.e., wartime, depression, and post-war reconstruction). 3 Ultimate parent company is used here because it denotes the company at the top of the corporate hierarchy. Some researchers and data sources use the term parent company to refer to a subsidiary corporation that has ownership control over a lower level subsidiary but is own by the ultimate parent company. This has created confusion in the literature because the ultimate parent company holds ownership control over all lower level corporate entities. 4 Corporations also engaged in a wide range of accounting manipulations to raise the trading price of corporate securities (Krier 2005) and made greater use of other organizational entities such as Real Estate Investment Trusts as a means to engage in financialization (Gotham 2006). 5 Many other democracies have other divisions of power such as the federations of Northern Ireland, Scotland, and Wales within the United Kingdom, Catalonia and the Basque autonomous community with Spain, and the Kurdistan autonomous community within Iraq.
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290 Harland Prechel Walker, E., and Rea, C., 2014. The political mobilization of firms and industries, Annual Review of Sociology, 40, pp. 281–304. DOI/10.1146/annurev-soc-071913-043215. Weber, C., and Waeger, D., 2017. Organizations as polities. Academy of Management Annuals, 11, pp. 886–918. Weber, M., 1904 [1949]. Methodology of the Social Sciences, New York, NY: Free Press. Weber, M., 1921 [1978]. Economy and Society: An Outline of Interpretive Sociology, edited by G. Roth, and C. Wittich. Berkeley, CA: University of California Press. Weber, M., (1904–1905) 1958. The Protestant Ethic and Spirit of Capitalism. New York: Charles Scribner’s Sons. White, H., 2002. Markets form Networks. Princeton, NJ: Princeton University Press. Yeager, P., and Simpson, S., 2009. Environmental crime. In Tonry, M., (ed.) The Oxford Handbook of Crime and Public Policy. New York: Oxford University Press, 325–355. Zafirovski, M., 1999. Economic sociology in retrospect and prospect: In search of its identity within economics and sociology. The American Journal of Economics and Sociology, 58(4), pp. 583–627. DOI/10.1111/j.1536–7150.1999.tb03386. Zeitlin, M., Neuman, W.L., and Ratcliff, P., 1976. Class segments: Agrarian property and political leadership in the capitalist class of Chile. American Sociological Review, 41(6), pp. 1006–1049. DOI.org/10.2307/2094800. Zelizer, V., 1979. Morals and Markets: The Development of Life Insurance in the United States. New York: Columbia University Press. Zelizer, V., 1981. The price and value of children: The case of children’s insurance. The American Journal of Sociology, 86(5), pp. 1036–1056. DOI/10.1086/227353. Zukin, S., and DiMaggio, P., 1990. Introduction. In Zukin, S., and DiMaggio, p., (eds.) Structures of Capital. New York: Cambridge University Press, 1–36.
14 Sociological and economic approaches to law and the economy. Friends or foes? Maximiliano Marzetti
Internal and external perspectives on law Dichotomies such as internal and external perspectives on the law (Litowitz 1998; Schwartz 1992) and law-in-books and law-in-action (Pound 1910) are useful concepts to demarcate different disciplines and methods to study law and legal phenomena. Legal operators are trained in legal dogmatics (an internal method focusing on law-in-books), while legal sociologists, anthropologists and economists see the law through the lenses of social sciences (external methods focusing on law-in-action). These differences account, to some extent, for the communication problems not only between lawyers and social scientists but also between social scientists themselves (most notably, between sociologists and economists). Weber, the founding father of the economic sociology of law (ESL), qualified as a lawyer and even practised law for a brief period in Germany before devoting himself to social sciences (Mommsen & Osterhammel 1987). Hence, he was well aware first-hand of the dichotomies mentioned above. In this sense, Weber was a rara avis, someone with a deep understanding of both the internal and external perspectives on the law. Thus, according to Weber, the task of legal dogmatics is to determine what valid law is, whereas legal sociology enquires about how legal rules influence people’s conduct. Moreover, it was probably his familiarity with both internal and external methods that allowed Weber to build his sociological system, distinguishing and separating disciplines and methods. After Weber, not many other social scientists combined both expertise. In most countries, lawyers are educated in legal dogmatics without much training in the social sciences. Social scientists are trained in their respective external perspectives, and even those whose subject of study is the law rarely study the law’s internal legal method. Thus, most lawyers and social scientists never cross the methodological Rubicon. This is regrettable, it may have deprived lawyers and social scientists of the possibility of cross-pollination. Not only do lawyers and social scientists speak different languages, but social scientists from different extractions (e.g., economists and sociologists) seem trapped in a sort of Babel’s methodological tower. This chapter aims to examine the differences between legal, economic and sociological approaches to law and the economy, and to determine whether a truly interdisciplinary exchange is possible or desirable. I will begin my exploration by describing the internal perspective on the law (legal dogmatics). Then I will turn to three of the most well-known external perspectives: legal sociology, the economic analysis of law (hereinafter, EAL) and the economic sociology of law (hereinafter, ESL). I will conclude with some recommendations for future research.
DOI: 10.4324/9780367817152-17
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Legal science In 21st-century Law Schools, the law is still taught with methods similar to those Irnerius used in the 12th century. Legal studies are called legal science (Rechtswissenschaft, science jurid ique) in countries that belong to the so-called Romano-Germanic legal tradition, i.e., continental Europe and their former colonies in Africa, Asia and Latin America. The internal method to study law is known as legal dogmatics (Rechtsdogmatik, dogmatique juridique), doctrinal legal method, black letter law or black letterism. For the purpose of this chapter, I will consider them all synonyms. Legal science’s method is closer to humanities than to social sciences; it follows a rather philological approach combining text interpretation (legal hermeneutics), argumentation theory, systematisation, classification and hierarchisation of legal sources. The goal of legal science is not speculative but practical, i.e., to find a valid legal rule applicable to a given case. This is not a subjective but an objective operation. The methodology of legal science will find the incontrovertible legal rule applicable to a case, a legal dogma, hence its name, legal dogmatics. Legal dogmatics is the most widespread “pure” legal method, particularly at law schools in civil law countries. Despite having been criticised for centuries it is still in use.1 However, legal dogmatics, what lawyers call legal science, may not be considered scientific from the perspective of social scientists. Certainly, the tenets of legal science are not falsifiable (Popper 1959) and are rarely empirically tested. However, some social sciences are neither.2 Legal science, unlike social science, does not attempt to describe law’s effects in a social context or predict human behaviour. Its goal is just to find the right legal rule to decide a judicial case. There are different declinations of the legal method, including argumentative approaches. However, all coincide in only taking into account legal sources (Vaquero 2013). Legal operators (lawyers, judges and law professors) are trained in legal dogmatics, not necessarily sociological or economic methods. This is specially so outside the US. Legal dogmatics has embraced legal positivism, i.e., a legal philosophy that suggests that the only legal rules are state-enacted ones (e.g., statutes, case-law). Legal positivism has been called monistic state law by Tamanaha (2021). For a positivist-legal scientist, legal rules are only those posited by a legitimated law-making state institution, usually the parliament or congress, in most democratic states, and following a legitimising process, what Hart called secondary rules or rules that determine how other rules are made, modified and repealed (Hart 1961). Extra-legal concerns, such as compliance, fairness and efficiency, are alien to the legal positivist conception. A valid legal norm is one that can (but not necessarily will) be enforced by the legal system. Legal positivism is associated with Hans Kelsen, his most prominent exponent. Kelsen advocated a pure science of law, an autonomous legal science expurgated from the influences of all external perspectives (Kelsen 1967). Thus, for a legal positivist, legal dogmatics is the only method to find valid legal rules. The possible relationships between legal rules and other normative orders, complementary or competitive, such as social, moral or religious norms, are of no interest to the legal positivist. Moreover, Kelsen defended a value-free (Wertfrei) legal science, concerned only with studying state-enacted legal rules. According to Kelsen, the study of non-legal rules, as well as the effects of rules on behaviour, should be left either to ethics or the social sciences. Therefore, seen under a sociological lens, legal dogmatics is disembedded from social phenomena.
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Luhmann et al.’s sociological analysis of the legal system has, in some sense, revendicated Kelsen’s legal positivism (Luhmann & Albrow 2013; Luhmann & Ziegert 2004, Teubner 1988). These authors have considered law an autopoietic system, a concept they borrowed from biology (Maturana & Varela 1980). An autopoietic legal system is self-contained and self-reproducing. Because a valid legal norm presupposes a preceding one or ones (Ewald 1988), its validity is contingent on its conformity to other valid legal norms. Thus, legal norms are self-referential, a closed system, autonomous and unaffected by external views. From this perspective, the law is a closed and autonomous field. An autopoietic legal system constructs, deconstructs and reconstructs a society from its own (internal) perspective and is independent of other (external) spheres, such as morality or social science. Each sphere has its own dichotomic code that is related to the discipline’s objectives, such as legal/illegal for law, good/bad for morality and truth/false for science. Luhmann does not suggest an autopoietic legal system that is completely immune to external stimuli but remains autonomous in constructing and reconstructing legal concepts, unaffected, by interpretations, coming from external perspectives. The autopoietic theory of the legal system has caused a divide in the sociological community (Lempert & Teubner 1987). Sociologist that considers an ESL possible cannot agree with Luhmann et al. Only if we consider the legal system influenceable by economic phenomena, an ESL makes sense. From the economic camp, Public Choice scholars have provided evidence that the legal system may be porous to external phenomena, for instance, that industry’s interest groups (lobbies) can influence judicial decisions, the agenda for legal reform and even the development of international public law (Iaryczower et al. 2006; Landes & Posner 2004; Olson 1965; Scotchmer 2004).
Sociology of law Sociology of law, legal sociology, socio-legal studies or law and society are different names for the same approach.3 According to Sutton, “[t]he sociology of law is a descriptive and explanatory activity in which researchers try to understand why the legal world is the way it is and how it got that way” (Sutton 2001). The sociology of law offers an external point of view of the law, different from that of legal science described earlier. The legal sociologist has a broader view of the legal field than the jurist. For the sociologist, the law is a pluralistic phenomenon, rather than a monistic one (legal positivism). The legal system comprises not only state-enacted legal rules (statutes, executive orders or case law) but also cultures, ideologies and other norms, such as social, corporate, moral or religious ones, what Carbonnier called euphemistically not-law [non-Droit] (Carbonnier 2014).4 Therefore, the legal sociologist cannot accept legal positivism, endorsing legal pluralism instead. While the legal scholar tries to answer the question what valid law is, the legal sociologist tries to determine what laws (and not-laws) influence human behaviour. Weber said that the sociological notion of the law is to be found in people’s minds; they are the rules that orient their actions, what they regard as legitimate (Weber & Tribe 2019). The law has always been important to sociologists. Most classical sociologists and sociologically minded social thinkers of the 17th and 18th centuries reflected on the law. Montesquieu’s De l’Esprit des lois (1748) is ripe with socio-legal comparisons. In the Theory of Moral Sentiments (1759), Smith described a sociological archetype of man quite distinct from the homo oeconomicus. A leitmotiv of De Tocqueville’s Democracy in America (1840) and The Old Regime and the French Revolution (1856) is the role of the
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law in shaping the future of society. In A Contribution to the Critique of Political Economy (1859), Marx posits that the law is part of the superstructure maintaining the economic infrastructure of society. Durkheim’s The Division of Labour in Society (1893) provides a sociological theory of contract law, which anticipates in some ways MacNeil’s relational contract theory (Macneil 1981, MacNeil 1999). Weber was particularly interested in the legal rules and institutions that had made possible the transition to a capitalist society, such as contracts and companies. Moreover, most of the state’s functions are regulated by the law, namely the legislative, the judiciary and the police activities (Swedberg 1998). Among modern authors, Veblen, Schumpeter and Parsons also reflected on law and society. Polanyi’s The Great Transformation (1944) can be seen as an attempt to re-embed economic phenomena into a larger network of social interactions. In the 20th century, the sociology of law became a theme for specialists, taught mainly by sociologically inclined lawyers at Law Schools. In a sense, the study of the sociology of law became narrower. In the US, the sociology of law began to develop in the shadow of Legal Realism (Skolnick 2012). Legal realists, mainly based at Yale, reacted against the formalism and legal dogmatics’ approach championed by Langdell at Harvard (Langdell 1871). Langdell’s case method was only concerned with lawin-books, whereas Pound’s Sociological Jurisprudence and Llewelyn and Frank’s Legal Realism emphasised law-in-action. Thus, the resistance of the American legal realists opened the doors of US legal academia not only to legal sociology, but also to the EAL, some years later. In more recent times, the sociology of law has often been associated with radical reinterpretations of the legal system, such as Critical Legal Studies (Kennedy 2002), Feminist Jurisprudence and Critical Race Theories, and used as a lever for legal reform (Machura 2012). Critical Legal Studies, for instance, considers law as a continuation of politics; consequently, the critical legal scholar is usually a political militant. The influence of economic phenomena on the legal system was rarely an area of interest for legal sociologists.
Economic analysis of law During the second half of the 20th century, another external perspective on the law gained momentum in the US. The EAL, also known as Law and Economics or the Economic Approach to Law, began to take shape as a distinct school of legal thought coalescing around the works of Coase, Calabresi, Posner and others (Calabresi 1970; Calabresi & Melamed 1972; Coase 1937, 1960; Cooter & Ulen 1988; R. A. Posner 1972, 1975, 1983; Shavell 2003, 2009).5 Mercuro and Medema have defined Law and Economics “as the application of economic theory – primarily microeconomics and the basic concepts of welfare economics – to examine the formation, structure, processes, and economic impact of law and legal institutions” (Mercuro & Medema 2006). Some suggest that the EAL’s success in the US has been so remarkable that it has eclipsed other social sciences studying similar phenomena, including the sociology of law (Priest 2020). What we call mainstream EAL is associated with the neoclassical school of economics and the University of Chicago, in particular. However, EAL may not be a univocal school of thought, there are different orientations or research projects within the EAL, in Lakatos’ sense of the term, such as the New Haven School, the Austrian School of (Law and) Economics (Boettke & Zywicki 2017), a European approach (Mathis 2013) and, more recently, behavioural and empirical currents.
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The methodology and epistemology of mainstream EAL tend to follow those of mainstream economics. Consequently, economics is considered a positive science (Friedman 1953). The many assumptions mainstream EAL relies on have been the source of criticism. For instance, the hyper-rational and unrealistic archetype of the homo oeconomicus (the main target of the behaviouralists), the pseudoscientific nature of rational choice theory and methodological individualism (Bunge 1995) and the absence of empirical testing of the assumptions or the veracity of the predictions (Dau-Schmidt, 2001), among others. Economics has been accused of being imperialist. The EAL too. The scope of economic science has been in constant expansion since its incipit. Smith defined economics as a “science of wealth”, whose purpose was to study the processes of production, consumption and accumulation of wealth. Later, Robbins famously redefined economics as “the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses” (Robbins 1932: 15). Under its new status, the dismal science was hailed, by economists, as the new queen of the social sciences. Economics’ conquest of other social disciplines then began. Becker is an author associated with economics’ imperialist tendency, having extended economic analysis to areas that had previously been off-limits, i.e., from explicit to implicit markets, such as family relations, criminal law or political processes (Becker 1974, 1976, 1983). Imperialist economic science conquered US legal academia (R. A. Posner 1987), after Langdellians and Legal Realists have left the study of law without a prevailing epistemological paradigm. The relationship between the EAL and sociology has never been easy. It has certainly not been one of collaboration. From an economic perspective, EAL and legal sociology can be considered competing disciplines (substitute goods) in the market for scientific explanations (external methods) of the law. Over time, the EAL substituted or at least diminished the academic sphere of influence of the sociology of law, at least in some countries. Thus, by the end of the 20th century, the EAL had become the dominant external perspective to the study of law in US Law Schools. Priest says “[l]aw & economics can be identified today as the dominant academic discipline in understanding the rule of law in the United States and, increasingly, around the world” (Priest 2020: 1). Ulen et al. suggest that this result is attributable to the existence in the US of a competitive market for legal innovations, welcoming and rewarding novel approaches (Ulen & Garoupa 2008). However, outside the US, the EAL has not been equally successful (Mathis 2013; R. A. Posner 1997a). More recently, mainstream EAL assumptions have been challenged from within the boundaries of economic discipline. New Institutional Economics (NIE) emphasises the role of institutions (formal and informal) and historical processes in shaping longterm economic growth and development (Acemoglu et al. 2004; Acemoglu & Robinson 2012; North 1989, 1991). While the NIE does not represent a radical departure from mainstream economics, it incorporates a dynamic historical perspective that is absent from the static neoclassical model. Moreover, NIE’s emphasis on the study of institutions, as the progeny of social phenomena, may have many points in common with sociology. Behavioural Economics and, its application to legal phenomena, Behavioural Law and Economics (BLE) (Sunstein et al. 1998; Sunstein 2000) have rejected core tenet of mainstream economics and EAL, such as the hyper-rationality of the homo oeconomicus, creating intradisciplinary tensions and dividing economic scholars
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(Korobkin & Ulen 2000). BLE incorporates insights from other external views, such as psychology and cognitive sciences, into analysing individual economic behaviour in relation to the law. Unlike mainstream EAL, the BLE relies on empirical methods to validate its assumptions and predictions (Engel, 2013). From the BLE perspective, human behaviour is subject to different cognitive biases and heuristics that limit the rationality assumption of the economic man (Gilovich et al. 2002; Kahneman et al. 1982). From the BLE perspective, human beings are mostly rational but constrained by different evolutionary patterns engrained in their brains, hence the term bounded rationality. Because cognitive patterns are predictable enough, they can be scientifically studied. In the words of one behaviouralist, we are predictably irrational (Ariely 2010). Moreover, the BLE has suggested proactive legal intervention; cognitive errors and innate biases may justify regulatory nudges (Thaler & Sunstein 2009) and legal reform to de-bias individual decision-making ( Jolls & Sunstein 2006). These and similar recommendations have been considered coherent with a liberal democracy by their proponents, hence the origin of the apparent oxymoronic term libertarian paternalism (Sunstein & Thaler 2003). This is another important point of contention. Mainstream EAL, which implicitly embraces rational individualism, does not accept the paternalistic policies advocated by BLE scholars. Whether the BLE represents a schism or scientific revolution from mainstream EAL, in the Kuhnian sense of the term (Kuhn, 1962), is yet unclear. BLE and empiricaleconomics-oriented legal studies provide evidence that contradicts some postulates of neoclassical and transaction-cost economics. For instance, Ellickson’s field study on how ranchers settle disputes departs from the expected solution according to the so-called Coase theorem (Ellickson 1986, 1991). However, BLE, due to its casuistic approach, lacks a systematised body of knowledge, at least for the moment. There are also many points of contact. BLE, much like the mainstream EAL, is individual-centred and neglects the social dimension (Frerichs, 2011b). Furthermore, we must mention Empirical Law and Economics (hereinafter, ELE), or economic-oriented Empirical Legal Studies (Epstein & Martin 2014) which some scholars have taken as a sign of scientific maturation of the EAL (Cooter 2011). The limited empirical validation of neoclassical economics’ assumptions and theories has been its Achilles’ heel, from an epistemological perspective. Many philosophers of science condemned the unscientific approach of mainstream economics (Bunge 2016; Ochoa & Bunge 1984). In a way, the ELE would be an attempt to palliate these criticisms. Time ago Ulen suggested that empirical work was needed to transform legal dogmatics into a true legal science, without referring to the empirical deficit in economic science (Ulen 2002). However, empirics alone cannot make good science. Without a coherent and sound theoretical framework, empirical work can be meaningless (Levmore, 2021).
Economic sociology of law Economic sociology has been defined as “a field of sociological studies to analyse the links between economic and social phenomena” (Beckert & Zafirovski 2011: 192). Then, the ESL aims to provide “a sociological analysis of the role of law in economic life” (Swedberg 2003: 1). Sometimes the same idea is expressed with different names. Edelman and Stryker had called it the sociology of law and the economy (Edelman & Stryker 2010). Weber and, to a lesser extent, Commons are syndicated as the forefathers of the ESL (Coutu & Kirat 2011 2012; Swedberg 2006). Weber’s Sozialökonomik, which can be literally
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translated as the social economy (but should be understood broadly), provided its building blocks. Weber’s economic sociology analysed three types of phenomena, economic phenomena (i.e., economic institutions), economically relevant phenomena (i.e., non-economic phenomena that influence economic phenomena) and economically conditioned phenomena (i.e., non-economic phenomena that are influenced by economic phenomena). Building upon the Weberian framework, Swedberg defined the ESL as the study of “economic phenomena including their legal dimension, economically relevant legal phenomena, and economically conditioned legal phenomena” (Swedberg 2003: 5). In essence, the ESL contends that in modern societies, the law is constitutive of economic phenomena. For instance, by granting a patent on an invention the legal system creates a monopolistic entitlement, imposing a duty on everybody else not to interfere with the patent holder’s intellectual property right (ius excludendi omnes alios) for a finite period of usually 20 years since the date of filing. The grant of a patent leads to important economic consequences for the rights holder, who holds the right to exclude others, but also the rest of society, such as deadweight loss, market power and the potential risk of rent-seeking activities (Leveque & Ménière 2004). The idea that markets and the legal system are embedded in a complex social network goes back to the classical thinkers, as it was already suggested (Weber, Marx and Comte, among others), and it became a hobbyhorse to Polanyi’s substantivism (Polanyi 1944). It has recently been amplified by Granovetter (1985), as a critique of the narrowness of Williamson’s research program on Transaction Cost Economics (Williamson 1989). Edelman and Suchman proposed a tripartite typology to rationalise these interactions, by way of ideal types, namely facilitative, regulatory and constitutive legal environments (Edelman & Suchman 1997). The ESL implies the existence of reciprocal interaction between the economic and legal spheres. As stated earlier, the ESL perspective seems to be in stark opposition to Luhmann’s autopoietic theory of legal systems. The ESL is a distinct approach to the EAL and, to some extent, a reaction against it. Sociologists have accused mainstream economics and the EAL of presenting an abstract, incomplete and reductionist view of the economy. Moreover, mainstream economics suffers from the methodological flaws described earlier. According to Swedberg, the EAL “does not approach legal phenomena in an empirical or sociological manner” (Swedberg 2003: 1). Moreover, Swedberg contends that the ESL can and must provide the missing empirical insights of economic activity. Not all ESL scholars agree on this empirical approach. Ashiagbor et al. seem to have broadened the scope of the ESL, as originally proposed by Swedberg. According to the former, the ESL should encompass all “sociologically-inspired approaches”, also including analytical and normative ones (Ashiagbor et al. 2013, 2014). A priori, the picture painted by the ESL seems to be richer and more complete than the one provided by the mainstream EAL which is disembedded from social phenomena and relies on a unidimensional archetype of man.6 Swedberg has criticised economics’ narrowly construed concept of interest, a legacy of utilitarian philosophy, which is identified either with vague notions of utility or with an imperfect proxy of it, such as wealth maximisation (R. A. Posner 1985). Hence, Swedberg has suggested adopting a broader concept of interest, encompassing economic and non-economic dimensions (Swedberg 2009). Fredric stresses the re-embedding aspect of the ESL, reconnecting the economy to other social activities, and its ability to bridge disciplinary boundaries between the legal, sociological and economic spheres (Frerichs 2009). In addition, unlike the EAL, the ESL is not oblivious to power and the dynamics of power relationships (hegemony).
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The legal system may legitimise or delegitimise power and economic relationships. In a nutshell, the ESL research program and approach to economic activity is different, broader and more ambitious than that proposed by the EAL. In recent years, the number of papers referring to the ESL, or similar terms, has increased. The ESL has dealt with a diverse array of topics, such as the feminist movement (Kotiswaran 2013), Cypriote wind farmers (Perry-Kessaris 2013), neo-constitutionalism (Frerichs 2011a), and employment law (Dukes 2019), the role of lawyers, lawyering and economic activity (Miola & Picciotto 2021), etc. In comparison with the number of papers published on the EAL, the papers on the ESL are modest. Remains to be seen, however, whether the ESL can deliver its promise and become an alternative or complementary paradigm, to the EAL.
Sociological and economic approaches to law: Friends or foes? Leaving aside legal science that, as seen, is not concerned with the effects of laws on behaviour or society, and legal sociology that does not provide an economic explanation of legal phenomena, at this point it becomes relevant to discuss whether the ESL research project could be complementary or, a contrario, alternative (a substitute approach) to the EAL. In general terms, interdisciplinary cooperation between economics and sociology has been rare. Some scholars have tried to combine economic and sociological approaches into one to better understand legal phenomena. For instance, De Geest suggested that the differences between the economic and sociological disciplines were nominal and the academic divide mainly a historical accident (De Geest 1995). Having both disciplines broadly speaking the same object of study, i.e., the social effects of legal norms, the author concludes that both approaches should merge into a single social science (a transdiscipline). Ellickson, as mentioned earlier, suggested that the EAL would benefit from accepting other external views, such as sociology and psychology (Ellickson 1987, 1989, 1998). Daintih and Teubner proposed to combine sociological and economic dimensions to understand better contract and company law (Daintith & Teubner 1986). Donahue III advocated cross-fertilisation between the economic and sociological approaches, despite the apparent hostility between practitioners of each discipline (Donohue III 1988). Ulen, at some point, seemed favourable to the idea of incorporating insights from cognitive psychology into the EAL (Ulen 1988). However, many scholars remain sceptical of combining sociological and economic approaches to the analysis of the legal system. From the EAL camp, cross-fertilisation is either rejected or seems to be conditional to the acceptance of the prevalence of economics theory. Posner turned the tables and suggests that the problem is that sociologists do not accept economic theory due to their ideological bias according to which they erroneously perceive economists as conservatives (R. A. Posner 1988). Posner adds that sociologists’ inaccurate perceptions have led them to be sceptical towards the insights of other disciplines in general (R. A. Posner 1995). Posner also hints at a hierarchy of the social sciences, claiming that economic analysis is at the top (R. A. Posner 1989). In a similar vein, Cooter proposed a unified social theory based on economics’ rational choice and price theories, to study law, history and politics (Cooter 1995). Coherent with the self-selection bias, Mackaay rightly suggests that interdisciplinary sociological and economic scholarship may only attract those sociologists that accept or at least do not openly reject rational choice theory (Mackaay 2000). Social norms seem to be an area of natural contact between sociology and economics, as scholars from both disciplines have analysed the same subject, each one from its own epistemological paradigm. Opp suggested the complementarity potential between the
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economic and sociological perspectives to provide a more comprehensive explanation for the emergence of social norms (Opp 1979). However, there seems to be not much dialogue between sociology and economics. Economic explanations for the emergence of social norms differ from sociological ones, and neither discipline seems to consider the other’s insights. The EAL has advanced its own theories and models to explain the emergence and functioning of social norms (nonlegal cooperation) (E. A. Posner 1996, 2000; R. A. Posner 1997b, 1998), including the effect of social norms on specific contexts (Eisenberg 1999).
Differences and similitudes between the sociological and economic approaches to law and the economy As suggested above, there seems to be some common grounds between the EAL and the ESL. After all, both are external views, studying the legal system from outside the methodological canon of legal science. Both also fall short of true interdisciplinarity, i.e., none of them applies or seriously considers the method of legal science. However, important differences between sociology and economics remain, which make unlikely the path to transdisciplinarity. In the following lines, I will mention some of the most salient ones, but not necessarily all. Mainstream EAL is perceived to be speculative, while the ESL is perceived as empirical. Mainstream EAL has produced elegant clean models that contrast sociology’s casuistic and dirty hands approach (Hirsch et al. 1987). The EAL treats preferences as fixed and exogenous to the economic actors, whereas the ESL suggests that preferences change as they are dependent on social phenomena; in other words, they are endogenous. The EAL has both descriptive (positive, i.e., the law as it is) and prescriptive roles (normative, i.e., the law as it ought to be). To evaluate alternative public policies, the EAL’s benchmarks are different versions of efficiency, namely productive, allocative, Pareto or Kaldor-Hicks. The ESL seems more descriptive than prescriptive or at least very cautious at the moment of making normative suggestions based on the observation of social phenomena. The benchmarks the ESL explicitly or implicitly endorses do determine the desirability of public policy and promote that legal reform is less clear. Different authors seem to suggest different benchmarks, such as commutative fairness, social justice or egalitarianism, among others. In any case, these concepts have open-texture and precise definitions are elusive. Therefore, any choice of benchmark would require to be properly justified by the author. The EAL relies on an established theory of human action (rational choice), albeit currently under fire, as well as a unidimensional archetype of a rational man, and a competing one (bounded rationality) being advanced by the BLE. The emerging ESL approach is not yet a consolidated discipline, at least not compared to the EAL. So, its theories, archetypes and paradigms appear less homogeneous and author-dependent, at least for the moment. An important difference is the notion of embeddedness, i.e., individual economic actions are embedded in a broader social framework. Embeddedness is a fundamental notion to the ESL, whereas the EAL, with its emphasis on microeconomics, prescinds it. Thus, the EAL presents a rather limited view, one in which the behaviour of the individual actor appears disembedded from society. Whether they truly verify or not, ideological perceptions may affect the acceptance of a discipline in different contexts. Accepting the risk of overgeneralising, the mainstream EAL is associated with a centre-right conservative political perspective, supportive of market self-regulation and distrustful of governmental intervention. In contrast, under
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the same caveat, the ESL is associated with centre-left and progressive political views, suspicious of market self-regulation and supportive of direct state intervention in the economy, including redistributionist measures. The EAL in most cases endorses legal positivism because it tends to only consider state-enacted laws. The ESL accepts legal pluralism and studies a broader set of legal norms, including non-state–enacted ones. The EAL unit of analysis is the individual or the firm, coherent with its methodological individualism. The ESL tends to focus on aggregated social constructs, more or less cohesively defined, such as minority social groups and a certain type of workers. Finally, the EAL has consolidated as a distinct and rather successful discipline, at least in the US. In comparison, the ESL is rather new, midway between the sociology of law and the sociology of economics, with whom it may also compete. As such, besides common aspirations shared between authors, there seems not to exist a commonly accepted theoretical corpus of the ESL yet. The requirements to do research in the ESL are more demanding than those required for doing research in the EAL. A researcher in ESL needs to have solid competences in sociology, economics and the law, their respective methodologies and languages (codes). Such a specialised profile is difficult to find, which may at least partly explain ESL’s slow development. The table below summarises and complements the previous paragraphs (Table 14.1). Table 14.1 Differences and similarities between the EAL and ESL. Colour note: Greyer colours suggest identity or similarity (the greyer, the more similar), whereas white indicates differences EAL
ESL
Legal and economic fields of study Reciprocal relationships between the legal system and the economy External perspective of law Consolidated scholarly discipline Pluridisciplinary scholar profile: economics and law Analytical methodology (also empirical)
Legal and economic fields of study Reciprocal relationships between the legal system and the economy External perspective of law Consolidating scholarly discipline Pluridisciplinary scholar profile: sociology, law and economics Empirical methodology (also analytical, historical and comparative) Individual preferences are influenced by social phenomena (endogenous) Perceived as politically progressive Dirty hands approach (casuistic) Heterogeneous funding theories
Individual preferences are not influenced by social phenomena (exogenous) Perceived as politically conservative Clean approach (mathematical models) Homogeneous founding theory (neoclassical economics) Economic activity is disembedded from a wider social network Narrow conception of interest (economic interest only) Legal positivist conception of the law Focus on disaggregated individuals Efficiency as benchmark to evaluate public policy (productive, allocative, Pareto, Kaldor-Hicks, etc.) Single theory of human action (rational choice) and one archetype (homo oeconomicus) Perceived as US-centric
Economic activity is embedded in a wider social network Broader conception of interest (economic and non-economic interests) Legal pluralist conception of the law Focus on aggregated social constructs Competing benchmarks to evaluate public policy (efficiency, fairness, etc.) Competing theories of human action and many archetypes (homo oeconomicus, homo sociologicus) Perceived as cosmopolitan
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Can economists and sociologists interested in studying legal phenomena find common ground? The law has fascinated economists and sociologists for centuries, as it allows markets to thrive and complex societies to emerge. Legal scholars are excluded from the scientific study of law. Legal science focuses on finding internal coherence in the legal system. The effects of laws on behaviour, either at individual or aggregated levels, are alien to legal scientists. This is not necessarily a defect, but the result of a different raison d’être. After all, legal science’s main application is in the courtroom. External perspectives of the law, such as the sociology of law, EAL and the ESL, have emerged to answer the question left unanswered by legal science. The relationship between the external perspectives that share law as their subject of study has been characterised by competition rather than by cooperation. Despite noble efforts by a handful of scholars, economic and sociological approaches to legal phenomena remain airtight compartments. Different reasons may explain the antagonism between economics and sociology, from the formation of academic siloes, ideological biases, lack of understanding of other disciplines’ theoretical frameworks, language and methodologies. Nonetheless, the lack of dialogue and absence of cross-pollination between the EAL and the ESL is, in particular, regrettable. Reality is too complex to be studied by individual disciplines. Compartmentalised approaches are incomplete and provide insufficient guidance to governments and firms trying to improve the status quo. The ESL has a promising and yet uncertain future. As a nascent discipline, it may benefit from borrowing concepts and constructs from economic analysis, even if it is not reciprocated. In a forward-thinking paper, Coase wrote that the scope of economics might be permanently enlarged to include studies from other social sciences (Coase 1978). Is it possible, then, to image a metadiscipline combining sociology, economics and the law? Law, Economics and Sociology? Perhaps, all social sciences will confluence at some point. Combining economics’ individualism with sociology’s embeddedness may provide a more complete picture of reality, within an empirical framework. However, such a research project seems far-fetched today. In the meantime, competition between the external perspectives on the law is likely to continue. This is not necessarily bad. If sociologists read more works on economics and economists read more works on sociology, even if they do so with the aim to criticise and find weaknesses in the other discipline, it may not only facilitate interdisciplinary dialogue but also may lead to a virtuous cycle of better scholarship in their respective fields. In any case, as Jacques Maritain put it, albeit in a different context, it is important to distinguish without separating in order to unite without confusion.
Notes 1 From within the legal discipline some jurists have criticisedlegal dogmatics. One of the most vehement attacks was Von Kirchmann’s proclamation of “the worthlessness of jurisprudence” [by jurisprudence he meant legal dogmatics, the method advocated by the German Pandectist School] (Kirchmann 1848). 2 Bunge considers neoclassical economics and rational choice theory unscientific social sciences, due to their lack of empirical validation (Bunge 2009, 2016). 3 Not everybody agrees on this equivalence. For instance, Nelsen makes a distinction between the sociology of law and socio-legal studies (Nelken 1981). However, in this chapter, I consider both synonyms, for the sake of simplicity. 4 In French, “droit” derives from the Latin “directus” which literally meant in straight line but came to be understood as what is fair or honest. In English, there is no concept analogous to “droit”. Law, is semantically narrower, coming from the Latin “lex”, a rule or formula.
302 Maximiliano Marzetti 5 In this chapter, I use both terms as synonyms despite some scholarly attempts to distinguish them (Calabresi 2016; Hylton 2019). 6 Social sciences have suggested different archetypes of man, as their subject of study. For instance, homo sociologicus (Boudon 2006), homo sentiens (Archer 2000) or homo juridicus (Supiot 2007).
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304 Maximiliano Marzetti Hirsch, P., Michaels, S., & Friedman, R., 1987. “Dirty hands” versus “clean models” - Is sociology in danger of being seduced by economics? Theory and Society, 16(3), pp. 317–336. Hylton, K. N., 2019. Law and economics versus economic analysis of law. European Journal of Law and Economics, 48(1), pp. 77–88. Iaryczower, M., Spiller, P. T., & Tommasi, M., 2006. Judicial lobbying: The politics of labor law constitutional interpretation. American Political Science Review, 100(1), 85–97. Jolls, C., & Sunstein, C. R., 2006. Debiasing through law. Journal of Legal Studies, 35(1), 199–241. Kahneman, D., Slovic, P., & Tversky, A., 1982. Judgment Under Uncertainty: Heuristics and Biases. Cambridge University Press. Kelsen, H. (1967). Pure Theory of Law. University of California Press. Kennedy, D., 2002. The critique of rights in critical legal studies. In Left Legalism/Left Critique, 178–228. Duke University Press. Kirchmann, J. Von., 1848. Die Werthlosigkeit der Jurisprudenz als Wissenschaft. Verlag von Julius Springer. Korobkin, R. B., & Ulen, T. S., 2000. Law and behavioral science: Removing the rationality assumption from law and economics. California Law Review, 88. Kotiswaran, P., 2013. Do feminists need an economic sociology of law? Journal of Law and Society, 40(1), pp. 115–136. Kuhn, T. S., 1962. The Structure of Scientific Revolutions. University of Chicago Press. Landes, W. M., & Posner, R. A., 2004. The Political Economy of Intellectual Property Law. AEI-Brookings Joint Center for Regulatory Studies. Langdell, C. C., 1871. A Selection of Cases on the Law of Contracts: With References and Citations; Prepared for Use as a Text-Book in Harvard Law School. Little, Brown and Company. Lempert, R., & Teubner, G., 1987. The autonomy of law: Two visions compared. In Gunther Teubner (ed), Autopoietic Law - A New Approach to Law and Society. De Gruyter. Leveque, F., & Ménière, Y., 2004. The Economics of Patents and Copyright. Berkeley Electronic Press. Levmore, S., 2021. The eventual decline of empirical law and economics. Yale Journal on Regulation, 38(2). Litowitz, D. E., 1998. internal versus external perspectives on law: Toward mediation. Florida State University Law Review, 26(1). Luhmann, N., & Albrow, M., 2013. A Sociological Theory of Law. Taylor & Francis. Luhmann, N., & Ziegert, K., 2004. Law as a Social System. Oxford University Press. Machura, S., 2012. German sociology of law: A case of path dependency. International Journal of Law in Context, 8(4), pp. 506–523. Mackaay, E., 2000. History of law & economics. In Boudewijn Bouckaert, Gerrit De Geest, & Charles F. Nagel (eds.), Encyclopedia of law and economics. Edward Elgar Publishers. Macneil, I. R., 1981. The new social contract: An inquiry into modern contractual relations. Michigan Law Review, 79(4). MacNeil, I. R., 1999. Relational contract theory: Challenges and queries. Northwestern University Law Review, 94.
Mathis, K., 2013. Law and Economics in Europe: Foundations and Applications. Springer Netherlands. Maturana, H. R., & Varela, F. J., 1980. Autopoiesis and Cognition. Springer Netherlands. Mercuro, N., & Medema, S. G., 2006. Economics and the law: From Posner to postmodernism and beyond (2nd ed.). Princeton University Press. Miola, I., & Picciotto, S., 2021. On the sociology of law in economic relations. Social & Legal Studies 31(1), pp. 139–161. Mommsen, W. J., & Osterhammel, J., 1987. Max Weber and His Contemporaries. Routledge. Nelken, D., 1981. The gap problem in the sociology of law: A theoretical review. Windsor Yearbook of Access to Justice, 1. North, D. C., 1989. Institutions and economic growth: An historical introduction. World Development, 17(9), pp. 1319–1332.
Sociological and economic approaches to law and the economy 305 North, D. C., 1991. Institutions. Journal of Economic Perspectives, 5(1). Ochoa, G.-B., & Bunge, M., 1984. Contra la economía escolástica. Teorema: Revista Internacional de Filosofía, 14(3/4), pp. 585–595. Olson, M., 1965. The Logic of Collective Action. Harvard University Press. Opp, K.-D., 1979. The Emergence and effects of social norms: A confrontation of some hypotheses of sociology and economics. Kyklos, 32(4), pp. 775–801. Perry-Kessaris, A., 2013. Anemosity, Apatheia, Enthousiasmos: An Economic Sociology of Law and Wind Farm Development in Cyprus. Journal of Law and Society, 40(1), pp. 68–91. Polanyi, K., 1944. The Great Transformation. Rinehart & Company. Popper, K. R., 1959. The Logic of Scientific Discovery. Hutchinson & Co. Posner, E. A., 1996. Law, economics, and inefficient norms. University of Pennsylvania Law Review, 144(5). Posner, E. A., 2000. Law and social norms. Harvard University Press. Posner, R A., 1972. Economic analysis of law. Little, Brown. Posner, R. A., 1975. The economic approach to law. Texas Law Review, 53. Posner, R. A., 1987. The decline of law as an autonomous discipline: 1962–1987. Harvard Law Review, 100. Posner, R A., 1983. The Economics of Justice. Harvard University Press. Posner, R A., 1985. Wealth maximization revisited. Notre Dame Journal of Law, Ethics and Public Policy, 85. Posner, R. A., 1988. Comment on Donohue. Law and Society Review, 22. Posner, R. A., 1989. The future of law and economics: A comment on Ellickson. Chicago-Kent Law Review, 65. Posner, R. A., 1995. The sociology of the sociology of law: A view from economics. European Journal of Law and Economics, 2(4), pp. 265–284. Posner, R. A., 1997a. The future of the law and economics movement in Europe. International Review of Law and Economics, 17(1), pp. 3–14. Posner, R. A., 1997b. Social norms and the law: An economic approach. American Economic Review, 87(2), pp. 365–369. Posner, R. A., 1998. Social norms, social meaning, and economic analysis of law: A comment. Journal of Legal Studies, 27(2). Pound, R., 1910. Law in books and law in action. American Law Review, 44(1), pp. 12–36. Priest, G. L., 2020. The rise of law and economics: An intellectual history. Routledge. Robbins, L., 1932. An essay on the nature and significance of economic science. Macmillan and Co. Schwartz, R. L., 1992. Internal and external method in the study of law. Law and Philosophy, 11(3), pp. 179–199. Scotchmer, S., 2004. The political economy of intellectual property treaties. The Journal of Law, Economics & Organization, 20(2). Shavell, S., 2003. Economic Analysis of Law. Foundation Press. Shavell, S., 2009. Foundations of Economic Analysis of Law. Harvard University Press. Skolnick, J. H., 2012. Legacies of legal realism: The sociology of criminal law and criminal justice. Annual Review of Law and Social Science 8, pp. 1–10. Sunstein, C., Jolls, C., & Thaler, R., 1998. A behavioral approach to law and economics. Stanford Law Review, 50. Sunstein, C R., 2000. Behavioral Law and Economics. Cambridge University Press. Sunstein, Cass R., & Thaler, R. H., 2003. Libertarian paternalism is not an oxymoron. University of Chicago Law Review, 70(4), pp. 1159–1202. Supiot, A., 2007. Homo Juridicus: On the Anthropological Function of the Law. Verso. Sutton, J. R., 2001. Law/Society: Origins, Interactions, and Change. SAGE Publications. Swedberg, R., 1998. Max Weber and The Idea of Economic Sociology. Princeton University Press. Swedberg, R., 2003. The case for an economic sociology of law. Theory and Society 32(1), pp. 1–37.
306 Maximiliano Marzetti Swedberg, R., 2006. Max Weber’s contribution to the economic sociology of law. Annual Review of Law and Social Science, 2, pp. 61–81. Swedberg, R., 2009. Principles of Economic Sociology. Princeton University Press. Tamanaha, B. Z., 2021. Legal Pluralism Explained: History, Theory, Consequences. Oxford University Press. Teubner, G., 1988. Autopoietic Law: A New Approach to Law and Society. De Gruyter. Thaler, R. H., & Sunstein, C. R., 2009. Nudge: Improving Decisions about Health, Wealth, and Happiness. Yale University Press. Ulen, T., 1988. Cognitive Imperfections and the Economic Analysis of Law. Hamline Law Review, 12. Ulen, T., 2002. A Nobel prize in legal science: Theory, empirical work, and the scientific method in the study of law. University of Illinois Law Review, 4. Ulen, T., & Garoupa, N. M., 2008. The market for legal innovation: Law and economics in europe and the united states. Alabama Law Review, 59. Vaquero, A. N., 2013. Five models of legal science. Revus, 19, 53–81. Weber, M., & Tribe, K., 2019. Economy and Society: A New Translation. Harvard University Press. Williamson, O. E., 1989. Transaction cost economics. In Handbook of Industrial Organization. Elsevier, 135–182.
15 Economics of convention – a transdisciplinary approach as core part of new French economic sociology Rainer Diaz-Bone
Introduction In the last decades, the so-called “economics of convention” (French “économies des conventions”, in short EC) or convention theory has been established as a new institutionalist approach. Economics of convention was developed first in universities and research institutes in the Region of Paris and then spread out – mainly in European countries.1 EC regards a plurality of conventions as co-existing institutional rationalities (or “institutional logics”) how to evaluate, interpret and valorize persons, objects and actions as well as how to coordinate in economic situations (of production, distribution and consumption). Conventions – seen this way – are not to be confused with traditions or customs. Instead, EC has worked out this notion to analyze the different institutional rationalities and logics, which actors rely on in empirical economic situations as in markets, enterprises and economies as a whole. So far, economic sociology has only received and applied the so-called new economic sociology worked out by US American scholars (Smelser and Swedberg 2005).2 But this notion and perspective has overlooked that in France new approaches have been developed, which can be considered as contributions to the French version(s) of new economic sociology. 3 The work of Pierre Bourdieu and his school to the analysis of economic structure are substantial contributions to consumption and economic sociology (e.g. Bourdieu 1984, 2005), but the “post-Bourdieusian” developments are less known outside of France. For some decades now, actor network theory (ANT) and economics of convention (EC) are the most important scientific movements for recent innovations in French social sciences in general and in economic sociology in particular (Dosse 1999; Diaz-Bone 2018a; François 2021). Most representatives in ANT, as Bruno Latour, have mainly contributed to other fields such as science studies, and in ANT, it has been the works of Michal Callon which contributed to economic sociology (Callon 1998, 2017). In difference to ANT, EC is centering its research on the economy and economic institutions. Convention theory can therefore be regarded as the main contribution to a French version of new economic sociology (Storper and Salais 1997; Orléan 2004; Eymard-Duvernay 2006a, 2006b; Thévenot 2006; Diaz-Bone and Salais 2011, 2012; Diaz-Bone 2018a). But EC has been transdisciplinary from its beginning, linking economists, statisticians, historians, law scientists and sociologists to develop an integrative approach to the analysis of economic coordination and economic value. Therefore, EC is not restricted to fields as economic sociology, although it has worked out studies in the analysis of branches, markets, enterprises or money and finance (Storper and Salais 1997; Orléan 2004, 2014; EymardDuvernay 2006a, 2006b; Batifoulier et al. 2016; Diaz-Bone and Favereau 2019). Also,
DOI: 10.4324/9780367817152-18
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this institutionalism has to be conceived of as a scientific movement and not as a closed scientific paradigm. Because convention theory was founded in different applied fields such as labor market analysis or the analysis of social categories, EC has also become a leading approach in specific fields as economic sociology of (labor) law (Diaz-Bone et al. 2015), economics of health (Batifoulier and Diaz-Bone 2021) and economic sociology of quantification and digitalization (Diaz-Bone and Didier 2016). By including these (specialized) applications, EC offers an integrated perspective, which centers economic sociology in the landscape of social sciences, instead of conceiving economic sociology as another subdiscipline of sociology only. Convention theory has proven to be a visible approach for the development of general sociological theory, too, because convention theory is part of the renewal of sociological pragmatism and a scientific movement, which reconciles (neo)pragmatism and (neo)structuralism in the analysis of the relation between economy and society (Diaz-Bone2018a; Boltanski and Esquerre 2020).4 Convention theory became known to a more international readership first by the English translations of the work of Luc Boltanski and its coauthors (Boltanski and Chiapello 2005; Boltanski and Thévenot 2006; Boltanski and Esquerre 2020), but this reception misrecognized the embeddedness of Boltanski’s work in the movement of convention theory. The core member of this institutionalist movement François Eymard-Duvernay, Olivier Favereau, André Orléan, Robert Salais and Laurent Thévenot coined the notion of economics of convention and initiated this movement in the 1980s (Dupuy et al. 1989; Dosse 1999; Thévenot 2006). In this contribution, EC will be presented with its main concepts and its main concepts and contributions to economic sociology. Thereby, the specific character of EC will be discussed, which justifies to regard EC as the main strand of a new economic sociology in France.5 The notion of convention is a core concept of EC (which is the reason why it is also labeled as convention theory) but EC is not a one-notion approach. This chapter introduces EC’s different conceptions of convention, emphasizing the organized plurality of conventions, which EC has systematized in different models (Section „Conventions“). Convention theory has worked out different “models” or organized “systems” of conventions, which all have proven to be fruitful for different applications and research questions (Diaz-Bone 2018b; François 2021). Then contributions to two major fields of economic sociology are sketched. Convention theory has developed a “political economy of quantification”, which has opened research perspectives on the link between state, economy and statistics as well as statistical categories (Section „Analysis of the political economy of quantification“). In many social sciences, the analysis of the economy and the analysis of one of its most important institutions, which is law, are separated. EC has offered perspectives and done empirical studies in the “economic sociology of law”, which will be reviewed (Section „Economic sociology of law“).
Conventions A core topic of economic sociology is the analysis and explanation of value as result of social processes, practices and institutions. Markets, pricing and economic coordination are possible if the value of goods, actions or persons is evident for actors in situations of economic coordination. But the question at stake is how economic actors can decide on qualities. In most cases, the material and immaterial properties of goods and services cannot guarantee a shared quality perception – besides the fact that quality perceptions
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of goods and services can change over time. Convention theory studies how actors rely on conventions to interpret qualities (Diaz-Bone and Larquier 2022).6 Quality conventions Quality conventions are analyzed as evaluative frames for economic production and exchange. Most important is EC’s awareness of the co-existing plurality of quality conventions, which contradicts neoclassic economic positions of identifiable optimal institutional arrangements (as transaction cost economics has argued, see Williamson 1985). Instead, for convention theory, every market, enterprise or other economic institution is patterned by (mainly) one or by a constellation of conventions as institutional solutions and the identification of an “optimal institutional arrangement” is impossible, because this evaluation and the calculation of economic indicators are themselves dependent on conventions as evaluative frames. Most empirical situations are structured by compromises of several conventions, in which these are unequally integrated, this is to say that one or two conventions are dominant. Actors are seen as competent to evaluate how to handle and refer to conventions, to judge which conventions are adequate to engage in different situations or simply to identify, which conventions are ruling situations. Also, actors have a practical and moral sense to identify the link between conventions and a specific common good, which is aimed by the coordination, when relying on a convention. Although this link rests implicit in routine situations, it can be made explicit, when actors are forced to justify or to criticize others, thereby referring to conventions as discursive principles and referring to the common good (Boltanski and Thévenot 1983, 2006). EC has described how actors are also competent in engaging critique and in mobilizing alternative conventions to change quality perceptions and more general to question established categories, legitimization and ways of justification (Boltanski and Chiapello 2005; Boltanski and Thévenot 2006). The pluralism of conventions and the critical capacity of actors are elements of EC’s pragmatist positioning. These are complemented by the inclusion of objects and cognitive forms as instrumentation for actor’s coordination in real situations (Eymard-Duvernay and Thévenot 1983; Thévenot 1984). Coordination based on conventions can only be routinized, when actors regularly link these to cognitive forms and objects. Cognitive forms enable actors to represent relevant information, in a way, which is coherent to the engaged quality conventions. Objects are important also to document, to proof and to test the quality in relation to critique and justification. The concept of convention itself can be interpreted as a structuralist element in EC, because it is patterning coordination and quality perception in a foundational way. Therefore, conventions can be seen as “deeper structures” for coordination, evaluation and valuation (Gomez and Jones 2000). Table 15.1 represents eight quality conventions that have been identified in EC’s work. This set of conventions is one of EC’s most applied model, and it was mainly worked out originally in the collaboration between Boltanski, Thévenot and Eymard-Duvernay (Eymard-Duvernay 2004; Boltanski and Thévenot 2006) and elaborated in the collaboration with others (Lamont and Thévenot 2000; Boltanski and Chiapello 2005). A seminal study has been the analysis of the camembert production and the camembert market by Pierre Boisard and Marie-Thérèse Letablier (1987; Boisard 1991, 2007). This study is paradigmatic for EC but is only one example for a bigger number
310 Rainer Diaz-Bone Table 15.1 Quality conventions Convention Worth/Quality
Evaluation criteria
Information format
Persons’ qualification
Domestic Tradition, handcraft
Esteem, reputation
Oral, exemplary
Authority Trust and flexibility Professional, Functional link expertise
Industrial Planning and Efficiency, Measurable standardization productivity criteria, statistics Market Demand Price Money units orientation, free exchange Civic Collective interest Relevant for Formal, official collectivity Inspired Grace, Originality, Newness, nonconformity, innovative emotionality creativity capacity Opinion Renown Amount of Semiotic recognition Green Ecology (its Environmental Narrative integrity) compatibility Network Activity, selfSuccessful Meetings management projects
Interpersonal relation
Desire, Exchange purchasing power Equality Solidarity Creativity, ingenuity
Passion
Celebrity
Recognition
Ecological Responsibility knowledge Capacity for Project teamwork orientation
Source: Adopted from Diaz-Bone (2018a: 162–163).
of applications of convention theory to the analysis of food, of food markets and of the “agro-food” sector (Ponte 2016).7 Camembert is a traditional cheese, which has been produced mainly by female farmers in the Normandy region. The traditional way of production is based mainly on the domestic convention. This “camembert normand” is produced in renowned traditional milk farms and its taste should vary according to the seasons and mirror the expertise of the farmer. The domestic convention as quality convention is based on personal experience, handcraft and local tradition. [T]raditional camembert depends on the valorization of local specificities supported by a network of personalized relations. The materials used in preparation owe their quality to the continuous care of individuals who know one another and who maintain close trusting relationships in a particular locality. As a result, the least disruption in these networks leads to defects in quality – whereas the industrial system, less fragile in this regard, does not depend on personal relationships. Good milk, the indispensable element of good cheese, is milk produced in Normandy, by indigenous Norman cows that are carefully fed and showered with affection. The milk must be collected and treated properly, placed in twenty-liter cans, stored in a cool place, then picked up twice a day by the cheesemaker’s dairy. The region of milk collection is limited: no farm can be more than 10 kilometers from the dairy. As there are ‘wine yards’, so there are ‘milk yards’ […]. The milk, except for transportation in cans, receives no shocks. Respect for its integrity is essential to the quality of the cheeses. At the unloading platform of the cheese dairy, the milk is sorted according to its look and smell. […] Then the milk is tasted to identify
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and dispose of which is too acidic. This unrefrigerated milk is rich in bacterial flora: collected in the evening, it is put into containers to ripen, so that its degree of acidity will rise. The next day it is mixed with milk collected that morning […]. The mixture thus obtained has the desired degree of acidity without needing an addition of lactic starter. (Boisard 1991: 181f ) But in the course of the 1980s step by step an industrial way of production was established, which contradicts the traditional quality convention. The industrial convention resides on standardization and massive employment of mechanization. The cognitive format of information is numerical, scientific expertise is the most valuated. In the industrial production, milk is gathered from all over France, it is pasteurized and homogenized to guarantee its durability and hygienic standards. The taste of this “camembert normé” is planned and controlled to guarantee a durable, unified and expectable consumer experience. From the beginning to the end, all stages of the process contribute to the creation of an industrial product, carrying the label ‘camembert’. If one were to characterize this item in one word, the term ‘standard’ would be appropriate. I mean by the adjective an object conforming to stable and precise norms, accurate and consistent whatever the place and time of its production and sale. Constancy is what qualifies camembert as an industrial product, not its mechanical or automatic manufacture in a factory. Factory production alone does not make camembert an industrial product. Rather, industrialization demands that all processes and relations comply with established standards so that the final product, at the moment of consumption, is absolutely right. A single error at any stage of processing may be enough to reduce its quality to nothing. […] The logic of the system aims to create a standard product, unchanging in space and over time, with as long a ‘shelf live’ as possible, and at minimum cost. To this end, standardization, stabilization, and productivity are the leitmotifs of each stage. […] (Boisard 1991: 177) In the cheese market, the institutional logic to produce the camembert normand, i.e. the domestic convention, is the antithesis to the institutional logic to produce the camembert normé, i.e. the industrial convention. The camembert market is separated into quality niches by these quality conventions. Convention theory makes evident, that there is no single institutional arrangement, which is most adequate (“most efficient”) for the production of a product as transaction cost economics assumes, assuming that “product specificities” determine the best way to organize the institutional setting for production (Williamson 1985). Instead, EC regards the properties of the product as outcome of the coordination of actors in the course of production, which is based on a quality convention. To rely on quality conventions in processes of economic coordination therefore is to mobilize identities and ontologies of products and services, which have to be understood as collective constructions and not as evaluations about pregiven characteristics.8 So, it is neither markets nor organizations (as assumed in transaction cost economics), which can serve as foundational institutional arrangements in the economy. Instead, for EC, markets and enterprises are more or less stable settings for
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economic coordination and evaluation, based on constellations of a plurality of quality conventions. The structure of most markets for products and services can be explained by the plurality of quality conventions: quality positions and quality niches can be explained by the governance of one quality convention (or a specific combination of quality conventions) in a market segment. One can find almost all conventions (as listed in Table 15.1) in empirical markets, which is to state for convention theory that markets are not reducible to the market convention (or another single institutional logic) only. The camembert study sketched the role of the domestic convention and the industrial convention as two antagonistic quality conventions. In many food markets, one can find organic products, which are linked to the green convention, or fair-trade products, whose production is based on the civic convention and green convention. Enterprises are regarded as institutional intermediaries, which link different markets, such as labor markets, product markets and financial markets (Thévenot 2002; Eymard-Duvernay 2004; Salais 2007; Favereau 2014). Quality conventions are interpreted as production models in companies. In contrast to many approaches in organizational research, the enterprise and, more generally, the organization are not given a reality of their own in the sense that “organization” per se denotes an independent coordination logic. Olivier Favereau (2014) has further elaborated the concept of “dispositive” (a device) with reference to companies. According to him, companies are dispositives of valorization (as also Eymard-Duvernay 2004 has argued), because companies lie at the intersection of three forms of valorization (they are valued by financial markets and by consumers, and then the work done in organizations is also valued by organizations themselves and labor markets). Companies are a dispositive for the mobilization of the collective of those who perform economic coordination in them. From the point of view of the employees, the enterprise is further a dispositive for adjusting the relationship between personalization of work and standardization of work. Finally, the enterprise is a dispositive for the development of privatized power, by which Favereau argues that an enterprise can develop power independently of national law – for example, by introducing internal organizational rules. Seen from the standpoint of EC an enterprise is a compromise between different quality conventions, as Eymard-Duvernay (2004) has analyzed for the Fordist organization of industrial organizations, which are governed by a compromise of the industrial convention and the market convention. When one inspects different divisions of modern enterprises, it also becomes evident that divisions as the research and development division are patterned not only by the industrial convention, but also but the convention of inspiration. The marketing division and the advertising division rely also on the convention of opinion, while the human resource management has to integrate the civic convention in its practices and decisions (Diaz-Bone 2018a). All in sum, organizations are complex compromises between different conventions and one can speak of an organized complexity (Thévenot 2002). Worlds of production The presented “system” or set of quality conventions, developed by Boltanski, Thévenot and Eymard-Duvernay, is the most widely applied. But scholars in the field of convention theory have developed other notions of conventions, which are important milestones in this scientific movement. As the quality conventions presented above, the
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worlds of production are conventions, i.e. pragmatist structures, on which the quality of products and services can be based. Conventions resemble ‘hypotheses’ formulated by persons with respect to the relationship between their actions and the actions of those on whom they must depend to realize a goal. When interactions are reproduced again and again in similar situations, and when particular courses of action have proved successful, they become incorporated in routines and we then tend to forget their initially hypothetical character. Conventions thus become an intimate part of the history incorporated in behaviors. […] The word ‘convention’ is commonly understood to suggest at one and the same time: a rule which is taken for granted and to which everybody submits without reflection, the result of an agreement (a contract), or even a founding moment (such as the Constitutional Convention). Thus convention refers to the simultaneous presence of these three dimensions: (a) rules of spontaneous individual action, (b) constructing agreements between persons, and (c) institutions in situations of collective action; each has a different spatio-temporal extent, and they overlap in complex ways at a given moment in any given situation. In practice, it is only by initially assuming the existence of a common context and by formulating expectations with respect to the actions of others that it is possible to engage in coordinated collective action: these are the dimensions of inherited, longue durée conventions, some of which take the form of formal institutions and rules. But at any given moment, the context is evaluated and re-evaluated, reinterpreted, by the individual who must choose to practice or not practice according to a given convention. (Storper/Salais 1997: 16f, emphasis in orig.) In their analysis of the regional economies in California, Paris and northern Italy, Michael Storper and Robert Salais have identified four different possible worlds of production, which can be conceived as analytical ideal types. The four possible worlds of production can be systematically distinguished on the basis of two oppositions. The first opposition distinguishes whether specialized (non-standardized) products or standardized products are produced. The second opposition differentiates whether production is for specific customers or for an undifferentiated general public. Table 15.2 organizes the four possible production worlds of the “interpersonal world”, the “market world”, the “world of intellectual resources” and the “industrial world” on the basis of these two oppositions. Real economic branches represent empirical articulations of combinations of compromises between the four worlds of production in Table 15.2. These worlds of production are conventions, which overarch the single enterprise and pattern the coordination across enterprises, thereby integrating the different steps in the production chain. Storper and Salais refuse to focus on single markets and enterprises, because economic coordination integrates systems of markets and enterprises in regions. The analysis of real worlds of production thus takes place at the level of the branch of production (that is, a coherent ‘space’ of productive activity, sometimes involving parts of several industries), not at the level of individual firms or establishments. Firms are important organizations within these tissues, but there is no reason to make the firm the central focus of economic analysis. (Storper/Salais 1997: 24; emphasis in orig.)
314 Rainer Diaz-Bone Table 15.2 Four possible worlds
Dedicated products
Specialized products [economies of variety]
Standardized products [economies of scale]
The interpersonal world Evaluation of quality: Price
The market world Evaluation of quality: Industrial standards by demanders Forms of uncertainty: Shifting prices and quantities
Forms of uncertainty: Personal qualities of other producers and consumers Response to uncertainty: Comprehension among a community of persons Basis of competition: Quality Generic products
Response to uncertainty: Immediate availability
Basis of competition: Prices and rapidity The world of intellectual resources The industrial world Evaluation of quality: Scientific Evaluation of quality: General methods industrial standards Forms of uncertainty: The path of Forms of uncertainty: Business cycle, knowledge development demand fluctuations Response to uncertainty: Confidence Response to uncertainty: Short- and in others medium-term forecast of events and behavior Basis of competition: Learning Basis of competition: Price
Source: Adopted from Storper and Salais (1997: 33)
Storper and Salais’s model of worlds of production has to be seen as a critique of institutional approaches, which assume a convergence toward industrialization and global unification of institutional logics in production. Instead, Storper and Salais (1997) emphasize the co-existing plurality of different institutional logics and in this regard, they elaborate on the perspective introduced by Michael Piore and Charles Sabel (1984), who identified in the 1980s two different forms of capitalism, which resist simple forms of industrialization (based on standardization and mass production) and reinvent advanced forms of production based on flexible handcraftsmanship. But convention theory avoids dualisms and strengthens real pluralist models, which seem to be more adequate to contemporary economies. The worlds of production equip regional economic coordination in branches with coherence and serve as cognitive frame for actors. Storper and Salais complement their model with different additional forms of conventions to approach the analysis of labor (Storper and Salais 1997: 59) or finance (Rivaud-Danset and Salais 1992) in the four different worlds. An important addition is the notion of conventions of the state. Storper and Salais (1997: 207f ) differ in three forms. In the convention of the external state, actors expect the state to intervene and plan for itself (France is the example here). The state is nevertheless seen as an entity external to the economy, standing “above society” and supporting actors when there are problems in the economy. However, the anticipation of this support may lead actors to accept a coordination failure and the state to intervene. The convention of the absent state is that the state stands in opposition to the principle of the market (the example being Anglo-American economies). The intervention of the state is criticized here insofar as it is seen as hindering the development of individual intentions and potentials. The role of the state here is to oversee that it does not act as
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an obstacle in the market and that the market mechanism is at all times strong enough that the state does not need to intervene and that the state can act against collective agreements (cartels). The convention of the situated state is put into operation by actors who know that the state will not intervene until they fail in doing so. Important is that the state leaves actors uncertain how it will intervene to compensate for coordination failure. Again, these conventions of the state are not to be seen as institutional realities, i.e. ways how the state is organized, but as cognitive frames, how economic actors interpret the role of state actors and state institutions in relation to their own economic coordination. The pragmatist position of EC, which insists to take over the actors’ perspective in situations, is an important methodological standpoint for Storper and Salais (1997: 15). Conventions of competence A birth moment of EC has been the analysis of labor markets and their structures. Convention theory has argued that labor markets should be considered as neoclassical markets but should be understood as realms, organized by convention-based practices of assessing possible employees and recruiting procedures. The argument of EC is that “qualification”, “competence” or “skills” of applicants are not a pre-given property of individuals but the pragmatic result of valuation processes – a social construction in situations. François Eymard-Duvernay and Emmanuelle Marchal (1997) discovered four conventions for assessing competencies and recruiting applicants, which are organized by two oppositions: (1) assessment of competences in the process of recruitment relies on standardization or competences are qualified during interactions and can be negotiated; (2) competences are constructed as a person-specific characteristic or are recognized on the basis of belonging to a collective. Table 15.3 presents these conventions of competence (or conventions of recruitment) Table 15.3 presents also the actors’ roles, objects and dispositives, which are linked to the four conventions in situations. The model of Eymard-Duvernay and Marchal makes evident that labor markets have a pluralist structure, this is to say that different valuation principles co-exist. This contradicts the view of neoclassical market models, which assume standardized properties of goods (as labor) and standardized ways of their evaluation. This model has inspired many empirical applications of EC, for example cross-national comparisons (Bessy et al. 2001), and studies which focus on labor markets’ structures and their relation to social inequality (Eymard-Duvernay 2012).9 Forms of valuation Finally, one can add the concept of forms of valuation, which is a more recent development in convention theory. Luc Boltanski and Arnaud Esquerre (2020) introduced this notion in their analysis of the so-called economy of enrichment, in which enterprises try to explore new sources of profit out of luxury items, tourism, traditions and cultural heritage, pieces of art and other objects, which collectors appreciate as valuable part of their collections. Boltanski and Esquerre identified four forms of valuation, which can be distinguished by two oppositions as presented in Table 15.4. The first opposition (“analytic presentation versus narrative presentation”) separates forms of valuation which are based on an analytical style of valuation (focusing on properties that can be measured and codified) from forms of valuation, which rely on narrative strategies of valuation. The opposition “negative or positive commercial potential”
316 Rainer Diaz-Bone Table 15.3 Conventions of competence Competences are related to the membership of collectives (1) Institution
(3) Network
Recruiter: Regulator Recruiter: Mediator Dispositives that establish Dispositives that create equivalence: Status, levels, relationships: spatial diplomas, positions, hierarchy. proximity, guarantors, Ontology of competence: objects formal qualifications Ontology of Standardization of competence: competences competencies distributed in the network. (2) Market (4) Interaction
Negotiation of the competences
Recruiter: Selector Dispositives of competition: ads, aptitude tests Ontology of competence: aptitudes
Recruiter: Interlocutor Face-to-face dispositives: job interviews Ontology of competence: emergent competences Individualization of competences Source: Eymard-Duvernay and Marchal (1997: 25).
Table 15.4 Forms of valuation Analytic presentation Negative commercial Standard form potential Positive commercial potential Asset form
Narrative presentation Trend form Collection form
Source: Boltanski and Esquerre (2020: 107).
opposes forms of valuation with regard to the expectation about the future development of the value (Boltanski and Esquerre 2020: 103–104). The enrichment economy can be characterized by its strategy to exploit “the past” (Boltanski and Esquerre 2020: 2) and to transform the past into profits. The collection form in Table 15.4 has the most importance for this new economic valuation strategy. Although the concept of forms of valuation seems to be similar to the concept of quality conventions, these forms are not conceived of as being linked to a common good. Nevertheless, these forms work as conventions in markets on which actors can rely on to evaluate the worth of goods.
Analysis of the political economy of quantification Another birth moment of EC has been the analysis of socioeconomic classifications and official statistics (Thévenot 1983, 2016; Desrosières and Thévenot 2002). Here, the path-breaking works of Alain Desrosières can be considered as the basis for many scholars in the field. Desrosières has argued that statistics are possible, when there is an
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agreement about a convention implemented, how to measure (Desrosières 2008: 10), therefore one can speak of measurement conventions. These implement at once (1) a shared interpretation about the entities’ ontologies, which is to measure (e.g. unemployment) and (2) the accompanying practice how to quantify or how to categorize it (Centemeri 2012). For convention theory, the link between measurement conventions and the common good is realized pragmatically (and also tested as well as justified), when the generated numbers support collective action aiming for a common goal (Salais 2016). Measurement conventions are also the basis for classifications and these conventions are the cognitive infrastructures which enable institutions to make things comparable, for this, Desrosières has called them also “conventions of equivalence” and their scope (in space and time) “spaces of equivalence” (Desrosières 1998: 10/12). Statistics has become the most important cognitive form for coordinating states and economies. Desrosières (2011) compared the different historical constellations, how the state, the economy and statistics have been co-constructed. As Table 15.4 demonstrates, since some centuries now, economies rely on numerical information for valuing and governing economy and society, but the requirements of states and economies change in correlation with the change in the institutional setting of the political economy. In line with Desrosières, one can speak of different historical articulations of the political economy of quantification. (These forms are presented as ideal types for historical epoch but reach out into following epochs and exert influence later on.) (Table 15.5). Table 15.5 The state, the market and statistics
Engineer state Production and people (since the 17th century) Liberal state Trade and prices (since the 18th century) Welfare state Waged work and its protection (since the end of the 19th century) Keynesian state Global demand and its components (since the 1940s) Neoliberal state Polycentrism, incentives, benchmarking (since the 1990s)
Conceptualization of Mode of action society and of economy
Forms of statistics
Hierarchically Optimization under structured constraint; reduction institution, of costs; planning; rationally technocracy organized Physiocracy; an Fight against extensive market; corporatism; freefree competition trade philosophy; anti-trust law The labor market Laws on working has to be hours; accidents; protected unemployment; compulsory social insurance systems Markets cannot Managing the function on their occasional gap own and must between global be regulated at a supply and demand global level through state policies An extensive Moving from rights to market; free incentives; turning and undistorted administrations into competition agencies
Demography; production in physical quantity; input-output-table; material balance Statistics promoting market transparency
Source: Desrosières (2011: 45) Note: The table was slightly modified and shortened by the author.
Labor statistics; sampling surveys of workers’ household budgets; consumer price indexes National accounting; economic budgets
Construction and use of indicators to evaluate and classify performance; benchmarking
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Quantification has become the major knowledge resource and nowadays, economies face new devices as the Internet and computerized data generation and data analysis. The buzz word is big data, and it is considered to be the “new oil” of contemporary economies (Mayer-Schönberger and Cukier 2013; Mayer-Schönberger and Ramge 2018). Scholars in the field of convention theory have critically studied the new and mainly private data infrastructures and emphasized the problem of the opacity of the measurement conventions (Diaz-Bone 2016, 2017; Al-Amoudi and Latsis 2019; Batifoulier and Diaz-Bone 2021). When the measurement conventions are not visible for the public, they cannot be criticized or justified. But citizens are underlying the influence of quantification and big data, because algorithms generate decisions (about consumer evaluations, the categorization of health risks etc.),10 which determine life style conditions, health care, and more general, which increase inequalities not only in the economy (unequal access to products and services) but also in life chances in general. Convention theory has offered different approaches how to study quantification in the context of economies, as the division of labor in the statistical chain, which is the series of steps in the implementation of measurement conventions and data generation (Desrosières et al. 1983; Thévenot 1983; Desrosières 2000; Desrosières and Thévenot 2002).11 Here, the incoherencies and the tensions between different groups of actors are analyzed (Desrosières 2000, 2009; Diaz-Bone 2016, 2017). In two historical studies of France, the emergence of new statistical categories in the context of their co-emerging social context has been analyzed. Salais, Baverez, and Reynaud (1999) have studied how the category of unemployment has been constructed in the context of the upcoming industrial labor institutions. Boltanski (1987) has reconstructed the emergence of the social category of the “cadres” (Boltanski 1987) in the context of the other existing social classes.12
Economic sociology of law For the founders of economic sociology as Max Weber (1978), the inclusion of economic law was regarded as essential to approach economies for a sociological perspective (see also Swedberg 2002). At the beginning of the 2000s, Richard Swedberg called for an “economic sociology of law” to be developed, making it clear that it was not a matter of adopting sociological models and theories of law, but rather of independent contributions by economic sociology, which could contribute something to the significance of law for the economy with its own approaches – if it included law comprehensively in its analyses again (Swedberg 2002, 2003a, 2003b). In this regard, most contemporary approaches in the field of economic sociology have not much to offer. But convention theory can be seen as an exception, because from its transdisciplinary beginnings, EC considers law as one of the fundamental institutions for the economy (Bessy and Favereau 2003; Diaz-Bone et al. 2015). EC has naturally integrated the analysis of legal rules like all approaches that are interested in the way in which institutions structure economic exchanges, but without falling into one form of functionalism (search for the optimal institution) or another (minimization of transaction costs). This integration was born out of his empirical interest in the way institutions structure economic exchanges, but without falling into one form of functionalism
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(search for the optimal institution) or another (minimization of transaction costs). This integration also originates from EC’s empirical interest in public policy, particularly in the field of public policies, notably in the field of employment and competition, and their evaluation. (Bessy 2014: 259; transl. RDB) The analysis of law in the economy also reveals a basic pragmatic position, which is that institutions are not conceived as external to action if they are relevant to action. Law is “endogenized” in the pragmatic theory perspective. That is, it is considered how actors in situations and through their coordinating practice interpret the law, take it into account in their actions, and thus give the law a reality as an institution in action in the first place. Thus, law is not conceived as “external”, that is, as an institution that is external to action and to be taken as given (Salais 1998, 2008; Bessy 2002; Bessy and Favereau 2003). From the perspective of convention theory, law – as any institution – is to be conceived of as incomplete in terms of its meaning, how to “understand”, how to “use” and “apply” it in situations (Salais 1998). Pragmatically, conventions are […] prior to institutions. We do not need to marshal the whole institutional arsenal to buy bread at the bakery. Similarly, to know what we have to do at a given moment in our job, we do not have to consult a whole battery of regulations and laws defining the job and its specific tasks before taking action. (Salais 2011: 223) For this reason, actors have to complement institutions by referring to conventions (and by adapting to the conditions and equipment of the situations itself as objects, problems, tensions and critique). Salais’ more general position about the incompleteness of institutions is applied to law by Bessy, Delpeuch and Pélisse. It has to be noted […] that it is the legal rules themselves that require their addressees to make efforts to understand and interpret them. Indeed, insofar as legal statements are of a general nature, those who are supposed to implement them are frequently led to determine for themselves what specific acts should be performed in order to comply with them. They have to find out what practical meaning to give to the rule of law in every situation of everyday life, while its literal meaning is difficult to grasp, since the law always contains a degree of incompleteness, imprecision and ambiguity (insofar as it does not systematically spell out the criteria or thresholds that make it possible to determine the legal or illegal nature of a fact). (Bessy et al. 2011: 17) EC’s conception of law also has consequences for the conception of the enterprise. Representatives of the EC have pointed out the difficulties of economic approaches. EC locates their problem of modeling the contractual regulation of the working relationship in the enterprise finally in the fact that attempts are made to dissolve the enterprise as a collective reality in a system of hierarchical relationships based on separate contracts with single employees. This strategy involves the contradiction between a liberal contractual model among equals on the one hand, and a contractually entered hierarchical relationship between employer and employee on the other hand, which is supposed
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to establish the employer’s control over the employee’s performance. EC’s position is simply that one cannot dissolve the reality of an enterprise by conceptualizing it as a system of contracts (Bessy and Eymard-Duvernay 1995; Eymard-Duvernay 2010). In this line, Favereau (2014) has questioned the legal conception of private companies as being owned by shareholders. He argues that shareholders have a legitimate right to receive a share of the company’s profit, but not to own the company itself. Favereau is continuing the research of Eymard-Duvernay (1994, 1997), who made convention theorists aware of the role of intermediaries, customers, cooperation firms, which are important for the coordination in the enterprise, its performance on markets and the quality conventions employed. This extension of the relevant actors for production and entrepreneurial success emphasizes the need for another conception of the firm and who should be appreciated for its economic profit. Convention theory has contributed with empirical studies to the analysis of an economic sociology of law.13 Claude Didry (2002) reconstructed the problems French jurists had at the beginning of the 20th century in incorporating the collective agreements between employers and employees in the Paris region, which were emerging in various regions and industries, into jurisprudence or French law. Didry takes up Storper and Salais’ model of worlds of production and relates it to “legal production”. It is not governments or parliaments that initiate new law here, but actors in the regions and sectors who want to agree on how to re-stabilize coordination in production under conditions of massive social and technological change. It is these sociohistorical situations in which demand arises for the collective conventions that now emerge as institutions “on the ground” and initially contradict French labor law – which places individual freedom of contract at its center. Didry’s (2002) analysis focuses in particular on the production of law, the elaboration of laws and their practical meaning in legal worlds, whereby he draws on Salais and Storper’s concept of worlds of production. Didry makes clear that the production of law is also “situational” in a historical and pluralistic constellation of legal worlds. Christian Bessy (2007) has analyzed a sample of labor contracts in France and identified four types, how the labor relation can be “contractualized”. These types differ in the degree how contracts are individualized or worked out for groups of employees and the degree how far work is conceived as flexible or as formalized. Bessy (2007) argues that contracts are not determined by labor law and cannot determine every situation ex ante and have to be interpreted by employees and employers. Again, it is this incompleteness of contracts, which enforce interpretations in situation, which cause litigations and interpretations of lawyers. Bessy (2015) has also studied the professional organization of the law profession and identified its inner segmentation, which corresponds to quality conventions as worked out by Boltanski and Thévenot. He identified the case lawyer (civic convention), the standard law office (market convention and industrial convention), the traditional lawyer (domestic convention) and the big law firm (inspired convention).
Notes 1 See for more recent publications in the international field (since 2017) the EC-blog https:// conventions.hypotheses.org/. 2 An exception is a publication in the field of economic sociology (Beckert and Zafirovski 2006), including early on also recent European contributions in the field, such as Thévenot (2006).
Economics of convention 321 3 See for the new economic sociology in the US the contributions in Guillén et al. (2002). 4 For this reason, EC is also labeled as «sociology of conventions» (Diaz-Bone and Thévenot 2010) and is closely linked to the so-called sociology of critique or “sociology of critical capacity” (Boltanski and Thévenot 2006; Boltanski 2011). 5 Because EC has generated research for decades and spread out in different countries and disciplines, the presentation has to be conceived of as a selection and introductory in character only. 6 Here EC joins a theoretical engagement with Harrison White, who is a founder of the US American new economic sociology. In fact, there has been an interchange between White and representatives of EC, which is documented in the publication (Favereau and Lazega 2002; White 2002). 7 Another paradigmatic study is the analysis of the global value chain of coffee-production (Daviron and Ponte 2005). 8 The French verb “qualifier” is the practice to (collectively and institutionally) acknowledge the essential properties and the proper reality of a person or an object. “Qualifier” is a collective way of constructing qualities as new realities and cannot be reduced to practices as “training”, “enabling” or “relativizing” (of already existing entities, characteristics or capacities). 9 Marchal and Rieucau (2010) offer an overview of this strand of EC applied to the analysis of labor markets and ways of recruiting. See for more applications the contributions in Eymard-Duvernay (ed.) (2012) and Diaz-Bone and Favereau (eds.) (2019). 10 Citizens start to critically resist against “being quantified”, this phenomenon is called “retroaction” by Desrosières (2015), and skepticism against big data has turned against science, too (Desrosières 2015). 11 See also the contributions in Diaz-Bone and Didier (eds.) (2016). 12 See Latsis (2006) for a review of the study from Salais. 13 See also the contributions in Diaz-Bone et al. (eds.) (2015).
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322 Rainer Diaz-Bone Bessy, C., Eymard-Duvernay, F., Larquier, G. de and Marchal, E. (eds.), 2001. Des marchés du travail équitables? Approche comparative France/Royaume-Uni. Brussels: Peter Lang. Boisard, P., 1991. The future of a tradition: Two ways of making Camembert, the foremost cheese of France. Food and Foodways, 4(3/4), pp. 173–207. Boisard, P., 2003. Le Camembert. A National Myth. Berkeley: University of California Press. Boisard, P. and Letablier, M.-T., 1987. Le camembert: normand ou normé. Deux modèles de production dans l’industrie fromagère. In F. Eymard-Duvernay (ed.) Entreprises et produits. Paris: Presses Universitaires de France, 1–29. Boltanski, L., 1987. The Making of a Class. Cadres in French Society. Cambridge: Cambridge University Press. Boltanski, L., 2011. On Critique. A Sociology of Emancipation. Cambridge: Polity Press. Boltanski, L. and Chiapello, E., 2005. The New Spirit of Capitalism. New York: Verso. Boltanski, L. and Esquerre, A., 2020. Enrichment. A Critique of Commodities. Cambridge: Polity. Boltanski, L. and Thévenot, L., 2006. On Justification. Economies of Worth. Princeton, NJ: Princeton University Press. Bourdieu, P., 1984. Distinction. A Social Judgement of the Critique of Taste. Cambridge: Harvard University Press. Bourdieu, P., 2005. The Social Structures of the Economy. Cambridge: Polity Press. Callon, M. (ed.), 1998. The Laws of the Market. Oxford: Blackwell. Callon, M., 2017. L’emprise des marches. Comprendre leur fonctionnement pour pouvoir les changer. Paris: La Découverte. Centemeri, L., 2012. The contribution of the sociology of quantification to a discussion of objectivity in economics. In J. Castro Caldas and V. Neves (eds.) Facts, Values and Objectivity in Economics. London: Routledge, 110–125. Daviron, B. and Ponte, S., 2005. The Coffee Paradox. Global Markets, Commodity Trade, and the Elusive Promise of Development. New York: Zed Books Desrosières, A., 1998. The Politics of Large Numbers. A History of Statistical Reasoning. Cambridge: Harvard University Press. Desrosières, A., 2000. Measurement and its uses. Harmonization and quality in social statistics. International Statistical Review, 68(2), pp. 173–187. Desrosières, A., 2008. Pour une sociologie historique de la quantification. L’argument statistique vol. 1. Paris: MinesTech. Desrosières, A., 2009. How to be real and conventional. A discussion of the quality criteria of official statistics. Minerva, 47, pp. 307–322. Desrosières, A., 2011. Words and numbers. For a sociology of the statistical argument. In A. R. Saetnan, M. Lomell and S. Hammer (eds.) The Mutual Construction of Statistics and Society. London: Routledge, 41–63. Desrosières, A., 2015. Retroaction. How indicators feed back onto quantified actors. In R. Rottenburg, S. Engle Merry, S.-J. Park and J. Mugler (eds.) The World of Indicators. Cambridge: Cambridge University Press, 329–353. Desrosières, A. and Thévenot, L., 2002. Les catégories socioprofessionnelles, 5th ed. Paris: La Découverte. Desrosières, A., Goy, A. and Thévenot, L., 1983. L’identité sociale dans le travail statistique. La nouvelle nomenclature des professions et catégories socioprofessionnelles. Economie et statistique, 152, pp. 55–81. Diaz-Bone, R., 2016. Convention theory, classification and quantification. Historical Social Research, 41(2), pp. 48–71. Diaz-Bone. R., 2017. Classifications, quantifications and quality conventions in markets – Perspectives of the economics of convention. Historical Social Research, 42(1), pp. 238–262. Diaz-Bone, R., 2018a. Die “Economie des conventions”. Grundlagen und Entwicklungen der neuen französischen Wirtschaftssoziologie, 2nd ed. Wiesbaden: Springer VS.
Economics of convention 323 Diaz-Bone, R., 2018b. Economics of convention and its perspective on knowledge and institutions. In J. Glückler, R. Suddaby and R. Lenz (eds.) Knowledge and Institutions. Cham: Springer, 69–88. Diaz-Bone, R. and Favereau, O. (eds.), 2019. Markets, organizations and law. Historical Social Research, 44(1), Special issue. https://www.gesis.org/en/hsr/full-text-archive/2019/441markets-organizations-and-law Diaz-Bone, R. and Salais, R. (eds.), 2011. Conventions and institutions from a historical perspective. Historical Social Research, 36(4), Special issue. https://www.gesis.org/en/hsr/ full-text-archive/2011/364-conventions-institutions Diaz-Bone, R. and Salais, R. (eds.), 2012. The economie des conventions ‒ Transdisciplinary discussions and perspectives. Historical Social Research, 37(4), Special issue. http://www.gesis. org/en/hsr/archive/2012/374-the-economie-des-conventions/ Diaz-Bone, R. and Thévenot, L. (eds.), 2010. Sociologie des conventions/Soziologie der Konventionen. Trivium, 5, Special issue. https://journals.openedition.org/trivium/3557 Diaz-Bone, R., Didry, C. and Salais, R. (eds.), 2015. Law and conventions from a historical perspective. Historical Social Research, 40(1), Special issue. http://www.gesis.org/en/hsr/ archive/2015/401-law-and-conventions/ Diaz-Bone, R. and Larquier, G. de., 2022. Conventions: Meanings and applications of a core concept in economics and sociology of conventions. In: Diaz-Bone, R. and Larquier, G.d. (eds) Handbook of Economics and Sociology of Conventions. Cham: Springer, 1–28. https://doi. org/10.1007/978-3-030-52130-1_2-2 Didry, C., 2002. Naissance de la convention collective. Débats juridiques et luttes sociales en France au début du XXe siècle. Paris: EHESS. Dosse, F., 1999. The Empire of Meaning. The Humanization of the Social Sciences. Minneapolis: University of Minnesota Press. Dupuy, J.-P., Eymard-Duvernay, F., Favereau, O., Orléan, A., Salais, R. and Thévenot, L. (eds.), 1989. L’économie des conventions. Revue économique, 40(2), Special issue. Eymard-Duvernay, F., 1994. Les frontières de l’entreprise. In ENS (ed.) Variations autour de la régulation sociale. Paris: Presses de l’Ecole Normale Supérieure, 161–171. Eymard-Duvernay, F., 1997. Les interactions aux frontières des organisations. L’économie des relations en proximité. In P. Garrouste (ed.) Les frontières de la firm. Paris: Economica, 81–94. Eymard-Duvernay, F., 2004. Economie politique de l’entreprise. Paris: La Découverte Eymard-Duvernay, F. (ed.), 2006a. L’économie des conventions. Méthodes et résultats. Vol. 1: Débats. Paris: La Découverte. Eymard-Duvernay, F. (ed.), 2006b. L’économie des conventions. Méthodes et résultats. Vol. 2: Développements. Paris: La Découverte. Eymard-Duvernay, F., 2010. La mal-mesure du travail dans les transactions marchandes. In A. Hatchuel, O. Favereau and F. Aggeri (eds.) L’activité marchande sans marché? Paris: Presses des Mines, 133–146. Eymard-Duvernay, F., 2012. Du chômage keynésien au chômage d’exclusion. In F. EymardDuvernay (ed.) Epreuves d’évaluation et chômage. Toulouse: Octarès Editions, 9–46. Eymard-Duvernay, F. (ed.), 2012. Epreuves d’évaluation et chômage. Toulouse: Octarès Editions. Eymard-Duvernay, F. and Marchal, E., 1997. Façons de recruiter. Le jugement des compétences sur le marché du travail. Paris: Metailié. Eymard-Duvernay, F. and Thévenot, L., 1983. Les investissements de forme. Leur usage pour la main d’oeuvre. Working Paper. Paris: INSEE. Favereau, O., 2014. Entreprises. La grande deformation. Paris: Collège des Bernardins. Favereau, O. and Lazega, E. (eds.), 2002. Conventions and Structures in Economic Organization. Cheltenham: Edward Elgar. François, P., 2021. A French institutionalism in economic sociology? In A. Maurer (ed.) Handbook of Economic Sociology for the 21st Century. Cham: Springer, 63–77.
324 Rainer Diaz-Bone Gomez, P.-Y. and Jones, B., 2000. Conventions. An interpretation of deep structures in organizations. Organization Science, 11(6), pp. 696–708. Guillén, M., Collins, R., England, P. and Meyer, M. (eds.), 2002. The New Economic Sociology. New York: Russel Sage. Lamont, M. and Thévenot, L., 2000. Rethinking Comparative Cultural Sociology. Repertoires of Evaluation in France and the United States. Cambridge: Cambridge University Press. Latsis, J., 2006. Convention and intersubjectivity. New developments in French economics. Journal for the Theory of Social Behaviour, 36(3), pp. 255–277. Marchal, E. and Rieucau, G., 2010. Le recrutement. Paris: La Découverte. Mayer-Schönberger, V. and Cukier, K., 2013. Big Data. A Revolution that Will Transform How We Live, Work, and Think. London: John Murray Publishers. Mayer-Schönberger, V. and Ramge, T., 2018. Reinventing Capitalism in the Age of Big Data. New York: Basic Books. Orléan, A. (ed.), 2004. Analyse économique des conventions. 2nd ed. Paris: Presses Universitaires de France. Orléan, A., 2014. The Empire of Value. A New Foundation for Economics. Cambridge: MIT Press. Piore, M. and Sabel, C., 1984. The Second Industrial Divide. New York: Basic Books. Ponte, S., 2016. Convention theory in the Anglophone agro-food literature: Past, present and future. Journal of Rural Studies, 44(1), pp. 12–23. Rivaud-Danset, D. and Salais, R., 1992. Les conventions de financement des entreprises. Revue française d’économie, 7(4), pp. 81–120. Salais, R., 1998. A la recherche du fondement conventionnel des institutions. In R. Salais, É. Chatel and D. Rivaud-Danset (eds.) Institutions et conventions. La réflexivité de l’action économique. Paris: EHESS, 255–291. Salais, R., 2007. Die „Ökonomie der Konventionen“ – mit einer Anwendung auf die Arbeitswelt. In J. Beckert, R. Diaz-Bone and H. Ganßmann (eds.) Märkte als soziale Strukturen. Frankfurt: Campus, 95–112. Salais, R., 2008. Economics of convention – its origins, contributions and transdisciplinary perspectives. Economic Sociology – European Electronic Newsletter, 9(2), pp. 16–23. Salais, R., 2011. Labour-related conventions and configurations of meaning: France, Germany and Great Britain prior to the Second World War. Historical Social Research, 36(4), pp. 218–247. Salais, R., 2016. Quantification and objectivity. From statistical conventions to social conventions. Historical Social Science, 41(2), pp. 118–134. Salais, R., Baverez, N., and Reynaud, B., 1999. L’invention du chômage. Histoire et transformations d’une catégorie en France des années 1890 aux années 1980. 2nd ed. Paris: Presses Universitaires de France. Smelser, N. and Swedberg, R. (eds.), 2005. Handbook of Economic Sociology. 2nd ed. New York: Russel Sage. Storper, M. and Salais, R., 1997. Worlds of Production. The Action Frameworks of the Economy. Cambridge: Harvard University Press. Swedberg, R., 2002. Law and economy. The need for a sociological approach. Economic Sociology – European Electronic Newsletter, 3(3), pp. 47–52. Swedberg, R., 2003a. Principles of Economic Sociology. Princeton, NJ: Princeton University Press. Swedberg, R., 2003b. The case for an economic sociology of law. Theory and Society, 32(1), pp. 1–37. Thévenot, L., 1983. L’économie du codage social. Critiques de l’économie politique, 23/24, pp. 188–222. Thévenot, L., 1984. Rules and implements: Investments in forms. Social Science Information, 23(1), pp. 1–45. Thévenot, L., 2002. Organized complexity. Conventions of coordination and the composition of economic arrangement. European Journal of Social Theory, 4(4), pp. 405–425.
Economics of convention 325 Thévenot, L., 2006. Convention school. In J. Beckert and Zafirovski, M. (eds.) International Encyclopedia of Economic Sociology. London: Routledge, 111–115. Thévenot, L., 2016. From social coding to economics of convention: A thirty-year perspective on the analysis of qualification and quantification investments. Historical Social Research, 41(2), pp. 96–117. Weber, M., 1978. Economy and Society. An Outline of Interpretative Sociology. Berkeley: University of California Press. White, H., 2002. Markets from Networks. Socioeconomic Models of Production. Princeton, NJ: Princeton University Press. Williamson, O., 1985. The Economic Institutions of Capitalism. New York: Free Press.
16 Economic sociology as comparative macrosociology Exemplified by the moral economy of debt Sabine Frerichs Introduction: starting from the concept of embeddedness One of the core concepts of economic sociology that has been constitutive for the development of the discipline is “embeddedness”. The picture that this term conveys is that something is enclosed by something else, that a thing is surrounded by a mass or material that covers and conceals it. Whether it is a splinter in the finger or a baby in the womb, the embedded thing has a separate identity but it is also incorporated into a larger entity. Inner and outer things coexist in an intimate relationship, they react to and interact with each other. A prominent way this picture is used in economic sociology is to describe the relationship between economy and society. The most straightforward notion would be that the economy is embedded in society, which implies that the economy forms part of society as a whole. In more nuanced terms, one could describe the economy as a (more or less) differentiated part of society which itself is seen as a (more or less) integrated whole. The basic idea remains the same: that the economy is enclosed by society at large, which responds to, sustains or contains it – or both. This picture of embeddedness has at least two implications. On the one hand, it makes a difference whether one describes the relationship between economy and society in terms of part and whole or whether one conceives economy and society as two separate but interrelated entities on the same analytical level. Moreover, as a metaphor, embeddedness suggests a substantive relation between embedded and embedding things, which cannot be easily reversed. If the economy forms a part of society, society cannot, in the same way, form a part of the economy. All this can be questioned of course, and this has indeed been the case. The embeddedness concept has been interpreted differently in the development of the discipline. Krippner and Alvarez (2007) distinguish between “interior” and “exterior” notions of how economy and society are interrelated. An interior relationship means that the two spheres are regarded as nested into each other and may even be conceived as mutually constitutive. An exterior relationship suggests that economic and social factors are as such independent but interact in manifold ways, without questioning where the distinctive rationalities come from. Moreover, substantivist conceptions of embeddedness (Polanyi 2018: 286) coexist with more constructivist ones, e.g., “cognitive embeddedness” (Dequech 2003). With regard to the former, it can be claimed that the economy is not only embedded in society but also in nature. This brings the material exchange sustaining human life to the fore: the “social metabolism” (Krausmann 2017) that forms the backbone of “social
DOI: 10.4324/9780367817152-19
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provisioning” (Power 2015). With regard to the latter, there is a long tradition to think of contemporary society as being embedded in the economy, and ultimately in economics. In a “market society”, the logic of the market, as rationalised by the economic discipline, has penetrated many aspects of social life. Cutting across these distinctions, the embeddedness concept can be spelled out on different analytical levels: the micro-level of actors, the meso-level of relations, the macro-level of regimes and the meta-level of rationalities (Frerichs 2009; 2011). On the micro-level, the “socially embedded individual” (Davis 2015) is not envisioned as a self-centred and independent utility-maximiser but as a relational self that is oriented towards others in making sense of the world. On the meso-level, the focus turns to relations in their own right, be it in the form of simple interpersonal ties or the roles economic actors have in social networks, formal organisations and institutional fields. On the macro-level, the analysis focuses on complex institutional constellations, which can be referred to as socio-economic regimes and include interactions of states and markets with a third sector. These institutional systems rest on a natural substrate and bear the cultural imprint of society. On the meta-level, the rationalities underlying a given regime or social order come to the fore: the epistemic categories, or constitutive forms of knowledge, that social collectives use to organise their reality, to define problems and develop solutions. In modern societies, this prominently includes scientific worldviews. Embeddedness on the micro- and meso-levels is emphasised in the new economic sociology of the Granovetterian kind, which aimed to avoid “undersocialised” as well as “oversocialised” conceptions of economic action (Granovetter 1985). In doing so, it also questioned the alternative of a self-interested homo economicus and a normconforming homo sociologicus. In contrast, embeddedness on the macro- and metaanalytical levels is rather associated with a Polanyian approach (Krippner and Alvarez 2007; Frerichs 2011), which has its roots in old economic sociology, or the sociology of the economy embodied in the works of the sociological classics (Swedberg 1987; cf. Convert and Heilbron 2007). Polanyi’s own legacy consists in a critique of market society, which involves the macro-level of regimes as well as the meta-level of rationalities. For him, the proliferation of markets shaped a new socio-economic regime, in which society was run as if it was “an adjunct to the market” (Polanyi 1957: 57). Economics had created a new way of seeing and governing society; economic liberalism became the credo of the time. This chapter starts from a macrosociological notion of embeddedness, which looks at how the economy is embedded in and conditioned by society as a whole. Moreover, it also considers how this relationship takes shape and can take different forms. As this involves influences in both directions, the idea of the mutual constitution of economy and society is also relevant. In the following section, this tradition in economic sociology is situated historically and related to the subject matter of political economy on the one hand, and socioeconomics on the other. The remainder of this chapter offers an example of how economic sociology can proceed as comparative macrosociology, using the moral-economy approach, which comes close to Polanyi’s notion of social embeddedness. This approach is first specified for and then applied to studying transformations of the moral economy of debt in the context of modern capitalist development. What this illustrates is
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a concrete way of exploring intersections of markets and morality from historical and comparative perspectives.
Three interrelated fields: economic sociology, political economy, socio-economics Drawing on the macro- and meta-levels of social embeddedness, this chapter brings the relation of the economy with society as a whole to the fore. It builds on a tradition in (and beyond) economic sociology which is concerned with the analysis of larger social entities, or complex institutional constellations, whose systemic qualities call for a macroanalytical approach. With regard to intersections of economy and society, one could also speak of socio-economic regimes which, broadly understood, includes structural as well as cultural aspects. These institutional constellations developed specific features in the context of nation-states but are, analytically and empirically speaking, not confined to the latter. Inasmuch as these macro-social entities or systems are studied in historical and cross-sectional comparison, economic sociology blends into comparative macrosociology. There are strong precedents to this perspective. In the 19th century, historicalcomparative scholarship took shape across the social sciences, even though it was, perhaps, less concerned with systematic comparison than with the peculiarities of national collectives. This applies to law, economics and sociology. In the historical school of jurisprudence, law was understood as an expression of the “spirit of the people” that develops organically, with the legislator only playing a secondary role. Inspired by this approach (Pearson 1999: 548), the historical school of economics came to emphasise the history and culture of so-called national economies, which had to be studied empirically rather than by simply assuming universal economic laws. Institutional economics, as it originally developed, largely shared these convictions (Barber 2008: 239). Along similar lines, classical sociologists tended to approach societies as organic wholes, taking their national or regional idiosyncrasies and their distinctive trajectories of legal and economic development into account (Weber 1978; Durkheim 1984). However, the historical-comparative perspective in economic sociology not only has precedents in the past but it also resonates with contemporary scholarship outside economic sociology as a branch of sociology, as it is typically conceived today. In the following, the links between economic sociology, political economy and socio-economics will be explored. Economic sociology and political economy Economic sociology can be defined in positive terms as taking a sociological approach to studying economic phenomena (Smelser and Swedberg 2005: 3). Drawing on the variety of perspectives within the sociological discipline, this approach can take many different forms. A common denominator is in using perspectives from sociology rather than drawing on “the” economic approach, which is at the core of the economic discipline and which can, by and large, be equated with the rational-choice approach (Becker 1993). To be sure, rational-choice theory also plays a role in sociology but next to a plethora of other perspectives. Economic sociology is thus often outlined in negative terms: as different from “mainstream economics”, which it is compared to and contrasted with (e.g., Smelser and Swedberg 2005: 3–6). In fact, this contradistinction
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could be seen as a premise for economic sociology to develop its own identity, be it as a complement or a substitute of (neoclassical) mainstream economics (Velthuis 1999: 630). While economic sociology is thus commonly opposed to mainstream economics, it can also be argued that it forms part of and remains intertwined with the broader tradition of political economy (Steiner 2016: 148). This includes classical as well as critical political economy, with Adam Smith and Karl Marx featuring as important reference points, at opposite ends, in the history of ideas. Moving closer to the present, this tradition does not end in what is called new political economy, which refers to an application of the rational-choice approach to questions of politics, but it is also reflected in a range of approaches known as comparative political economy, which classify and compare different political-economic regimes and shed light on the institutional variation of capitalist social orders over space and time (cf. Regini 2006). In its ambition and outlook, this research resonates with the study of socio-economic regimes from a sociological point of view. Rather than contrasting economic sociology and political economy, one can thus highlight the links between the two (cf. Beckert and Streeck 2008). Scholars critical of mainstream economics have come to promote political economy as an alternative way of teaching economics in recent years. Political economy is here defined as the “study of the economy from a social science perspective” (Stilwell 2012: 8). This may take shape as the “social science wing of economics” or even become a separate discipline (Thornton 2017: 61). While neoclassical economic models often seem quite detached from how the economy functions in reality, political-economic analysis would be more pragmatic and oriented towards solving real-world economic problems (Stilwell 2012: 3). Envisioned as a broadly informed social-scientific approach, political economy would not be limited to studying the form and function of states in relation to their economies but also consider the role of society at large in this context. To give an example, in his introductory textbook on political economy, Stilwell (2012: 42) also discusses the “social embeddedness of the economic system”, which is illustrated with a range of aspects showing society’s imprint on the economy – from the incorporation of nature into human systems of production to the impact of social capital on economic performance, and from the effects of class, gender and ethnicity on economic outcomes to the constitutive role of ideas and ideologies. As this example shows, comparative political economy, or what is sometimes referred to comparative capitalism (pointing to the variation in capitalist social orders), can also include a cultural dimension (cf. Sum and Jessop 2013). At this interface, economic sociology has much to offer, given its history and expertise in studying the norms and values underpinning socio-economic regimes as well as the emphasis on the culturalcognitive “pillar” of institutions (Scott 2013: 55–85) in more recent work (e.g., Çalışkan and Callon 2009). Economic sociology and socio-economics However, political economy is not the only nominal candidate to complement economic sociology on the macro-analytical level. As pertinent for this perspective is a movement called socio-economics, which has its roots in older efforts to establish social economics as the comprehensive study of the economy. Similar to political economy, the term social economics was and is being used in different ways. In the 19th century, the label was employed both by liberal economists, who aimed to strengthen the profile
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of economics as a general social science rather than a policy-oriented science of the state, and by leftist scholars interested in promoting a social economy based on relations of solidarity and cooperation as an alternative to the liberal market economy (Mikl-Horke 2015: 96–97). For Max Weber, social economics was still an amalgam of economic history, economic theory and economic sociology, before these different dimensions of economic research became separated from each other in the increasing differentiation and specialisation of disciplines (cf. Tribe 2014). Socio-economics emerged in the late-20th century as a response to the division of labour between economists and sociologists (cf. Velthuis 1999; Hellmich 2017), which assigned the subject matter of the (market) economy to the former and left the study of (the rest of ) society to the latter, without too much engagement between the two. In this regard, its motivation and trajectory are similar to that of new economic sociology, which is concerned with how economic and social factors concretely interact in markets and beyond. However, whereas new economic sociology took shape as a sub-discipline of sociology, socio-economics rather describes an interdisciplinary field, in which sociological perspectives are complemented by viewpoints from other disciplines, such as political science, history and psychology. One of the masterminds of this movement, Amitai Etzioni (2006: 633), describes socio-economics as “an interstitial discipline that combines the theorems, findings and insights of economics with those of other social sciences”. For him, this includes “the whole complex of disciplines that [examine] the relationships between society and the economy” (Etzioni 2002: 40 [corr.]). Hence, socio-economics is broader than what is today defined as economic sociology and connected with a distinctly sociological approach (Smelser and Swedberg 2005). Yet, historically speaking, the lines between economic sociology and social economics, as the precursor of socio-economics, are difficult to draw (cf. Zafirovski 2014). Scholars in socio-economics typically distance themselves from the rational-choice approach with its axiomatic assumptions and strive for more realistic accounts of economic action. In this regard, socio-economics shares origins and interests with behavioural economics. While it makes more sense overall, to describe behavioural economics and socio-economics as different movements with distinctive constituencies, their research areas do overlap to some extent. Especially on the micro-level of action theory, there are commonalities between the two in promoting “more realistic images of the human actor” (Hellmich 2017: 14). In contrast, the analysis of institutional frameworks on the meso-level and of entire socio-economic systems on the macro-level distinguishes socio-economics from behavioural economics and takes it closer to institutional economics and political economy (cf. Hellmich 2017: 15–16).
A conceptual framework: the moral-economy approach and the law of market society A macrosociological perspective in economic sociology that combines the idea of embeddedness with that of mutual constitution is not only interested in how the economy is embedded in society but also in how economic developments feed back into the social structure and culture. This perspective can be spelled out in different ways and, in principle, draw on any concepts suitable to describe institutional constellations on a macro-social scale. One possibility, which is illustrated in the following, is to start from the moral-economy approach and to develop this further to include the moral economy of market society.
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The moral-economy approach preserves much of the original idea of embeddedness relating the economy to society as a whole while it can also be interpreted in terms of the interaction and interdependency of the two. It is not limited to economic sociology but engages scholars from different fields, including anthropology, history and political economy. The approach has its precursors in the works of classical sociologists, such as Marx and Durkheim, and in what is now referred to as old economic sociology. An important inspiration for the concept is, indeed, Polanyi’s (1957: 57; 2001: 36) notion of social or institutional embeddedness. As Hann (2010: 196) argues, “even if he never used the term, Polanyi deserves to be viewed as the most sophisticated theoretician of the moral economy writ large”. However, the concept as such was only introduced by the historian E.P. Thompson (1971; 1991: 259–351) in his article on “The moral economy of the English crowd in the eighteenth century”. In this study, Thompson was concerned with popular protests provoked by fluctuating food prices in the advent of capitalism. He argued that the bread riots were not simply “rebellions of the belly” but had to be understood in culturally more meaningful terms: as a defence of “traditional rights or customs” (Thompson 1971: 77–78). Even though Thompson does not explicitly refer to Polanyi in this context, both seem to share the idea of a secular shift from an embedded (moral) economy to a disembedded (market) economy. Thompson (1971: 136) describes the historical situation, which was marked by deregulation of food prices, as “the breakthrough of the new political economy of the free market [which] was also the breakdown of the old moral economy of provision”. However, the old moral economy was still valid in the mind of the people. Their belief in just, or affordable, food prices formed the backdrop for collective action. For Thompson (1971: 112; original emphasis), the bread riots expressed the “deeply-felt conviction that prices ought, in times of dearth, to be regulated”. In its original usage, moral economy thus refers to a social order that was in place before the proliferation of the market economy. Moreover, as a concept, it brings popular perceptions and beliefs to the fore. The moral outrage against price hikes was that of “a poor, premarket people contesting the dictates of a much more modern economic order” (Arnold 2001: 86). Extrapolating from the moral economy of provision, the concept of the moral economy has been linked with a gift economy based on generalised reciprocity in a system of mutual obligations, which is in contrast with the logic of direct market exchange. However, instead of directly contrasting a (traditional) moral economy with a (modern) market economy, some scholars now speak of a plurality of moral economies (e.g., Murdock 2011), which includes the market economy as one of its subtypes, given that markets also involve some form of moral order – a market morality, so to say. This links the concept of the moral economy to broader debates on the relation between markets and morality. Hirschman (1982: 1480) famously contrasted “four types of theses or theories”, which reflect the development of the respective discourse in the economic and social sciences. These include the “doux-commerce thesis”, according to which expanding commerce may have beneficial effects on a society’s morality; the “self-destruction thesis”, according to which the proliferation of markets undermines the moral substrate of society; and the “feudal-shackles” and “feudal-blessings” theses, which consider the divergent preconditions of capitalism in the old and new world. According to the latter, the strength of the moral economy preceding capitalism may still explain differences in to what extent the logic of the market is contained by social policy in developed market economies today. However, instead of pointing to remnants
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of an old moral economy, one can also focus on the new elements of a moral economy that emerges with, or from, the market society. Such an approach takes the effects of economic liberalism on a society’s morality into account. Drawing on Polanyi (1996), Steiner (2009: 105–106) describes the market society as “a society in which law and morals are […] overwhelmed by the market mentality”. Accordingly, the market society has developed its own moral economy. Originally, the idea of a moral economy is opposed to, and critical of, this market mentality. Thompson (1991: 260) specified his “object of analysis” as “the mentalité, […] the political culture, the expectations, traditions, and […] superstitions of the working population […] involved in actions in the market”. In the historical context of his study, the moral economy is equated with the normative expectations and beliefs of the ordinary people, who defended their livelihood against the dictates of the market. However, there is also a tendency to broaden the moral-economy approach to consider “all economies – not merely pre- or non-capitalist ones” (Sayer 2007: 262). This makes it possible to include the market mentality as one form of moral economy next to others. Inasmuch as the moral-economy approach is particularly interested in and even sides with the lower strata of society, it reveals a Marxian spirit. Alternatively, the approach has also been given a Durkheimian interpretation in recent scholarship. Instead of focusing on the moral beliefs of the “‘underdogs’ sections of society”, it then considers society as a whole as its subject: a “Durkheimian collectivity”, as Hann (2010: 196) puts it. A downside of this broader interpretation of the moral-economy approach (e.g., Fassin 2009) is that the focus is no longer on the economic sphere as a site and subject of moral beliefs. For Fassin and Eideliman (2012: 12; my translation), the moral economy generally depicts “the production, distribution, circulation and utilisation of emotions and values, norms and obligations in the social sphere”. In other words, the concept serves as a metaphor for the dynamics of moral ideas in society at large. However, this very broad notion does not necessarily follow from adopting a Durkheim perspective. An alternative possibility, which stays closer to the subject matter of economic sociology, is to build on Durkheim’s (1984) The Division of Labour. In this treatise, the law is used as an indicator of morality, which cannot be directly observed: “[W]e must therefore substitute for this internal datum, which escapes us, an external one which symbolises it, and then study the former through the latter. That visible symbol is the law” (Durkheim 1984: 24). The underlying idea is that (positive) law represents the collective conscience, that is, the system of norms and values which everybody is supposed to share and which integrates society as a whole. For Durkheim (1974: 203), the law of the lawmaker eventually emerged from the law of the people: “It is in the very fabric of society that law is elaborated and the legislator can only consecrate a work which is accomplished without him”. Whether this applies to the law that first imposed the rule of the market, as in the deregulation of food prices, is debatable. But one can assume, with Durkheim, that in the long run (economic) law and (economic) morality would be in sync, as changes will not remain one-sided. Hence, if the market mentality spreads in society and comes to shape the collective conscience, the law can no longer be seen as a means of imposition only but it also embodies the new morality. In this Durkheimian sense, the moral economy of market society can be studied through its law, namely the law constituting, enabling and restricting economic action (cf. Edelman and Stryker 2005). This interpretation of the moral-economy approach can still be critical in its ambition if it also exposes the market
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society as a “scientific and moral project” (Fourcade and Healy 2007: 299), in which popular understandings of markets do not simply grow organically but are influenced by the rationalisations and justifications of the market economy by scholars and politicians. In Polanyian terms, our conceptions of markets are shaped by economic thinking. The moral economy of market society thus also reflects the “philosophy of economic liberalism” (Polanyi 1957: 259).
Empirical illustration: the moral economy of debt and the normalisation of bankruptcy The moral-economy approach offers a macrosociological perspective on the cultural side of socio-economic regimes, which is suitable for historical as well as cross-sectional comparison. As an empirical subject, moral economies can be compared over time, e.g., before and after historical turning-points, like the advent of capitalism, and in space, e.g., with regard to different socio-economic regimes, like the U.S. and Germany, or China. Cross-national comparison is common in the literature on “varieties of capitalism” (Hall and Soskice 2001) and the “worlds of welfare capitalism” (Esping-Andersen 1990). Describing different (ideal or real) types of welfare capitalism comes close to considering the moral economies underlying these regimes, e.g., how differences in the degree of (de)commodification of, broadly speaking, labour income are justified. In other words, to what extent workers and their families are dependent on market income to make a living, and to what extent a lack or loss of income is substituted by support from social insurance, or the state’s welfare system, points to moral considerations about deservingness, which form part of a society’s moral economy. In the following, the moral-economy approach will be specified with regard to the distribution of rights, duties and responsibilities in debt relations between creditors and debtors. The perspective chosen is, first of all, a historical one, showing how creditor and debtor protection are balanced differently at different points in time, as part of larger socio-economic regimes and rationalities. What is at issue, then, is the moral economy of debt, which offers justifications for who owes what to whom not only in direct economic exchange but in larger societal networks of debt relations, which include social insurance functions (Frerichs 2016: 722). Throughout history, debtors have defended their rights and livelihoods in debt riots (Graeber 2011: 8), which can be seen as much as markers of a moral economy under threat as the bread riots of 18th-century England (Thompson 1971). Obviously, debt riots are an extraordinary means to redress the balance between creditors and debtors. Studying the moral economy of debt through the lens of conflicts and crises would bring the Marxian element of the approach to the fore. In ordinary times, credit relations and debt default are regulated by law, public as well as private law, which reflects a certain moral consensus about the distribution of rights and responsibilities between creditors and debtors. Analysing the moral economy of debt through the law regulating credit and insolvency is premised on a Durkheimian approach. This section offers a highly stylised account of the history of debt relations and transformations of the moral economy of debt in the context of capitalist development. Focusing on the normalisation of interest and the normalisation of bankruptcy in the Western legal tradition, it starts with Roman law as a historical backdrop but then focuses on different stages, or turning-points, in which capitalism left its imprint on
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the moral interpretation of debt relations, inevitable incidences of debt default and their legal regulation. The beginnings of bankruptcy law in pre-capitalist times If the history of debt can be traced back over 5,000 years (Graeber 2011), the history of credit and insolvency regulation spans at least 2,500 years. The Twelve Tables, which date back to 450 BC and mark the beginning of Roman law, capped the interest rates imposed on debtors at 8 or 12% per year (Gelpi and Julien-Labruyère 2000: 9). The Tables also stipulated what was to be done with insolvent debtors if the debt still remained unpaid after a judgement was given. As summed up by Rajak (2008: 9), after 30 days, “the debtor was given in private bondage to the creditor”; after 90 days, “the creditor was entitled to put the debtor to death (partis secanto, cut into pieces!) or to sell him in slavery across the Tiber”. Later laws made some concessions towards debtors and strengthened the commercial aspects of the relationship. The Licinian laws in 376 BC offered insolvent debtors a 3-year moratorium to repay their debt and remission of the due interest (Gelpi and Julien-Labruyère 2000: 9). In about the same period, institutions emerged that allowed insolvent debtors to “work off the debt” and thus escape slavery and death (Rajak 2008: 9). With the lex Poetelia in 326 BC, debt default formally became a criminal offence. At the same time, the law “abolished the right to ill-treat, kill or sell the debtor and his family as slaves”, while defaulted debtors could still be held in private arrest or servitude (Gratzer 2008: 20). Moreover, a bankruptcy procedure was introduced which authorised creditors to sell the property of delinquent debtors to recover their losses. In 17 AD, the lex Julia gave insolvent debtors the possibility to declare bankruptcy of their own volition. Two thousand years ago, Roman law thus created procedures that “separated the debtor as a person from his property” and gave creditors equal rights in recovering the outstanding debt (Gratzer 2008: 20–21). Telling the debtor’s life from their debt was an important step forward. It paved the way for commercial practices, in which financial risk-taking becomes a normal part of business life. Roman law did not remain a matter of the Ancients only but forms the roots of the Western legal tradition. Some elements of the law of market society can still be traced back to Roman times. To understand this legacy, two historical events are crucial. In 533 AD, Eastern Roman emperor Justinian compiled the Corpus Iuris Civilis, a collection of laws, legal writings and jurisprudential wisdom: the state of the art of the time. This compilation can be seen as “the first large legal corpus devoted to credit, in so far as it defines the activity as a whole, from the maximum legal rate to means of recovery, and distinguishes types of loans and types of borrowers” (Gelpi and Julien-Labruyère 2000: 13). Interest rates were limited at different rates for different kinds of borrowers, but not forbidden, as the “fledgling Church” would have preferred (Gelpi and JulienLabruyère 2000: 12). The ban on usury was yet to come. The rediscovery of Justinian’s code in a library in Pisa in the late-11th century brought Roman law to new fruition. The medieval ius commune consisted not only of Roman law but also of canon law – the law of the Church – which had likewise been “Romanised”. With these intermediate steps, Roman law became one of the preconditions of modern capitalist development: [T]he elaborate rules of contract law and of credit transactions that were developed in both the new Roman law and the new canon law in the twelfth and thirteenth
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centuries […] were an essential foundation of the laissez-faire capitalist economy that emerged in the nineteenth century. (Berman 2003: 377) The same goes for Roman bankruptcy law, which was first revived in the northern Italian city-states of the Renaissance. However, despite their modern outlook, bankruptcy procedures were still “heavily criminalised” and punitive in nature (Wood 2007: 15). The moral conflict that the treatment of defaulted debtors raised can be illustrated with Shakespeare’s play, The Merchant of Venice, which is set in the 16th century. The loan that links the three protagonists – the borrower, the lender, and the guarantor – is secured by a “pound of flesh”, threatening the debtor’s life. This becomes a legal issue in the play, which marks changes in the moral economy in adapting to the needs of commercial capitalism. The advent of capitalism and the normalisation of interest The moral economy of debt changed with the advent of capitalism in the 17th and 18th centuries and increasingly came to reflect the moral principles of the market society. In Anderson’s (2004: 349) terms, the emerging “capitalist ethic of debt challenged both the Christian and the aristocratic ethics”, which had governed debt relations before. What the Christian and the aristocratic moral economy of debt ideal-typically consisted in can be inferred from historical studies of the respective transitions: from a religious morality to a more secular morality and from a gift economy to a market economy. Graeber (2011: 332) condenses the beginnings of capitalism in a “story of how an economy of credit was converted into an economy of interest”. In the Middle Ages, certain moral institutions were in place that protected debtors from exploitation and hardship. This includes, first and foremost, the religious ban on usury, or interest-bearing loans. In contrast, the age of capitalism is marked by the legalisation of interest. Whereas interest originally referred to a “penalty for late payment on a loan”, it later turned into a key concept of economic theory (Graeber 2011: 332). Fontaine (2008) reconstructs the debate on usury and interest in Europe between the 16th and 18th centuries. At first, any interest on loans was perceived and forbidden as usury. A little later, it was considered “legitimate to make profit with money but not at the expense of the poor”, which led to a distinction between legitimate interest and illegitimate usury (Fontaine 2008: 204; my translation). In the end, interest-bearing loans came to be seen as a normal fact of economic life, while questions of usury were left to the individual conscience. As Fontaine (2008: 220; my translation) sums up, the moral framework of the debate had changed “from an ethic inscribed in religion to another [ethic] born from politics and economics”. The Church lost its control of credit practices and was left with a symbolic function only, while the State effectively took over in defining what is legitimate and what is not (Fontaine 2008: 221). Whereas the ban on usury prevented predatory lending and, in this regard, worked in the favour of debtors, the legalisation of interest tilted the balance towards the protection of creditors, who could now sue their debtors without putting any blame on themselves. A result was the criminalisation of debt and the prosecution of insolvent debtors (Graeber 2011: 333–334). Next to the normalisation of interest, there was an important change in the structure of debt relations. The aristocratic moral economy in pre-industrial Europe consisted in mutual obligations between persons of unequal social status in a feudal system. It was
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based on “the logic of gift rather than commercial exchange” (Anderson 2004: 352). With the transition from a status-based aristocratic society to a contract-based market society, the moral economy of debt transformed as well: Moving from the aristocrats to the bourgeois, debts moved from one moral sphere to another, they left the network of interdependence and solidarity based on the paternalist power of nobility for a world of relations meant to be anonymous and governed by respect for contracts. (Fontaine 2008: 333; my translation) What this implies is an increasing commodification of debt, with interest as its market price. The normalisation of bankruptcy in modern capitalism In the course of capitalist development, different subjects of bankruptcy came to the fore, whose debt default underwent a reevaluation in moral terms. One relevant distinction is between individual entrepreneurs and incorporated companies; the other is between commercial and non-commercial debtors, or merchants and consumers. This section distinguishes between the normalisation of individual bankruptcy in commercial capitalism, the normalisation of corporate bankruptcy in industrial capitalism, and the normalisation of consumer bankruptcy in consumer capitalism. Commercial capitalism: normalisation of individual bankruptcy Focusing on bankruptcy law in the Western legal tradition, continental Europe is “closer to Rome” than the Anglo-Saxon countries. However, it was the Anglo-American common law countries (England and the U.S.), and not the Romano-Germanic civil law countries (such as Italy, France and Germany), which spearheaded the commercial paradigm that furthered a normalisation of debt and insolvency along with capitalist business practices. An important step in this regard was the introduction of a debt discharge, which defaulted debtors could benefit from under certain conditions. This came to be known as the “fresh start”, a term that clearly has normative connotations. Between the 16th and 18th centuries, English bankruptcy law largely consisted in “an involuntary proceeding available only against traders” (Tabb 1995: 12). The focus was on creditors recovering their losses from debt default. The English bankruptcy act of 1705 included a discharge for debtors “cooperating” in the bankruptcy proceeding and was amended, a year later, to add creditor consent as a condition for the debt discharge (Tabb 1995: 10–11). Moreover, a distinction between honest and dishonest commercial debtors was introduced, “offering absolution to honest bankrupts while retaining criminal punishment for dishonest ones” (Mann 2002: 46). American bankruptcy law first crystallised in the (temporary) federal bankruptcy act of 1800, which was modelled on its English counterpart of 1706. However, as it was less concerned with fraudulent bankrupts and more realistic regarding the vagaries of business life, it turned out to be more debtor-friendly overall (Mann 2002: 186). Still, the debt discharge was available to commercial debtors only. Mann describes the changing moral economy of debt in revolutionary America focusing on the developments and debates leading to the first federal bankruptcy act, which
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is depicted as “the high-water mark of debtor relief in the eighteenth century” (Mann 2002: 2). His aim is to demonstrate how a religiously inspired morality gave way to a more secular account of bankruptcy. For the religious side of the debate, the reference point is Puritan ideology that, at this stage, had already moved beyond its original position that “credit should be a means of charity rather than a commodity” (Mann 2002: 36), which still reflected the condemnation of usury. Instead, a more creditor-friendly position had been adopted, which presupposed the “inherent justness of creditors” and made debt default appear as a “moral failure” on part of the debtors (Mann 2002: 3). In the course of the 18th century, this presumption of Puritan morality came to be challenged by the idea, or insight, that insolvency might sometimes be the inevitable result of economic risk-taking. This “redefinition of insolvency from sin to risk, from moral failure to economic failure” is the pivot of Mann’s (2002: 5) reconstruction of transformations in the moral economy of debt, which paved the way for the fresh-start policy. The economic morality behind the new bankruptcy legislation, to be consolidated in the American bankruptcy act of 1898, could be captured by the slogan: “out of prison – back to the market”. The argument that “imprisoning insolvent debtors deprived the public of their skills, their labor, and their enterprise” indeed played a role in contemporary discourse (Mann 2002: 58). In this regard, the rationale behind the normalisation of commercial bankruptcy could be seen in economic activation – and not mercy or redemption (Hallinan 1986: 57). Industrial capitalism: normalisation of corporate bankruptcy Not only was Anglo-American bankruptcy legislation the first to include a debt discharge, but it was also a forerunner in allowing for voluntary bankruptcy proceedings and in including non-commercial debtors. In the mid-19th century, bankruptcy legislation in England and the U.S. thus assumed its modern form. By that time, industrial capitalism was flourishing and another subject of bankruptcy came to the fore: incorporated companies. While bankruptcy law long concerned individual debtors only, a core distinction today is between personal bankruptcy for individuals, or natural persons, and corporate bankruptcy for corporations, or juridical persons. Personal bankruptcy includes small enterprises that are “owned by individuals or partners who are legally responsible for their business debts” (White 2011: 141). In other words, they are fully liable, including their private wealth. In contrast, corporate bankruptcy typically refers to larger enterprises, which benefit from the “veil of incorporation”, or limited liability. Thus, the shareholders of a company – its owners at arm’s length – are liable only to the extent of their original investment. The limitation of liability works as an incentive to incur greater economic risk, which can be seen as one of the preconditions for capital-intensive industrial development (Djelic and Bothello 2013: 603). While the invention, or legal fiction, of juridical persons, dates back to Roman times, it was only in the 19th century that corporations became a dominant form of business organisation: “The impact on bankruptcy law, hitherto applying to merchants and partnerships, was revolutionary” (Wood 2007: 18). While the “veil of incorporation” protects the personal lives and wealth of the shareholders, the company as such is “liquidated” in the case of insolvency and its property is distributed among the creditors. The principle of limited liability likewise goes back to Roman law but developed its characteristic dynamic only in connection with capitalist enterprise. In mid-19th–century
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Britain, a series of laws was enacted, which facilitated the creation of a registered company, provided shareholders of registered companies with limited liability, and regulated the insolvency of incorporated companies (Rajak 2008: 7–8). The “limited liability revolution” took place against the resistance of “naysayers offering powerful arguments based on political and ethical rather than economic preoccupations” (Djelic and Bothello 2013: 602–603). What this results in is the normalisation of corporate insolvency. Arguably, the institutional separation of personal and corporate insolvency is also semantically important, as it supports a moral distinction between two types of actors: between individual debtors, who could still be pictured as potential deviants in need of sanctions (Ramsay 1997: 270–274), and corporate debtors, whose business activities were to be encouraged and protected. Sure enough, corporations hardly correspond to the image of weak, dependent and fallible debtors (Wood 2007: 18–19). However, the debt discharge for individual debtors likewise came to be seen through the lens of limited liability. In economic terms, this means reallocating risks from debtors to creditors, which are often in a better position to manage their risks ( Jackson 1984: 1400). Consumer capitalism: normalisation of consumer bankruptcy Such economic justifications also play a role in the normalisation of consumer bankruptcy, which developed along with the spread of consumerism in the 20th century. In England and the U.S., the question of whether bankruptcy procedures should be available to non-merchants had been answered in the positive from the mid-19th century onwards. However, before the recent spread of “consumer credit capitalism” (Ramsay 2007: 248), consumer bankruptcy gained popularity only in the U.S., while it remained of little practical relevance in England (Niemi-Kiesiläinen 1999: 479; incl. n. 18). On the European continent, bankruptcy procedures, including a debt discharge for consumers, were only introduced in the late-20th century, after the over-indebtedness of consumers had become a pressing problem there as well. In the U.S., the “fresh start” policy was further pushed forward in the Bankruptcy Act of 1978 (whereas the 2005 Reform Act was tellingly concerned with “bankruptcy abuse prevention and consumer protection”). In practice, this means that consumers who declare bankruptcy can, after a relatively short waiting period, start anew: with all their commercial debt – that is, debt incurred in the market – being cancelled. If the idea of the fresh start is a quick return to the credit market, this is far from what the European model of debt adjustment had been all about: “[T]he idea of economic rehabilitation was not tied to the goal of a quick economic recovery and re-entry to the credit market. Participation in the credit market was not deemed necessary, and was perhaps not even desirable” (Niemi-Kiesiläinen 1999: 482). Economic theories justifying the fresh-start policy included from the outset utilitarian considerations regarding the positive externalities of a debt discharge and the efficient allocation of risk between creditors and debtors (Tabb 1990). Humanitarian reasons played a role as well, but the incentive functions of the debt discharge were clearly seen. That way, commercial debtors would be encouraged to resume economic activities and also incur entrepreneurial risks again. The same applies to consumers, whose participation in the open credit economy was increasingly regarded as both normal and necessary. In consumer credit capitalism, consumer debtors fulfil an important function for the economy as a whole. In this regard, the debt discharge supports their
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(re)activation: “The discharge of a consumer debtor frees the debtor from the shackles of existing debt and places him on the economic treadmill once again – to earn, consume and borrow” (Flint 1991: 515–516). From a social-policy perspective, the over-indebtedness of consumers has become a problem on both sides of the Atlantic. In consumer bankruptcy, the costs of this calamity “are borne by the credit system (i.e., all consumers of credit) rather than the state welfare system” (Ramsay 1997: 275). This aspect deserves emphasis given that continental-European countries leaned more towards the social-welfare paradigm in the past. However, in recent decades, some of them “have moved gingerly towards a modified ‘fresh start’ policy” (Ramsay 1997: 269).
Conclusion: moral economies in historical-comparative perspective Our moral ideas about debt relations are framed and shaped by the logic of the market. In this sense, the market society produces its own moral economy, which is conceptualised in the economic discipline, institutionalised in the law and popularised in public discourse. In this chapter, the moral-economy approach has been tailored to the law of market society and targeted at the distribution of rights and responsibilities in debt relations. The changing moral economy of debt has been reconstructed along with the development of bankruptcy law in the Western legal tradition. It has been shown that the different phases of capitalism bring different subjects of bankruptcy to the fore: in commercial capitalism, these were merchants; industrial capitalism witnessed the rise of corporations; and in consumer capitalism, the new emphasis is on consumers. The common denominator of these developments is a shift in the moral framing of bankruptcy, which furthers the economic norm of risk-taking. In the broader context of this volume, the moral-economy approach serves as an example of how economic sociology can emphasise the macro- and meta-levels of embeddedness in the relation of economy and society and proceed as comparative macrosociology. While the empirical illustration chosen in this chapter emphasised the historical perspective, it has also become clear that the study of moral economies lends itself to a comparative perspective, which may then address questions of convergence and divergence as well. In this regard, there are parallels with the “varieties of capitalism” literature and the study of socio-economic regimes more generally, which form a shared subject of economic sociology with comparative political economy and socio-economics.
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Economic sociology as comparative macrosociology 341 of Insolvency And Bankruptcy: From An International Perspective. Huddinge: Södertöms högskola, 15–59. Hall, P.A. and Soskice, D., 2001. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. Oxford: Oxford University Press. Hallinan, C.G., 1986. The fresh start policy in consumer bankruptcy: A historical inventory and an interpretive theory. University of Richmond Law Review, 21(1), pp. 49–160. Hann, C., 2010. Moral economy. In K. Hart, J.-L. Laville, A. Cattani and David (eds.) The Human Economy. Cambridge: Polity Press, 187–198. Hellmich, S.N., 2017. What is socioeconomics? Forum for Social Economics, 46(1), pp. 3–25. Hirschman, A.O., 1982. Rival interpretations of market society: Civilizing, destructive, or feeble? Journal of Economic Literature, 20(4), pp. 1463–1484. Jackson, T.H., 1984. The fresh-start policy in bankruptcy law. Harvard Law Review, 98(7), pp. 1393–1448. Krausmann, F., 2017. Social metabolism. In C.L. Spash (ed.) Routledge handbook of ecological economics: Nature and society. Abingdon: Routledge, 108–118. Krippner, G.R. and Alvarez, A.S., 2007. Embeddedness and the intellectual projects of economic sociology. Annual Review of Sociology, 33, pp. 219–240. Mann, B.H., 2002. Republic of Debtors: Bankruptcy In The Age of American Independence. Cambridge, MA: Harvard University Press. Mikl-Horke, G., 2015. Traditionen, Problemstellungen und Konstitutionsprobleme der Sozioökonomie. In R. Hedtke (ed.) Was ist und wozu Sozioökonomie? Wiesbaden: VS, 95–123. Murdock, G., 2011. Political economies as moral economies: Commodities, gifts, and public goods. In J. Wasko, G. Murdock and H. Sousa (eds.) The Handbook of Political Economy of Communications. Malden, MA: Wiley-Blackwell, 13–40. Niemi-Kiesiläinen, J., 1999. Consumer bankruptcy in comparison: Do we cure a market failure or a social problem. Osgoode Hall Law Journal, 37(1&2), pp. 473–503. Pearson, H., 1999. Was there really a german historical school of economics? History of Political Economy, 31(3), pp. 547–562. Polanyi, K., 1957. The Great Transformation. Boston, MA: Beacon Press. Polanyi, K., 1996. Our obsolete market mentality. In R. Swedberg (ed.) Economic Sociology. Cheltenham: Edward Elgar, 146–154. Polanyi, K., 2001. The economy as instituted process. In M. Granovetter and R. Swedberg (eds.) The Sociology of Economic Life. 2nd ed. Boulder, CO: Westview Press, 31–50. Polanyi, K., 2018. Economy and Society: Selected Writings. Oxford: Polity Press. Power, M., 2015. Social provisioning. In J.B. Davis and W. Dolfsma (eds.) The Elgar Companion To Social Economics. 2nd ed. Cheltenham: Edward Elgar, 331–344. Rajak, H., 2008. The culture of bankruptcy. In P.J. Omar (ed.) International insolvency law: Themes and perspectives. Aldershot: Ashgate, 3–25. Ramsay, I., 1997. Models of consumer bankruptcy: Implications for research and policy. Journal of Consumer Policy, 20(2), pp. 269–287. Ramsay, I., 2007. Comparative consumer bankruptcy. University of Illinois Law Review, 2007(1), pp. 241–274. Regini, M., 2006. Political economy. In J. Beckert and M. Zafirovski (eds.) International Encyclopedia of Economic Sociology. London: Routledge, 517–522. Sayer, A., 2007. Moral economy as critique. New Political Economy, 12(2), pp. 261–270. Scott, W.R., 2013. Institutions And Organizations: Ideas, Interests, And Identities. Los Angeles, CA: Sage. Smelser, N.J. and Swedberg, R., 2005. Introducing economic sociology. In N.J. Smelser and R. Swedberg (eds.) The Handbook of Economic Sociology. 2nd ed. Princeton, NJ: Princeton University Press, 3–25. Steiner, P., 2009. Who is right about the modern economy: Polanyi, Zelizer, or both? Theory and Society, 38(1), pp. 97–110.
342 Sabine Frerichs Steiner, P., 2016. Economic sociology. In G. Faccarello and H.D. Kurz (eds.) Handbook On The History of Economic Analysis. Cheltenham: Elgar, 148–160. Stilwell, F., 2012. Political Economy: The Contest of Economic Ideas. Oxford: Oxford University Press. Sum, N.-L. and Jessop, B., 2013. Towards a Cultural Political Economy: Putting Culture In Its Place In Political Economy. Cheltenham: Edward Elgar. Swedberg, R., 1987. Economic sociology: Past and present. Current Sociology, 35(1), pp. 1–154. Tabb, C.J., 1990. Scope of the fresh start in bankruptcy: Collateral conversions and the dischargeability debate. George Washington Law Review, 59(1), pp. 56–113. Tabb, C.J., 1995. The history of the bankruptcy laws in the United States. American Bankruptcy Institute Law Review, 3(5), pp. 5–51. Thompson, E.P., 1971. The moral economy of the English crowd in the eighteenth century. Past & Present, 50(1), pp. 76–136. Thompson, E.P., 1991. Customs in Common. London: Merlin Press. Thornton, T.B., 2017. From economics To Political Economy: The Problems, Promises And Solutions of Pluralist Economics. Abingdon: Routledge. Tribe, K., 2014. What is social economics? History of European Ideas, 40(5), pp. 714–733. Velthuis, O., 1999. The changing relationship between economic sociology and institutional economics: From Talcott Parsons to Mark Granovetter. American Journal of Economics and Sociology, 58(4), pp. 629–649. Weber, M., 1978. Economy and Society: An Outline of Interpretive Sociology. Berkeley, CA: University of California Press. White, M.J., 2011. Corporate and personal bankruptcy law. Annual Review of Law and Social Science, 7, pp. 139–164. Wood, P.R., 2007. Principles of International Insolvency. London: Sweet & Maxwell. Zafirovski, M., 2014. Sociological dimensions in classical/neoclassical economics: Conceptions of social economics and economic sociology. Social Science Information, 53(1), pp. 76–118.
17 The daily-life and moral economy Filippo Barbera
Introduction The concept of moral economy includes both descriptive and prescriptive elements (Arnold 2001). As for the former, it refers to the analysis of the effect of norms, values, obligations and “conceptions of justice” on economic life and economic exchange. The key reference is the landmark contribution of E.P. Thompson (1971) who illustrated how food riots in the 18th century expressed a popular consensus about what distinguishes legitimate from illegitimate practices, a consensus rooted in the past and capable of inspiring action based on some sense of what individuals owed to the collectivities in which they were embedded. As for the latter, it points to value-judgments as the backbone of a moralized economy where “social justice” principles are effectively applied in the production, distribution and consumption of goods and services. Here what matters are the so-called “social goods”, namely, those objects and qualities whose possession or consumption confers some kind of benefit and satisfies human needs and wants (Arnold 2001, 90), that is goods: “for which it is the task of a theory of justice to provide distributive principles” (Swift 1995, 224). Social goods include constitutive and communal dimensions that are key for the self and for collective identification that is characteristic of human beings as such. In this take, while the descriptive slant engages with the empirical analysis of the interplay between economic and non-economic spheres, the prescriptive one is closer to critical sociology approaches focused on emancipatory aims. While this distinction holds true as a first general criteria, it also obscures the sheer fact that the “descriptive” analysis of the moral economy easily blurs into consequential statements about the “fairness” of the phenomena under scrutiny. The descriptive and prescriptive sides of the analysis come closer for the multiplicity of motives that drive our action that is intertwined with the overlapping of social spheres we inhabit in a continuous and pre-reflexive way (Granovetter 2017). This – I will argue in the following – blurs the distinction between the empirical analysis of moral economy and the arguments for a moralized economy. It should be noted that this holds true even in the seemingly straightforward cases of core economic phenomena. In the first example illustrated in the following (par. 2), the matching between demand and supply in the labor market, is based on the fact that, in addition to economic motives, people seek the non-economic goals of sociability, approval, status and power, which are available only in a social context through networks of others (Granovetter 2017, chapter 2). As we will see, this has deep implications for the conceptualization of societal values such as “generosity” and “solidarity” and to what extent social action is undertaken as a means to an end, where the end might be social approval as well as economic gain.
DOI: 10.4324/9780367817152-20
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In Weber’s fourfold classification of types of social action, this point has stronger elements of “affectual” or “habitual” than of purposive (zweckrational) action (Weber 1921). An alike argument applies to the second case in point: the “foundational economy” and the analysis of spatial inequalities. Foundational economy refers to the daily-life economy and to its consequences citizenship (Foundational Economy Collective 2018; Barbera and Jones 2020). It argues for recognizing the heterogeneity of economic activity and the importance of basic services for citizens in a new “civic politics” of places. Foundational economy agrees on the intrinsic shortcomings of GDP as a metrics of welfare and suggests a framing-shift: to focus on the social well-being of citizens, which is outlined as a matter of the necessary capabilities to make significant life choices (Sen 1999). Furthermore, it focuses on the collective consumption of key goods and services, distributed to all households via networks and branches that are the “infrastructure of everyday life” (Earle, et al. 2018). As we will see, the provision of Foundational goods and services is mixed up with both citizen duties and citizen rights, while it underscores the role played by different kinds of solidarity and social recognition mechanisms that cross over the distinction between the two conceptions of moral economy above mentioned. The third example refers to the moral economy of failure as “the other side of excellence”. Namely, it points to those situations when rewards are extremely skewed toward a minority of participants and the majority is structurally excluded from being “a winner”. In these cases, failure may turn out to be a success (e.g. the second-best paradox), but it may also turn out to be a detrimental experience. It not only may mobilize and push forward, but it may also paralyze the economic activities of actors and organizations or place these in a state of political and institutional inertia (Mica, Pawlak, Horolets and Kubicki, forthcoming). The topic has several key implications for the so-called “new spirit of capitalism” (Boltanski and Chiapello 1999), where personal identity/biography and economic performance are interweaved in a project-based logic. In the new spirit of capitalism, as we will illustrate, rejection and failure may elicit emotional pain so sharply to erode our confidence and self-esteem as “moral persons” (Goffman 1952; Gerhardt 1979). The fourth example refers to the interplay of material devices, people and social rules in the working of infrastructures in deprived contexts. Here what emerge is the practical assemblages of complex relationships, material objects and symbolic frames that stabilize uneven “patterns of capacity” of marginal subjects in impoverished contexts. The people as infrastructure perspective (Simone 2004) shows how these practical assemblages feed “encounters”, namely, face-to-face embodied interactions that produce interpersonal solidarity (Collins 2004). As we will illustrate, even in this case, the borders between the moral economy and the idea of a moralized economy are constantly trespassed. Finally, we will revisit the Michael Burawoy (1979) ethnographic insights from the so-called “making-out”, to analyze how the involvement of workers and their active participation in the productive effort requires far more than just the micro-level motives implied by the standard incentive models based on the rational choice theory (RCT). Real-world agent’s think of themselves in the future and their projects include long-term career perspectives involving both instrumental and intrinsic motives at the same time.
How partygoers get a job? The thesis of “embeddedness” is the brand of economic sociology. To focus on its theoretical specificity, it is necessary to clarify the difference that the concept of embeddedness
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assumes in Mark Granovetter (1985) and in Karl Polanyi (1957) who is usually viewed as the “father” of the concept of embeddedness. Bringing together the analytic declination of the concept in the two authors – as sometimes happens to read – is flawed. It is Granovetter himself who confesses that at the time of writing the well-known essay on embeddedness (1985), he did not refer to the work of Polanyi.1 Polanyi’s primary interest is historical-anthropological, not theoretical-analytical. Through the concept of embeddedness, he intends to show that economic theory, invented to explain market phenomena, is of little use in the interpretation of other exchange systems based on a different historical-institutional configuration. Showing that economic theory does not explain exchange systems other than the market is not the same as building an alternative theory of economic exchange (Barbera 2020). At the most, it defines a broad conceptual framework. The interpretative inconsistencies (Krippner 2001 and 2004) on the theoretical meaning of the Polanyian conception of the market originate precisely from this misunderstanding (see also Beckert 2007). A misunderstanding that has its roots in the functions that the concept of embeddedness has been playing in feeding the two main criticisms that economic sociologists move to economic theory: its flawed emphasis on the homo oeconomicus and its lack of consideration for the role of institutions. From the analytical viewpoint, the “embeddedness thesis” states that economic action is rooted in the on-going pattern of social networks and this influences both the microlevel course of action and the outcomes at the macro level (Granovetter 2002; 2017). Its critical focus is the atomized vision that informs both classical sociology (oversocialized) and mainstream economics (undersocialized), namely, the assumption that economic actors make decision in isolation from one another – independent of their social connections (Granovetter 1985, 2). Accordingly, the embeddedness thesis does not inevitably arise as a denial of rationality and/or social norms as micro-level drivers of action. Economic rationality or social norms can constitute two sound explanatory models of action, provided that their actual working is embedded in concrete social relations. For example, Granovetter (2002) argues that social norms are not a good explanation only when they do not consider the relational and group dimension that supports the definition of norms and their enforcement (see also Granovetter 2005). The denser a network the more the same ideas about proper behavior are to be encountered repeatedly (norm definition) and the easier deviance is harder to hide and to be punished (norm enforcement). Likewise, explanations that discuss the role of “reputational effects” are fallacious only if they conceive reputation as a generalized good, unrelated to the role of definite social networks. The key point is that social actors typically pursue multiple purposes simultaneously in intersecting social formations of the sort that White (1992) referred to as “molecules” (Azarian 2005). Accordingly, the intersection of the separate institutions of labor markets and expressive socialization routines sheds light on how “partygoers get a job”. Here the “social” cannot be separated, neither empirically nor analytically, from the “economic” (Krippner 2001; Barbera 2020). This standpoint becomes clear in Peter Blau’s (1963) work, where it is the non-instrumentality of the investment in social relations that makes them economically productive. Paradoxically, as much as more the relationship is willfully directed toward the wished goods, much less it will be effective in obtaining it: insincere approval is better than none (as those who encourage sycophants well know) but pales in comparison to approval without ulterior motive (Granovetter 2002, 37). Job search cannot be reduced to the grammar of homo oeconomicus, as it is influenced by the intertwining and amalgamation of rational, expressive, identity, hedonistic and power motives. This “micro-complexity” unfolds
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together with the relational dimensions of social structure. At the micro level, then, the interplay of instrumental, cognitive and moral dimensions identifies a number of combinations of which economic action represents a particular configuration: instrumentally rational action, self-oriented and aimed at the pursuit of an economic purpose. At the opposite extreme, we find the action moved by intrinsic value, hetero-oriented and aimed at a social purpose. In between, a variety of intermediate types. This micro complexity, as clarified, is accompanied by the complexity of the relational structure (Granovetter 2017). This general principles find their application in Mark Granovetter’s landmark research “The Strength of Weak Ties”2 (1973; see also 1983), where a significant percentage of jobs allocated through weak ties reach people regardless of their will, intentionality or active behavior. As it is argued in the afterword to the second edition of “Getting a Job” almost 30% of the cases examined had declared that they had never carried out any active research. Other empirical evidence shows that in some places and some historical periods, these percentages can be much higher.3 Thus, it is the limit to the instrumental manipulability of social relations that qualifies their positive economic effects. The credibility of the information transmitted by the network depends precisely on the disinterested nature of the social relationship: the gratuitousness and non-dependence on interests that characterize many social relationships thus function as a guarantee regarding the truthfulness of the information transmitted. The explanation provided refers then to the idea than some kinds of resources (social approval, group identification) escape who pursues them directly and intentionally (cf. also Macy 1997, 434).4 This is due to the inseparability of the economic motivations by the non-economic ones. People go to parties to have fun, laugh, drink, dance and yet information about jobs can and does pass among partygoers (Granovetter 2002). The key heuristic move here is to consider “weekend socializing” as an overlapping institution with the economic mechanisms of labor market and make sense on how its noneconomic features affect the costs and the techniques available for economic action. The moral economy of parties and labor market mechanisms sheds light on the moralized economy of intrinsic values. Social approval, recognition of status and social consideration have a non-instrumental value: they are symbolic goods that create a social bond that exceeds any material reward. Social approval is an “identity good” whose value is eminently expressive: these are goods that support the system of cultural values in which social action is embedded (Pizzorno 2006). The meaning of an action is deeply relational and it depends on those to whom the action is directed at understand it to be. It is not reflected in the outcome as such: you would have been grateful even if “the good Samaritan” would not have been able to help you! Social approval rewards behaviors whose value refers to the intentions with which the individual has undertaken the action, rather than the result of the action.
The zonal economy: citizenship and recognition inequalities The concept of “Foundational Economy” draws inspiration from Braudel’s work on economic and social relations operating at different levels and in different zones (Braudel 1981). Instead of viewing the economy in monolithic terms based on a universalizing market, economic relations are considered to be heterogeneous across place and time. In itself, the general idea is hardly new and it lies at the core of economic sociology (Granovetter 2017) and comparative political economy (Trigilia 2002). What the perspective of Foundational Economy adds to these approaches is what we might
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call a “zonal” view on the society-economy nexus. The Foundational economy is that “zone” close to well-being and the needs of everyday life that constitutes the economic infrastructure of social citizenship. It hence represents different forms of consumption (private and collective) of outputs that make diverse contributions to well-being. The first zone, the material foundational economy, covers the infrastructure and services (pipes and cables, networks and branches) which connect households to daily essentials. This zone includes the provision of water, electricity, retail banking and food. It is noteworthy that these are areas that have been considered ripe for polices of privatization, financialization and marketization. The second zone, the providential foundational economy, covers welfare critical activities like health and education and income transfers. While much of these are considered to be universal services that should be available to all citizens funded through taxation or insurance systems and free at the point of use, in many countries their provision is partially privatized and outsourced or, where there is state provision, is increasingly means-tested. Financialization is driven in the providential domain by an ideology that views welfare provision as individual responsibility that needs to be planned for and funded through asset and debt restructuring. Forms of financialization have penetrated into key areas of the Welfare state through privatization, outsourcing and sub-contracting. Finally, there is an outer zone that we refer to as the overlooked economy. This includes household spending from discretionary income on culturally varied lifestyle and comfort support systems. These three zones overlap and are historically contingent and politically contested. Within such a conceptualization, the Foundational Economy points to the role played by collective efforts and choices of whole generations at all levels, from the local to the national territory right down to the local neighborhood (Khon 2016). That is to say, that productivity and innovation of the core and the tradable zones derive both from individual initiative and collective infrastructure that any given society inherits and that belongs to everyone. This assumption points to three types of solidarity. The first kind points to the role of corporate responsibility in terms of the foundational economy to which everyone depends (including firms that “borrow” collective infrastructure for their business and make profit out of it). The second type supports the right of members of a given community to have a collective voice in maintaining and innovating the foundational infrastructure of everyday goods and services that are key for their citizenship rights. The third kind of solidarity points to the support of the role of the State’s policy to strengthen the availability of de-commoditized resources for the foundational infrastructure of daily-life. The Foundational Economy hence is the infrastructure that allows to become citizens and be recognized as persons accordingly, despite your position in the core and tradable economy (Castel and Haroche 2001). These forms of solidarity are cognitively and emotionally different to the “class” solidarity of organized capitalism. Nevertheless, they might be the basis of the aspirations to flourish according to a “good life” whose respect is the source of social recognition in civilized settings. Recognition is understood as the public value that one’s identity acquires in the eyes of the other, as elaborated in the works of Alessandro Pizzorno (2006) and Axel Honneth (2001). Accordingly, in marginalized areas – e.g. areas that suffer from lack of foundational services – the public value of one’s identity is jeopardized. It is precisely this “moral offence” – charged with symbolic and identity value – that nourishes the nativist folding of the marginal areas: a mix of closure to diversity, search for community roots and ethnic belonging. Foundational economy, as previously underlined, has a moral value. It should be said that the role played by recognition inequalities is not easy
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to detect empirically. However, we know that there is a systematic relationship between territorial marginality and support for Euro-skeptical parties, in light of the “revenge of places that don’t matter” (Rodriguez-Pose 2017). It is the long-term decline that emerges as a key driver of the anti-EU vote, rather than the gap between rich and poor regions. We also know that the “loss of status” over time explains the political vote in support of Trump (Rodríguez-Pose 2021). Furthermore, it was found that cohesion policies – an indicator of institutional attention for the marginal areas – reduce support for populist parties (Rodríguez-Pose and Dijkstra 2020). In summary, the empirical evidence indicates that the areas that have experienced processes of marginalization and decline represent a formidable reservoir of anger and resentment. Electoral geography tells us that the “anti-establishment” vote is strongly concentrated in those territories that have gone through stories of economic decline or where the watershed between “centers” and “peripheries” is particularly accentuated. Recognition inequalities correlated to the lack of citizenship services suggests that the values, priorities, practical rules and lifestyles of those who live in these places are no longer recognized by the “ordinary” ways of functioning of the institutions, as well as from the ruling classes in charge of public policies. By generalizing to the territories what has been measured at an individual level5 (with all the necessary cautions6), we can therefore argue that recognition inequalities mature not in the “poorest” territories, but in the most “impoverished” ones, that is, where expectations of status are disappointed. Territories where the capacity to aspire (Appadurai 2004) to a shared and better future collides with the shrinking of opportunities and well-being.
Excellence and failure It was more than 20 years ago that Malpas and Wickham (1995) observed that sociologists get it wrong in viewing failure as “a temporary breakdown within the system” (p. 38). This gap is far more important in today’s winners-take-all fields, based on the logic of excellence with few winners and a long tail of losers. In these excellence-based fields, failure and rejection are far more common than success and what needs to be addressed is that these fields imply failure and rejection by design. If excellence is the polar star, failure and rejection are normal in a very Durkheimian way. When sociology analyzes these fields, failure and rejection as such are not at stake and two main research matters emerge instead: (i) the analysis of success cases or “best practices” and (ii) the assessment of governmentality effects. In the first instance, the focus is on those mechanisms that support the success in creative industries, the distribution of research grants in science, the role of venture capitals in high-risk projects. The general question here is: why and for whom is excellence effective? In the second case, a critical posture is taken to highlight the “control and exploitation effects” that the pursuit of excellence encodes. The rise of new public management in Universities, the domination effect of rankings and reputation systems, the diffusion of entrepreneurial society are all interpreted as devices to control and discipline subjectivity in order to extract value and (re) produce power relations. The general question here is: why excellence falls short? Both perspectives, albeit with opposite analytical lenses and very different aims, focus on excellence and downplay a sound analysis of failure and rejection. In excellence-based fields, reward is not always based on the ex-post economic success as in winners-take-all markets (Frank and Cook 2010). The ex-ante positive judgment by an audience is always one of the most important dimensions to be accounted
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for. The audience could be a non-expert one, as in “crowd-judgment”, or it could be a panel of experts, as in the case of scientific competition based on peer-evaluation (on judgment and orders of worth, see Stark 2009). C. Anderson, with his “The long tail” (2006), points out that the “information revolution” has raised the chances for new authors/products/companies to reach their potential demand. In his view, this should have reduced the tyranny of excellence-based fields, but this claim did not prove true. The “democratization” of markets (Elberse 2013), supported by the lower entry costs for new agents, has paired with the concentration of big players and the prominence of excellence-based fields with few winners and a majority of losers. Along with a lower access threshold to enter knowledge-based fields, metrics pushing for excellence has spread and the competitiveness as a pervasive logic of action has increased outside market boundaries. How this kind of organized competition works? As it has been stated by Davies (2014, 43–44): if the critical market principle is competition, might there be other, nonmarket institutions, policies and interventions which might just as easily deliver the specific virtues of competitive practices? (…). Is market competition necessary to deliver competitiveness? The ex-ante judgment (both expert and “of the crowd”) is key in these organized competitions and here failure has deep implications for: (i) it applies to a larger class of items than just failures in the market and (ii) it implies a wider number of dimensions than just the economic ones. The topic has several key consequences for the so-called “new spirit of capitalism” (Boltanski and Chiapello 1999) which is “connexionist” and “networked”, meaning that failure and rejection affect potentially the relational dimensions of agents and their social bases of recognition (Pizzorno 2006). In excellence-based fields, rejection affects our thinking, floods us with anger, erodes our confidence and self-esteem and destabilizes our fundamental feeling of belonging (Winch 2013). It erodes interpersonal ties, destroys social capital and corrodes the intrinsic motivation of agents. The moral economy of failure and rejection is thus of paramount importance to understand the emerging moral order of the project-based city, to borrow again from Boltanski and Chiapello. As Fourcade and Healy (2007, 301) put it: “[This] approach is broadly Durkheimian. Morality does not refer here to some universal ethical standard; rather, it means what a society, or a group, defines as good or bad, legitimate or inappropriate” (2007). Notwithstanding its sociological relevance, so far the extant understanding of failure has been mainly driven by contributions from the fields of management and applied psychology. Sitkin through the concept of “intelligent failures” (1992) establishes the inherent dangers of success and demonstrates that while some kind of failures support learning, others do not. The work of Ellis and Davidi (2005) has reinforced that failures radically change the frames of reference that govern action (Ellis and Davidi 2005). The social mechanisms and relational dimensions of excellence and failure (e.g. orders of worth, field dynamics, forms of capital) have not been addressed by this literature. It thus would be key to analyze the consequences of failure/rejection vs excellence/success in different institutional settings, territorial contexts and social classes. The interplay between excellence and failure can shed some light on the analysis of capitalism. At the macro-level throughout the so-called trente glorieuses, the different worlds of welfare capitalism converged on a reproductive model based on middle-class life style which has become a common symbol of the status of the “ordinary citizen”. Thus, access to the conditions of individual and family reproduction of the middle class became the legitimate model for the demand of social rights. This model guaranteed
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the spread of what we refer to as the capacity to “function” as a citizen. It is in connection to the guarantee of access to this capacity that in welfare capitalism several sectors of the “foundational economy” (see par. 3) have built an articulated civic infrastructure of everyday life goods and services. When welfare capitalism stalled, conservative neo-liberal policies between the 1970s and 1980s eroded the civic infrastructure of industrial citizenship, as well as the guarantees to access it. Everyday life becomes more reliant on the market, framing individual and familiar acquisitions as a plain matter of private resources. As comparative empirical research on social inequality shows, parents mobilize their resources to the advantage of their offspring on different socio-economic outcomes. Winners in this race for private acquisition follow the idea of individu par excès (Castel and Haroche 2001). They believe that their success is solely due to their own personal capacity to triumph in a winners-take-all game (Cook and Frank 1996), regardless of collective assets that they do not feel responsible for. Symmetrically, the feelings of the “losers” coincide with those of the individu par défault (Castel and Haroche 2001), thus exposed to psychological dynamics of discouragement and discount of their temporal horizons and loss of their collective capacity to aspire (Appadurai 2004). An excellence-based capitalism, where winners-take-all, structurally generates a long queue of excluded people, as well as of “places that do not matter” (cfr. par. 3).
People as infrastructures AbdouMaliq Simone in his insightful work suggests to frame the connection between people and infrastructure relying on the formula “people as infrastructure” (2004). This idea emphasizes the potential and actual economic collaboration among residents seemingly marginalized from and immiserated by urban life. When being observed from the inside, the structures of urban life are far less stable that they would appear to be, Simone argues. Its flux is an assemblage of complex relationships of mutual implication and divergence that envision and stabilize urban life into vastly uneven “patterns of capacity” (Simone 2011). In Simone’s account, it is the very activity of marginal people in urban contexts that directly shapes the notion of “people as infrastructures”. Their “daily-doing” helps the economy, communications, power and water of cities to function (McFarlane and Silver 2017) in contexts of radically uneven and unequal provision that excludes the poor and disadvantaged (Wakefield 2018), namely, where a kind of infrastructural violence takes place. The activities of people give birth to complex combinations of objects, spaces, persons and practices that – in conjunction and intersection – become a platform providing for and reproducing life in the city. These “patterns of capacity” unfold in social practices that carry traces of past collaborations, vehicles of emotions, codes, symbolic goods and values crucial for social organization. As Simone states: (…), the transport depot in Abidjan is full of hundreds of young men who function as steerers, baggage loaders, ticket salespersons, hawkers, drivers, petrol pumpers and mechanics. (…) Although each boy gives up control of the passenger to the next player down the line, their collaboration is based not on the boys adhering to specific rules but on their capacity to improvise (2004, 410). A distinctive aspect of this perspective is its focus of multiple identities and mechanisms of boundary transgression, coupling, de-coupling and bridging. Accordingly, Simone notices that even ethnic groups who hate each other generate concrete acts and collaborative practices that allow doing business, sharing housing or engaging in other interpersonal exchanges. The broader analytical point here is that patterns of exchange and collaborations draw on a variety
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of occasional and contingent sources, without looking for purity or consistency. In the “people as infrastructure” perspective, then, actors engage in bricolage and their creative agency leads to the circumvention of institutional constraints (Herrigel 2010). Here social infrastructures can be understood as combinations of social practices assembled by actors in ways that may not be easily anticipated but that are by no means random. Here, people do not choose their course of action on the basis of a portfolio of preexisting beliefs and desires but tackle the problem-situation by trying out courses of action where ends and means are indistinguishable. Desires arise in and depend on context, as they are inseparable from the conditions that render possible the practical resolution of the problem (Whitford 2002). This is why pragmatic action is always hybrid, assembling the material at hand with a view to a solution, not worrying too much about “purity” and consistency. Instead it looks to the solution’s practical consistency and symbolic legitimacy vis-à-vis the contextual conditions where the action unfolds. In this connection, three templates for pragmatic recombination can be identified (Granovetter 2017): (1) intersection, when the actors must try to solve a problem involving different principles of action at the same time; (2) transposition, when a template is chosen that is normally applied in an institutional setting other than one’s own; and (3) matching, which makes apparently irreconcilable principles and rules compatible. The sense of surprise and marvel that strikes westerns visitors when observing African metropolis and urban settings arises from such situations of hybridization. Moreover, the “people as infrastructure” perspective supports incremental urban planning based on ad hoc actions by slum dwellers to connect to energy networks or carve out informal living spaces. Research in urban studies is increasingly focused on how marginalized populations seek to construct or reconfigure urban systems. The incremental planning of social infrastructures, from new electricity connections creating free circuits of energy, to self-built housing systems and community-based food networks, helps marginalized urban dwellers confront multiple inequalities and difficulties in accessing basic resources. People often build, shape and support such practical assemblages to sustain their urban life. These assemblages do not follow the prevailing planning orthodoxy, based on property rights and security of tenure. Instead incremental infrastructures assume that the activities of the poor substantially constitute the city itself, and that the poor carry particular capacities for driving and adapting to new modalities of urban existence (Simone 2008). These assemblages point to the right to the city of marginal subjects, a right beyond merely an efficacy related to their own limited survival needs.
Organizational and moral careers Are organizational careers just a matter of individual actions and institutional constraints? Would it be feasible, on this ground, to assume RCT a proper tool to make sense of career choices? To answer to this question, it may be helpful to briefly recall a vignette from the historical experience of the fordist factory in Italy in the 50s (Barbera and Negri 2021). An historical figure of Italian trade unionism, Vittorio Foa, recalled in his autobiography (1991, 280, our translation): “(in) he fifties we were very impressed by the witness of a French worker from Renault who illustrated that even in the work at assembly line, which seemed the most ‘commanded’ by the machines times and methods, nothing would march without an autonomous workers’ initiative”. Perhaps, from this viewpoint, the factory portrayed by Charlie Chaplin in Modern Times did not tell
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everything. As Burawoy’s ethnographic experience in a piece-rate machine shop (1979) showed, the management controls workers by giving them the “illusion of choice” in a highly organized environment. In the machine shop, the piece-rate system created the illusion of labor as a game. Workers competed with each other to “make out” and surpass their expected production quotas and this, over time, was a source for their job satisfaction. Accordingly, those more skillful gained the most respect and prestige from their fellow co-workers: “Until I was able to strut around the floor like an experienced operator, as if I had all the time in the world and could still make out (produce the quota), few but the greenest would condescend to engage me in conversation” (Burawoy 1979, 64, in Granovetter 2005, 41–42). In this vein, it is crystal-clear that the involvement of workers and their active participation call for more complex micro-level motives than those of the standard incentive models based on the RCT, such as those that leverage on efficiency wages (Milgrom and Roberts 1992). Even within the fordist assembly line – explicitly designed to maximize the independence of performances from the subjective characteristics of workers – empirical behaviors cannot be reduced to the RCT axioms. A realistic explanation requires to include feelings, social identities and expressive behaviors of workers. It should be stressed, moreover, that these weaknesses of RCT arise in contexts that are quite faraway from “ontological uncertainty” (Lane and Maxfield 2005), such as those contexts evoked by the most drastic criticisms of RCT (Denzin 1990). The context of the fordist assembly line is indeed quite a transparent one and easily “parameterized”. Nonetheless, assuming that in these contexts the micro-level mechanisms are those of RCT seems highly inappropriate. No less out of place than assuming that since the game of billiards is a parametric environment (at least more than the poker one) the player calculates his side shots using the laws of physics and the rules of trigonometry. In fact, we know that billiard players proceed in a heuristic, and not computational, manner. Real-world agent’s think of themselves in the future (Appadurai 2004) and their projects include long-term career perspectives. If individuals would not think about themselves in the future, career opportunities would lose their effectiveness and careers would no longer work as a tool for regulating organizational environments. Organizational careers, thus, imply logics of action where agents have long-term time horizons as moral persons, but these cannot be understood through RCT models. For instance, in a given organization, the number of hierarchical levels influences the likelihood that extrinsic-value exchanges generate a network whose ties have intrinsic value for the actors. For a given the rate at which vacancies occur, the higher the number of hierarchical levels is and the larger the amount of people who will candidate for promotion, have been promoted, or have decided to promote someone else will be. Therefore, the higher the frequency of career-focused interactions and correlated emotional states will be. Here career-focused interactions will be vehicles for sociable feelings, pleasure for homophily or carrier for reciprocal recognition mechanisms. In this kind of organizations, the interactions that constitute a career path will approximate that of a ritual that inspires feeling of sociability and bestows an intrinsic value on these interactions, their outcomes, the relational settings in which they take place, as well as on the rules that govern them (Collins 2004). Career episodes may thus acquire an intrinsic value, which is key for the social identity as in the case of moral careers (Goffman 1959). Hence, if the hierarchical structure is suitably stratified, a bunch of interactions triggered by the availability of vacancies for career advancements might generate a more complex and multidimensional organization. Here occupying “positions” involves not
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only peculiar tasks, salaries and conditions of power but also sharing a collective identity with fellow workers: accordingly, the exit option could easily trigger a crisis in one’s biographical continuity. Besides, beliefs about “what is worth of people” and related desires, as well as beliefs about “who you are”, exercise a normative influence that transcends RCT scope conditions. On the other hand, it is rather clear that an RCT approach would end up not grasping the multidimensional complexity of these organized settings. It needs to be underscored that this “logic of appropriateness” (March and Olsen 2008) will not hinder the adaptability of the organization. Firstly, the presence of ties with intrinsic value can support a sort of “optimism of the will” in seeking solutions in those previously discussed cases structured by zeros-sum exchanges and which make the regulation of the careers a daunting task. Secondly, the fact that career episodes acquire an intrinsic value may impact on the desire to “move ahead” and to the commitment to work hard in order to acquire merit for promotion, regardless of the current presence of such opportunities for advancement. A commitment, therefore, does not stem from RCTlike decisions concerning the expected utility of hard work. In this way, commitment is quite independent from currently existing opportunities. Third, ritual situations in which the actions acquire an intrinsic value may help to overcome the well-known resistance to innovation which emerges when the impact of innovation on the future states of the world is not yet meaningful in the daily experience. Even enthusiastically adhering to an innovation, albeit in conditions of high uncertainty and perhaps even for this reason, can in fact be worthy of appreciation. The mechanisms detected by Burawoy’s ethnographic account provide an explanation of workers consensus and commitment in organized settings where effort, compliance and moral dimensions are intertwined and where the very logic of action is itself a function of the context.
Conclusions As Andrew Sayer aptly stated, the moral economy may: “sound like an oxymoron because economic behaviour is strongly associated with power and the pursuit of self-interest, and economic forces often act regardless of moral concerns” (Sayer 2007, 261). The oxymoron is even sharper when – as I tried to show – moral economy overlaps with moralized view on the society-economy nexus. The interplay between the moral economy and a moralized perspective on the economy is key in the provisioning of all commodities at all times where human well-being is deemed to be an intrinsically significant goal, today as it was in the past (Morgan 2020). The previous vignettes show that norms concerning production and distribution are not exogenously given but products of communal organization and social context (Richards 2022). As I have been maintaining, this understanding points to the mixture of motives and to the overlapping of social spheres that drive action and interaction in a pragmatic way, where means and ends are not sharply separated (Whitford 2002). In this sense, all the five vignettes above illustrated share the idea that the actors do not choose the course of action in relation to preexisting preferences/desires but face a problem-in-situation in an experimental way by activating courses of action where means and ends are indistinguishable. Here “the actor is an experimenter who encounters problem situations, but without a preformed set of values to dictate a desired end-state with its (necessary) means and actions. Instead, the actor hypothesizes activities – means-to-ends – that might resolve the problem and makes predictions about their results – the formation of the desire – choosing a best course
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of action but constantly adjusting it upon receiving new information about the actual effects of means chosen” (Whitford 2002, 345). Be it a personal and daily issue, rather than a career, work or political action issue, the “desires” arise reflexively only during and/or after the action and depend on relational, institutional and cultural dimensions. Accordingly, pragmatic action is always a sort of hybrid action that assembles the material at hand with a view to a solution, and thus does not worry overmuch about “purity”, but looks to the solution’s practical consistency and symbolic legitimacy vis-à-vis the contextual conditions. For the moral/moralized economy, this entails the: (i) mixing among market codes, public principles and collective goals, (ii) the combination of social motives within market processes and productive settings, (iii) the assemblage of material devices, interaction regimes and cultural codes in impoverished contexts. These pragmatic recombination templates recall Weberian “polytheistic” environments, marked by conflicts and compromises in principles, values, quality conventions and rules of recognition. In environments of this kind, choices cannot be resolved either through a computation that optimizes a specific criterion, or through absolute moral consistency and purity. Practical problem-solving activities must, according to Weber (2000, English translation 1946, 148), come to grips with polytheism: the various value spheres of the world stand in irreconcilable conflict with each other. The elder Mill, whose philosophy I will not praise otherwise, was on this point right when he said: If one proceeds from pure experience, one arrives at polytheism. Pragmatic polytheism does not require a full moral agreement on key moral values. While the moral economy is entangled with a moralized economy, pragmatic polytheism urges us to escape a one-sided view of this connection, favoring instead the analysis and pursuit of bricolage processes. The analytical dimensions of interaction regimes, hybrid rules, assemblages of resources and practical problem-solving processes are at the core of these processes.
Notes 1 As Granovetter kindly clarifies in a personal email dated May 4, 2022: “It is not true that I had not yet read Polanyi when I wrote my 1985 paper. In fact, I had read his work carefully in the early 70s, and noted his interest in embeddedness. I have my old notebooks from that period that record this. What is true, however, is that when I was writing the paper, I had forgotten that Polanyi’s had talked about “embeddedness”, perhaps because (and as you note), his use of the term was quite different from mine, and also because it was not a term that he used very often or had as a major theoretical focus. My (then) colleague Wayne Baker, after reading a draft of the paper, commented that I was revising Polanyi’s concept of “embeddedness”, and then I remembered what I had read, and in the final paper, I briefly note the connection, though not in any detail. 2 The Strength of Weak Ties has 63,439 citations; Economic Action and Social Structure, 47.205 (Google scholar, November 28, 2021). As a yardstick, consider that George Akerlof ’s The Market for Lemons (article underlying the awarding of the Nobel Prize for Economics to Akerlof ) has 38,261 citations. 3 As many as 49% of the males interviewed in Tokyo by Watanabe had denied that they had actively sought employment, and this proportion rose to 63.8 for executives, and to 60.2 for those who received the highest salaries. 4 In the same line, Brian Uzzi (1996) notices that embedded ties between firms promote cooperation even if interests diverge. The case regards a firm, which decided to move the production from New York to an Asiatic town and that, despite this, it keeps a nonopportunistic behavior with its suppliers with whom it shares an embedded tie. 5 It has been shown that abstention and anti-establishment voting are influenced by the failure to satisfy expectations of intergenerational status or “status discrepancy”, understood
The daily-life and moral economy 355 precisely as the difference between the status expectations formed in childhood and the results achieved in adulthood (see Kurer and Van Staalduinen 2022). 6 Caution arises from the risk of attributing status expectations to indefinite collective subjects, such as “territories”. On the other hands, the application of similar concepts to collective subjects – such as “creative atmosphere” for districts or “learning ability” for organizations – shows that the operation has some plausibility.
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The daily-life and moral economy 357 Rodriguez-Pose, A. and Dijkstra, L. 2020. Does cohesion policy reduce EU discontent and Euroscepticism?, Papers in Evolutionary Economic Geography (PEEG) 2040, Utrecht University: Department of Human Geography and Spatial Planning, Group Economic Geography. Rodríguez-Pose, A., Lee, N. and Lipp, C. 2021. Golfing with Trump. Social capital, decline, inequality, and the rise of populism in the US. Cambridge Journal of Regions, Economy and Society, 14(3), pp. 457–481. Sayer, A. 2007. Moral economy as critique. New Political Economy, 12(2), pp. 261–270. Sen, A. 1999. Development as Freedom. Oxford: Oxford University Press. Simone, A. 2004. People as infrastructure: Intersecting fragments in Johannesburg. Public Culture, 16(3), pp. 407–429. Simone, A. 2008. The politics of the possible: Making urban life in Phnom Penh. Singapore Journal of Tropical Geography, 29(2), pp. 186–204. Simone, A. 2011. The surfacing of urban life, City, 15(3–4), 355–364. Stark, D. 2009. The Sense of Dissonance. Accounts of Worth in Economic Life, Princeton, NJ: Princeton University Press. Swift, A. 1995. The sociology of complex equality. In D. Miller and M. Walzer (eds.), Pluralism, Justice, and Equality. Oxford: Oxford University Press, 253–280. The Foundational Economy Collective. 2018 Foundational Economy: The Infrastructure of Everyday Life. Manchester: Manchester University Press. Thompson, E.P. 1971. The moral economy of the English crowd in the eighteenth century. Past and Present, 50(February), pp. 76–136. Trigilia, C. 2002. Economic Sociology: State, Market and Society in Modern Capitalism. London: Blackwell. Uzzi, B. 1996. The sources and consequences of embeddedness for the economic performance of organizations: The network effect. American Sociological Review, 61(4), pp. 674–698. Wakefield, S. 2018. Infrastructures of liberal life: From modernity and progress to resilience and ruins. Geography Compass, 12, https://doi.org/10.1111/gec3.12377. Weber, M. 1921/1968. Economy and Society. New York: Bedminster Press. Weber, M. 1946. Science as Vocation, In From Max Weber, trans. and ed. by H.H. Gerth, and C. Wright Mills. New York: Free press. White, H.C. 1992. Identity and Control. A Structural Theory of Social Action. Princeton, NJ: Princeton University Press. Weber, M. 2000 [1994]. The profession and vocation of politics, In P. Lassman and R. Speirs (eds), Weber: Political Writings. Cambridge: Cambridge University Press, 367. Whitford, J. 2002. Pragmatism and the untenable duality of means and ends. Theory and Society, 31, pp. 325–363. Winch, G. 2013. Emotional First Aid: Practical Strategies For Treating Failure, Rejection, Guilt, And Other Everyday Psychological Injuries. New York: Penguin Group.
18 The creative economy Production, consumption, and temporality Henrik Fürst and Patrik Aspers
Introduction The creative economy is together with other economic domains, such as the financial economy, natural resource economy, or labor economy, an obvious case of interest to economic sociologists. The term creative economy denotes that economic value is a consequence of human creative input in goods and services (Howkins 2001). This notion points, on the one hand, to the economy, in general, as the site of production, consumption, and distribution of resources, and, on the other hand, to the study of concrete activities of, for example, production and consumption of film, computer games, literature, fashion, and art, in addition to creativity, and some of this research does not highlight the “economic” dimension, but instead its practices or consequences. This second meaning is thus narrower and also refers to goods and the careers of people involving “information”, “knowledge”, and “cognition” (Castells 1996; Florida 2002), all of which are characterized by value uncertainty. The economic value of creativity and culture is recognized and popularized in concepts such as cultural and creative industries, the experience economy, creative cities, creative classes, and creative clusters. Research within the field of “creative economy” has primarily focused on production, which includes artistic and commodity markets, creative organizations, and the process of making cultural content. Production companies, such as publishing houses and record labels, not only acquire goods or services created by artists but also shape the creative content. These companies hire artists or select goods to produce, often through short-term projects that form creative careers. The goods are distributed and marketed to other companies in the production system or are sold in consumer markets. In the consumer market, goods such as books, video games, clothes, music, and films are priced through various pricing mechanisms, and consumers, with taste preferences, make consumption decisions. Increasingly artists, stars, and even “influencers” also gain the power to structure fields of production and consumption in the creative economy. This latter observation points to the increased role of self-employed creative producers within this industry. The uncertainty of the production and consumption of objects is important in the creative economy. This uncertainty about objects’ esthetic and economic values is a classic problem. From the ideas of absolute values of art in the Greek tradition to Immanuel Kant’s position, and to the full-fledged sociology of art of Pierre Bourdieu, many steps have been taken that have increased our understanding of what is “good” art. Uncertainty, as more generally seen (Knight 1921), is central for understanding how goods are produced, what goods to use or consume, and for understanding careers.
DOI: 10.4324/9780367817152-21
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Over time, theories, not the least those developed in the humanities, that stress the essence of art have lost ground, and more sociological explanations have gained ground. A premise of contemporary sociology is that esthetics has no absolute value. What is considered beautiful, good, high quality, or, put more generally, regarded gains its value in a social process. At the same time, there are social structures and values that order social interaction. Today, some see the artwork, creativity, and its workers as being at the forefront of the economies of the Global North, all of which are activities that are mentioned together with terms like individuality, autonomy, and entrepreneurship (Brook, O’Brien and Taylor 2020: 77). Creativity and the production of cultural goods is a general trend from standardized goods to product differentiation, whose early phase was spotted by Alfred Marshall (1920) more than 100 years ago. This trend, no doubt, has continued and become more pronounced (Karpik 2010). Temporality plays an important role in the explanation of what is creative, “good” art, and many other things because change is often occurring quite rapidly, almost at the pace of fashion (Aspers and Godart 2013), not the least due to the rapid pace of what is “in” and “out” on the internet and its various sites. Still, the social structure, in terms of identities, like influencers, roles, and social status hierarchies, often tends to order creative objects, and be an important element of consecrating value of these objects. The pace of change has increased over time, and this chapter gives special attention to the role of temporality, not the least because it is understudied as a dimension when we want to understand the creative economy. This chapter presents some of the fundamental components of the creative economy, brings up the main themes of this economy, and provides key references for the field and its current debates. First, the central concepts of the cultural and creative economy are introduced. Second, we present research on artistic labor, especially focusing on artistic labor and commodity markets. Third, attention is turned to the consumers and research on cultural consumption, i.e., the valuation of creative goods. Fourth, we conclude by discussing the temporal dimensions and transformations of the creative economy and its consequences for future research. We end by presenting some possible areas of future research. Taken together, the analysis of this field of research is both theoretically relevant because many terms and theories developed in this field have the potential to be used in other economically relevant fields. Moreover, it is a field to which many economic sociologists have made contributions.
Creative, cultural, and experience industry and economy The terms creative economy or cultural economy have slightly different etymologies, but they are used interchangeably. Sometimes the terms cultural industry or creative industry are used, and then it is typically the production side (i.e., industry) that is in focus. This chapter emphasizes sociological contributions, but one should be aware of the ongoing discussion about similar interests in economics, for example, in the Journal of Cultural Economics (1977). The interest in issues of creativity and the cultural economy is shown in several disciplines. The more modern discussion, however, started after World War II. Max Horkheimer and Theodor Adorno (1947) were the first to use the term “cultural industry”. By using the term, they analyzed the industrialized mass production of standardized cultural objects made possible through American capitalism in the early 20th century. In their rather pessimistic view of American culture, stemming from their
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background in the Frankfurt school of critical theory, they saw how culture was produced to create demands of the masses by making standardized content for distraction and devoid of content that enabled reflection and engagement. In a more contemporary use of the term cultural industry, David Hesmondhalgh (2012: 16) sees the cultural industry as the arrangement of institutions, as companies, state organizations, and non-profit organizations, mainly engaged in the production and distribution of cultural works. These institutions, between artists and consumers, facilitate the creation, production, distribution, and consumption of goods and performances that have “communicative” rather than “functional” values (Hirsch 1972). In an attempt to systematize culture as a distinct part of the economy, the concept of “creative industries” emerged in the early 2000s, and the Journal of Cultural Economy was launched in 2008 in this spirit. The term creative industries was introduced in cultural economics, using economic concepts and properties to the study of industrial organizations, between artists and audiences, engaged in things creative (Caves 2000). The concept has been developed to account for creativity as a source of economic value. Related to this is another use of “cultural economy” that appears in behavioral economics, and which takes the notion of culture into account for economic decision-making. Yet another concept related to the economy, “experience economy”, originated around the same time. This term aims at conceptualizing how goods are differentiated by the experiences that consumers associate with the product or service. Rather than competing for consumers based on price alone, the argument is that value is established through memorable experiences (Pine and Gilmore 1999). Hence, these goods are becoming more like “experiential goods”, whose qualities finally are determined when experiencing the good; an experience that may come with a surprise (Hutter 2010). The initial meaning of creative industry, relating to its political implication for the industrial production of culture, has gradually been erased from its connotation. In contemporary literature, cultural industry is primarily a pragmatic concept for describing the business and organization of cultural production and distribution. At the same time, as the two concepts creative industry and cultural industry are replaced as scientific concepts, they have in some contexts become integrated into policy-making and for pinpointing the general relevance of culture and creativity (production, circulation, consumption) of the economy.1 Hence, the concepts of cultural and creative industries are used for calculations of the impact of culture on the overall economy in a country, and the allotment of public resources to the arts and culture (Hesmondhalgh 2012; O’Connor 2007). Two dominant approaches to studying cultural production and consumption are the field theory of Pierre Bourdieu and Howard S. Becker’s theory of art worlds. Bourdieu has, by using an economically primed language, presented a theoretically grounded approach, but which at the same time let the issue of inclusion and exclusion of actors and activities be determined by an empirical investigation of what he calls “field”. Field theory provides a powerful understanding of cultural production and consumption that includes a conceptualization of large-scale production and the field of restricted production. In Rules of art (1996), Bourdieu shows how art and literature in France became autonomous from the field of political and economic power in social space. Most notably, he shows a distinct separation of art for art’s sake and large-scale production, where the former is cultural content produced for peers, with potential high symbolic rewards but few economic rewards (in the short run), while the large-scale production is art for the masses, especially popular culture. The logic of esthetic valuation is thus an economy
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“reversed”. According to Bourdieu, a field is established over time, and though those who are active may be replaced, and though actors’ trajectories over time build their careers, the structure of positions of the field such as those in power and challengers tend to remain quite stable. Becker’s (1982) theory of art worlds draws on the generic idea of social worlds and is another account of essentially the same type of cultural phenomena that Bourdieu’s studies cover. Becker puts more emphasis on production than consumption, but he addresses them both, and like Bourdieu, analyzes how they are interrelated. The art worlds theory focuses on the work necessary to bring about what is known as art, and people’s cooperative activity and networks to make it possible. There are both core personnel and support personnel whose joint activity makes the art possible. Those involved in making and appreciating art often follow conventional forms, or collective and tacit agreements, for how to create and evaluate the art, creating possibilities and constraints for artistic innovation. Artistic fields and art worlds mainly focus on the production of culture, while in different ways acknowledging audiences. The concepts of cultural and creative industries focus on the organizations and institutions, often firms, engaged in the production and distribution of cultural goods and creative output. Moreover, both the ideas of the field and the art world miss the distribution of art by non-profit organizations and local networks covered by industry concepts (Alexander 2020).
Creative labor, markets, and careers The arrangement of artistic careers and markets for goods and labor is often an integrated component of cultural goods and performances produced in the “creative economy”, and the uncertainty of one’s chances to “make it” in esthetic markets is a central theme (Becker 1982; Menger 1999; Menger 2014). It should be noted that much of what we observe in cultural industries is done by people who are neither employers nor employed, but who are self-employed (Aspers 2006b). In a stricter sense, artistic labor markets are composed of two sides: buyers and sellers of labor. Still, many working in creative industries do not have long-term contracts but are the reference point for the recently widely spread term “gig economy”, referring to the hazardous income from single performances in one creative industry, namely, the music industry. Artistic commodity markets, on their part, are composed of buyers and sellers of artistic goods (Menger 1999). In the artistic labor market, managers (e.g., in the theater or film) hire people for a short-term project (Faulkner and Anderson 1987; Zuckerman et al. 2003), or as a permanent position or multi-year contracts in an ensemble and the workers are artists (e.g., in opera, theater, dance, or orchestras) or may be support personnel (Faulkner and Anderson 1987; Menger 2014: 136–179). The rise of do-it-yourself cultures, such as self-publishing in literature, has seen a rise of a reverse relationship, where the artist becomes the buyer of labor and services to produce a work of culture (Fürst 2019). More fleeting forms of productions are social media productions, where content producers compete for time and views directly on a consumer market. Career can be defined as “lines or occurrences resulting from a dual process in which both sides of the market are recurrently matched” (Faulkner and Anderson 1987: 880). This reasoning links to the pivotal role of the match-making of artists and “gatekeepers” in artistic labor and commodity markets. Another way of depicting a career is to see
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it as the difference between a sequence of trials of competition among individuals and through which artists’ skills, knowledge, and experience are revealed and artists learn more about their abilities (Menger 2014: 104). There are many difficulties for artists in artistic labor and commodity markets, some of them relate to the temporal dynamics of uncertainty. To achieve success, artists must compete for scarce resources and opportunities. The general uncertainty (Menger 2014) involved in producing a non-standardized good, or what Lucien Karpik (2010) calls a “singularity”, and often not knowing if the buyers of goods will select it and how it will perform among consumers and reviewers, creates many tensions in artistic production. The notion of career, though, shows how actors’ chances to establish a secure position in a field of art gradually diminish over quite a long time. Despite a clear overproduction of those who are willing to try, it is for any single individual who may have invested heavily in a career—to the extent that their identity sometimes cannot be separated from this attempt—hard to project her chances, though they are statistically speaking, quite low (Menger 2014). As shown above, uncertainty prevails for who and what will become successful, gain prestige from peers, or remuneration from sales. Strategies are deployed at the artistic labor and commodity markets to handle this insecurity, as well as organizing production to enable flexibility (Hirsch 1972). One strategy is the re-occurring professional ties in teams, as when certain actors, producers, and directors work together in a series of films (Faulkner and Anderson 1987), thereby reducing uncertainty about future performance. Advantages for artists may also come from their affiliations, as being associated with a core production company or an agency as a broker, whose relative position and reputation provide opportunities for future success among its artists (Bielby and Bielby 1999; Fraiberger et al. 2018). Another strategy to curb uncertainty is to use type-casting where people re-occur in a role or genre and one thereby knows what one gets (Zuckerman et al. 2003), which may work against the intentions of the artist and sustain and solidify genres and stereotypes (Griswold 1992). There is a cumulative advantage of having been hired before, and especially in productions that signal quality or profitability, which increases the chances of being hired again and again (Menger 2014: 218; see also Faulkner 1983). These strategies are also related to demand uncertainty, where additional strategies involve the overproduction of goods and strategic marketing of presumed successes (Hirsch 1972). This general uncertainty and desirability of creating and producing culture among artists are associated with the oversupply of cultural laborers and the overproduction of cultural products (Coser 1975; Hirsch 1972; Menger 2014: 181). The overproduction of goods is a rational response to demand uncertainty, not knowing what will become successful, such as selling well (Menger 2014: 182), or “all hits are flukes”, as Bielby and Bielby (1994) memorably call it. Excess supply of labor is also generated by production companies minimizing fixed costs using project-based labor arrangements (Menger 2014: 183). These filtering and selective mechanism create segmentation on the artistic labor and commodity markets (Menger 2014: 2). The status structures of careers are linked to the name of the artists, production company, etc. Status is about the relative position and standing of something (e.g., artist, product, and production company) and reputation is what something is known for. Hence, there is a name economy, where benefits and drawbacks come with the status attributed to a certain name (Moran 2000; Squires 2007), which means that the sociological notion of identity is frequently used to catch how actors are positioned in
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markets or fields (Aspers 2010; Zuckerman et al. 2003). For example, the enrichment or valorization of one’s name is connected to memories and narratives that may be used in capitalism to gain economic value (Boltanski and Esquerre 2020). Reputation and status reduce uncertainty by assuring quality and trustworthiness. Assortative matching tends to occur where artists and production companies of similar status are matched with each other, where matches for artists to production companies and production companies to artists of superior or equal status. Research has also shown a cumulative disadvantage for women in creative labor, where their contributions have been devalued across time (Bielby and Bielby 1992; Conor et al. 2015). Sherwin Rosen (1981) has analyzed the superstar phenomenon, where a few players dominate the consumer market, what has later been termed a winner-takes-all market. In his model, talent is accounted for and something with which consumers can identify. Even perceived small differences in talent or appeal may result in great differences in remuneration. For non-reproducible goods, where the value comes from the live experience, a few reputed artists, such as classical pianists, receive both a following and significant remuneration for their live performances. The rise of mass communication technologies, where a reproducible product may be distributed with equal quality to the many, increases the market share for the product or performer who may have small perceived leverage in “talent” over other artists; a difference that may be reinforced in consecutive selections of their career (Menger 2014). Series of events tied together into narratives is crucial for the identities in an industry, for example, for models (Entwistle 2009). As there is an oversupply of labor, many artists have difficulties earning a living in their trade (Abbing 2002), often needing to side jobs to earn a living (Gerber 2017; Lindström 2016, 2018), while at the same often constituting a substantial part of the audience of those who are successful in an art world (Becker 1982). It is common to find aspiring artists and people interested in culture to work for free or low pay as interns in the creative economy (Frenette 2013; McRobbie 2015; Siciliano 2021). For those in the performing arts, the salaries have been dampened by a general cost disease, where the general effectiveness of production of goods in society has not seen its counterpart in the performances of especially theater and film, where it still takes time to prepare and perform a play or film (Baumol and Bowen 1966). Hence, there are temporal aspects to performing arts that cannot be cut down, the same aspect of the temporal dimension of creation also relates to other forms of cultural production, where for instance creative writing still takes a long time and where several years may pass between books. The remuneration for the work invested in such projects may not be on par with the actual time invested in the book project. The economic rewards are often limited, and the flexibility that workers and those self-employed are expected to accept is frequently to the benefit of those investing in and organizing cultural production, but for many of those who work, the conditions, not the least when issues like parental leave, social security system, and pension systems may be precarious. Given these conditions, one may even wonder why anyone is willing to invest in an occupation where success is uncertain. Following the work of Adam Smith, Alfred Marshall, and Milton Friedman, Menger (2014: 120) argues that the commitment to the artistic vocation, where few reach the stars, is to take the risk for a substantial reward, prestige, or remuneration. There are both monetary and nonmonetary (psychic) rewards, a labor of love or calling. Creative labor is desirable as it is non-routine (unpredictable) (Menger 2014; see also Fürst 2020).
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Gatekeepers and cultural intermediaries The uncertainty artists and creative workers face and have to cope with has largely to do with the lack of standards or conventions for evaluating works of art and artists. Selection of what is good is largely made by in the field socially legitimate gatekeepers or intermediaries, who have the power to enforce appropriate artistic creativity and to allocate reputations and rewards for artists (Becker 1982; Bourdieu 1984: 359; Cattani et al. 2014; Parker and Corte 2017: 269). Hirsch (1972) has shown how the cultural industries as a system is a series of filters, where the raw material, like manuscripts and proposals, submitted to gatekeepers are filtered, as few are selected and the many rejected. The gatekeepers open and close the opportunity to become published, produce a film, record an album, and so on. Gatekeeping follows throughout the entire industry. The uncertainty, primarily for those who have been selected or not (cf. Fürst 2017), but also for the gatekeepers themselves is large, and those enacting the role of a gatekeeper frequently speak of their, everything but standardized, “gut feeling” (cf. Aspers 2006a). A related concept to gatekeepers is “cultural intermediaries”, which has gained a broad meaning as holding the intermediary position between production and consumption (cf. Bourdieu 1996: 359). This notion has also gained traction in actor-network theory for the qualification and legitimate use of goods in-between economy and culture (Maguire and Matthews 2012). To facilitate decision-making under esthetic uncertainty, signals or proxies are used to determine the desirability and quality of the good or artist, for example when recruiting someone for an esthetic project (see, e.g., Aspers 2006b; Faulkner 1971). Status or information of reputation is used to gain information about the talent, which can be based on the track record of previous performances or existing networks within the production company. Goods may be discovered based on certain types of overwhelming experiences gained from interacting with the object and used as a ground for becoming aware of the possibility of a good being justifiably selected (Fürst 2018). Attempts to control the dissemination process from production to consumption have always been part of the creative industries (Hesmondhalgh 2012). Vertical integration of firms that owns the value chain and paying for exposure of products has been one way of controlling dissemination. With the digital economy, there exist new forms of these arrangements, such as the largest streaming services for audiobooks, music, and films and tv-series having their own “original” series (e.g., Storytel Original, Netflix Original) and thereby having control over both the production of new content and platforms for its consumption.
Cultural consumption Consumption of cultural goods is hardly ever independent of the producer; the status and identity of the producer are typically a constitutive element of the object. This is to say that the discussion and analysis of production are also relevant for analyzing consumption. But many cultural goods are also highly dependent on the consumer side, which is particularly clear in the field of fashion garments. Who is wearing a garment is co-constituting its meaning (Aspers and Godart 2013; le Grand 2010). Both creative goods (Caves 2000: 4–5) and experience goods (Menger 2014: 194), whose qualities are judged privately and publicly in exchange, are characterized by uncertainty. Getting
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information about the quality or worth of a creative good can be a time-consuming endeavor, if at all possible. One private strategy is the results of direct and indirect comparison or the observation of the mimetic choices made by others, which would signal quality (Menger 2014: 194). The public aspect of the comparison is to rely on ranking and ratings of goods, e.g., bestseller lists for books and classification of wines, that would reduce the uncertainty about the quality of the good and make it easier for consumers to make reasonable choices (Karpik 2010). There is thus no surprise that many cultural goods’ economic value is set in public auctions (Smith 1989). Attention differs and consumption of reproducible goods follows a long-tail Pareto distribution curve (Anderson 2009), with few big sellers and more products selling in fewer quantities. The internet is said to have the ability to change the search for cultural goods. Access to hard-to-find or seldom-bought items on the internet would give rise to a new economy, where profits could be made from selling many of these seldom found or bought items at the lower end of the distribution curve. Nevertheless, the Pareto distribution for consumption persists, where many goods do not sell at all, and a concentration of a few bestselling goods (Elberse 2008; Menger 2014: 224). Niche products do not seem to be at the attention of the consumers, according to Anita Elberse (2008), it is the high-intensity cultural consumers who are attracted to these products. The amount of attention given to an artist or product is proportional to the new consumers choosing the artist’s artwork, book, film, or other cultural product (Menger 2014: 199). If consumers have information about the choices of others, they seem to display an agreement in cultural consumption preferences (as in music), which makes successes predictable in retrospect but unpredictable beforehand (Salganik et al. 2006). Many cultural consumer goods, in contrast to goods like potatoes or oil, are to be understood essentially as social (Beckert and Aspers 2011). Both individuals and social groups are differentiated by their consumption, as already analyzed by Veblen (1953), Simmel (1971), and Tarde (1969), ideas on which many more recent sociologists have built. In his classical book Distinction, Bourdieu (1984) shows how the taste from the dominant classes, or those who have distinction by high volumes of cultural capital, also becomes the dominant taste. Those with less cultural capital have a habitus, or dispositions, that do not conform to the dominant classes and do not have the same way of categorizing, appreciating, and talking about culture. The taste of the dominating classes becomes a form of symbolic violence, where those from the dominated classes express and have a taste but whose role is subordinate to the dominant classes.2 In contrast to Bourdieu’s work about distinctions, Richard Peterson and colleagues (Peterson and Kern 1996; Peterson and Simkus 1992) have shown that cultural consumption does not involve distinction and exclusion, but rather a tolerance for “high culture” and “low culture” cultural expressions. These consumers, who often have high socioeconomic status, are cultural omnivores, while others residing in cultural universes that have a lower socioeconomic standing specialize in a few popular art forms. They also show that tastes can be ordered in the form of a pyramid, with few high art forms and many low art forms, rather than a strict hierarchy as suggested by Bourdieu. Paul DiMaggio (1987; see also Lizardo 2016; Lizardo and Skiles 2016) supports the idea of high-status people having a larger taste repertoire and links this pattern to their culture talk and the mobility and variety of social roles in the USA that these people take on. Different roles call for different use of cultural knowledge. Knowledge
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about high art gives people the opportunity to identify themselves with others of the same class position, while knowledge about popular forms can create a bridge across class divides. Another critique has emerged relating to Bourdieu’s classical study, as expressed in the work of Benzecry (2011) about opera fanatics. While the taste for opera appears to be exclusive and for the wealthy with high volumes of cultural capital to make a distinction, Benzecry shows that people rather become corporeally and emotionally attached to opera as a passion and fandom. Categorizations are made to uphold the aura of the opera, by separating it from the rest of the world and the waning status of opera-going and operas. Nevertheless, repeatedly, the inequality of access to not only the production but also the consumption of culture is revealed, making authors such as Brook, O’Brien, and Taylor (2020) provokingly state that Culture is bad for you. People are valued differently as well as cultural goods and expressions are valued and promoted differently, which creates unequal opportunities for consumption patterns to emerge (Brook et al. 2020). In audience research, there has been a movement from theories of cultural content affecting the audience in a single-mannered way (as cultural dopes) to the idea of variations of receptions depending on meaning and interpretative communities (Alexander 2020). The appropriation of culture by sub-cultures, as studied in British cultural studies, has shown how dominant meanings can be resisted and worked upon to develop individual and collective identities (Hebdige 1979), using brands and lifestyles, such as Burberry (le Grand 2010), developed in the creative industry. Similarly, the readerresponse criticism tradition in the humanities emphasizes that interpretation of meaning lies in the readers’ response rather than an external “expert” reading of a cultural object (see e.g. Radway 1991). Tia DeNora (2004) shows in a study of music consumption that the appreciation of culture is also used to order and experience everyday life as they are bound to the situations and moods of the consumers. If the quality of what is produced and consumed is uncertain, also the economic value of what is used or traded is uncertain. Joel Podolny addresses the difference between objectively accessible means of knowing what is good or what a value is, for example, by using a standard, and the importance of status in relation to the uncertainty of, for example, quality: “the greater the market participants’ uncertainty about the underlying quality of a producer and the producer’s product, the more the market participants will rely on the producer’s status to make inference about that quality” (2005: 18).
Conclusions This chapter presents the concepts of the creative, culture, and experience industry and economy, the artistic labor and commodity markets in the creative economy, and the role of cultural consumers and the valuation of cultural goods within this economy. We argue that the creative economy increasingly revolves around issues of temporality. Temporality is noted in the cultural production, circulation, and consumption of goods and services as it is measured by means of volumes, pace, and cycles, indicating forms of structural dynamics in the creative economy. One underlying idea of recent research is that temporality in the creative economy is the increased pace of producing, marketing, and consuming goods. This increased pace, together with an abundance of products, tends to go hand in hand with values of change in society as well novelty and originality
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in arts. What happens when the pace of change in arts accelerates? By paying close attention to the issue of pace and more generally temporality, not only does this chapter make a new contribution to the existing literature but it also connects this subfield more closely with other general sociological questions. Hartmut Rosa’s (2013) theory of modernity shows how social acceleration leads us to experience a “shrinking of the present”, which implies an increased pace of changing expectations. This cultural acceleration matches a technological acceleration creating a constantly shifting flow of events and experiences. While, for instance, the global pandemic of Covid put a halt to the acceleration of physical mobility of goods and people, other forms of acceleration of digitalized culture, like streamed TV, became more pronounced. In what way does speed and time management affect the temporal organization of the industry, as well as the creation, production, distribution, marketing, and consumption of cultural goods? Creative goods gain public value by their relative position or rating. Different lists reveal such positions, as a bestseller list, most streamed music, and ever-fluctuating ratings of restaurants from online rating systems, which are about what is “in” and valuable right now. Schneider and Gros (2019; see also Verboord 2011) show how cultural consumption has accelerated during the last five decades by studying music charts in the USA, UK, Germany, and the Netherlands. The number of albums entering the charts has increased over time as has the replacement rate of the number one album. Where albums previously could climb on the charts to reach the top position, they are now either at the top almost from the day they are released or do not appear at all. The cycle of albums on the charts has also decreased over time. In parallel, the distance between the decision to get an album and buying it has decreased, i.e., creating an acceleration of cultural consumption where streaming is readily available while purchasing albums at stores has dissipated. Also, the structural conditions of industries affect the level of novelty and change. Between 1985 and 2005, significantly more debutants appeared on the UK music charts compared with the US. This has been explained by a more stable structure of relatively large labels in the US and a plethora of competing labels in the UK (Wilderom and van Venrooij 2019). A trend of cultural production, circulation, and consumption is from fixed release dates of creative goods to a constant flow of products with a shorter duration of the newness of each of them. The traditional seasons of fashion today only exist in books of history, and fast fashion, or more accurately, different fast fashions meaning that a store replaces what it offers more than once a month, shows how the contemporary fashion world has increased its pace. The rise of streaming services has increased access for many consumers to many cultural goods, but the time available for consuming culture has not changed to the same extent. What should you consume, given that it is primarily time that is scarce? Services provide personalized selections based on previous purchasing or streaming choices. There is a reliance on attracting consumers to series with many and long episodes due to economic pressures of rationalization (Allen and Berg 2014). The speed also enters the content of the shows, with more cuts and corresponding shorter scenes in movies today than before (Miller 2014). People can choose from an ocean of digital content (books, TV series, music), and they can zap between content in internet dating apps, Instagram, and TikTok, many of which emphasize short clips or pictures that are both consumed and produced by their users.
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The changing pace of cultural production and consumption has consequences for careers and the time it takes to produce culture. For example, YouTube promotes rapid production, where new content is regularly expected, making it a never-ending show for some content producers (Siciliano 2021: 205). There is, as stated by John B. Thompson, short-termism and economism in cultural industries, as in literature, that affect careers in the long run: “This is a system geared towards maximizing returns within reasonably short time frames; it is not designed to cultivate literary careers over a lifetime” (2012: 382). The short-term speculation about talent, as in televised talent competitions, creates entertainment value through tournaments and competition (Menger 2014: 222). These findings suggest an emphasis on the constant demand for new products from consumers driving the cultural economy and that there is less time and opportunity for creativity to emerge, creating risks for fatigue among content producers. While much refers to the speed and orientation to the future, there is also an importance of the past, as some goods get their value from referring to the past or offering a slowdown. Boltanski and Esquerre (2020) write about a rise of an enrichment economy of already existing things and places. They link this development to a decline of production-focused industrialization in Western European economies (with special attention given to France). Exploitation, through narratives of the past, is used to infuse value to (or valorize) things and places, especially when they fill a void in a collection (Boltanski and Esquerre 2020). In the museum, cultural heritage and other cultural manifestations in the arts, and especially things intended for the trade of the wealthy, show the relevance of this enrichment economy. We suggest that future research should look at the temporal dimensions of the creative economy, more specifically, the creation, production, circulation, and consumption of creative goods. What happens to creativity under different temporalities? Is there less time for creativity to emerge? Are production and consumption temporally interlinked? What time do consumers have to appreciate cultural goods? What is the durability of different cultural goods?
Notes 1 Art as part of the creative industries, cultural industries, or more broadly the creative economy, has been the focus of several meta-organization reports. The United Nations Conference on Trade and Development (UNCTAD) has published a creative economy report since 2008 (https://unctad.org/publications-search?f[0]=product%3A594). UNESCO has published reports about creative and cultural industries, as a way to develop communities economically (https://en.unesco.org/creativity/). The European Union (EU) highlights the importance of creative and cultural industries for the creative economy (https://ec.europa. eu/culture/sectors/cultural-and-creative-sectors). 2 In the sociology of art, the art itself is often bracketed (Alexander 2020). Nevertheless, with an increasing interest in materiality, sociological analysis has been done on the sensorial aspects of art and the way in which art in itself constitutes experiences and relationships. The work by María Angélica Thumala Olave (2020, 2021), for instance, in the sociology of reading, shows the material attachments and esthetic immersion in books as iconic cultural objects.
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The creative economy: production, consumption, and temporality 371 Lizardo, O., and Skiles, S., 2016. The end of symbolic exclusion? The rise of “categorical tolerance” in the musical tastes of Americans: 1993–2012. Sociological Science, 3, pp. 85–108. Maguire, J. S., and Matthews, J., 2012. Are we all cultural intermediaries now? An introduction to cultural intermediaries in context. European Journal of Cultural Studies 15(5), pp. 551–562. Marshall, A., 1920. Industry and Trade: A Study of Industrial Technique and Business Organization of Their Influences on the Conditions of Various Classes and Nations. London: Macmillan. McRobbie, A., 2015. Be Creative: Making a Living in the New Culture Industries. Cambridge: Polity Press. Menger, P.-M., 1999. Artistic labor markets and careers, Annual Review of Sociology 25(1), pp. 541–574. Menger, P.-M., 2014. The Economics of Creativity: Art and Achievement Under Uncertainty. Cambridge: Harvard University Press. Miller, G., 2014. Data from a century of cinema reveals how movies have evolved. Wired. https:// www.wired.com/2014/09/cinema-is-evolving/ Moran, J., 2000. Star Authors: Literary Celebrity in America. London: Pluto Press. O’Connor, J., 2007. The Cultural and Creative Industries: A Literature Review. Newcastle upon Tyne: Creativity, Culture and Education. Parker, J. N., and Corte, U., 2017. Placing collaborative circles in strategic action fields: Explaining differences between highly creative groups. Sociological Theory, 35(4), pp. 261–287. Peterson, R. A., and Kern, R. M., 1996. Changing highbrow taste: From snob to omnivore. American Sociological Review, 61(5), pp. 900–907. Peterson, R. A., and Simkus, A., 1992. How musical tastes mark occupational status group. In M. Lamont and M. Fournier (eds.) Cultivating Differences: Symbolic Boundaries and the Making of Inequality. Chicago, IL: University of Chicago Press, 152–168. Pine, B. J., and Gilmore, J. H., 1999. The Experience Economy: Work Is Theater and Every Business a Stage. Boston: Harvard Business Press. Podolny, J., 2005. Status signals: A sociological study of market competition. Princeton, NJ: Princeton University Press. Radway, J. A., 1991. Reading the Romance: Women, Patriarchy, and Popular Literature. Chapel Hill: University of North Carolina Press. Rosa, H., 2013. Social Acceleration: A New Theory of Modernity. New York: Columbia University Press. Rosen, S., 1981. The economics of superstars. The American Economic Review, 71(5), pp. 845–858. Salganik, M. J., Dodds: S., and Watts, D. J., 2006. Experimental study of inequality and unpredictability in an artificial cultural market. Science, 311(5762), pp. 854–856. Schneider, L., and Gros, C., 2019. Five decades of US, UK, German and Dutch music charts show that cultural processes are accelerating. Royal Society Open Science, 6(8), 190944. Siciliano, M. L., 2021. Creative Control: The Ambivalence of Work in the Culture Industries. New York: Columbia University Press. Simmel, G., 1971. Fashion. In D. Levine (ed.) Georg Simmel on Individuality and Social Form. Chicago, IL: Chicago University Press, 294–323. Smith, C., 1989. Auctions: The Social Construction of Value. Berkeley: University of California. Squires, C., 2007. Marketing Literature: The Making of Contemporary Writing in Britain. Basingstoke: Palgrave Macmillan. Tarde, G., 1969. On Communication and Social Influence. Chicago, IL: Chicago University Press. Thompson, J. B., 2012. Merchants of Culture: The Publishing Business in the Twenty-First Century. Cambridge: Polity. Thumala Olave, M. A., 2020. Book love: A cultural sociological interpretation of the attachment to books. Poetics, 81 101440. Thumala Olave, M. A., 2021. Exploring the sacrality of reading as a social practice. American Journal of Cultural Sociology, 9(2), pp. 99–114.
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19 Emotions and the economy Nina Bandelj and Jinna J. Kim
Introduction Emotions are all the rage these days. If you enter the word into a Google Ngram, which scans books written in English over the past centuries, you will see exponential growth in the use of the word “emotions” since the 1980s. Scholars note a turn to affect in the humanities and social sciences since the beginning of the 21st century (Lemmings and Brooks 2014; Leys 2017). Researchers across a broad variety of intellectual pursuits have accelerated the uncovering of a range of new concepts and frameworks for the study of emotions (Hemmings 2005; Massumi 2002; Thrift 2007). While sociologists have long considered emotions as central to social life, the field of economic sociology has yet to embrace this perspective. Therefore, in this review, we undertake a broad survey of research that explores the link between emotions and various aspects of economic life. First, we review a significant body of work on emotional labor. Then, we turn to consumption, another area of economic life where emotions have been shown to play a central role.1 In the second part of the chapter, we review some exemplary studies in economic sociology (mostly of labor, housing and financial markets) that investigate how emotions figure into economic activity, including the role of gut-feelings in economic decision-making, emotional embeddedness in economic interactions, and emotions in relational work. We wrap up with lessons from existing research, pointing to the utility of learning from interdisciplinary scholarship on emotions and the importance of not treating emotions and economy as two separate spheres.
Emotional labor One of the most prominent lines of research in the sociology of emotions focuses on emotional labor, drawing on and expanding Arlie Hochschild’s (1979, 1983) influential research. Hochschild coined the concepts of emotion rules and emotional labor. She argued that emotions have a social component as people try to manage their emotions, following emotion rules defined by cultural scripts. People evoke, shape, or suppress feelings, so they are aligned with what we consider appropriate in a particular situation or for a specific social role. Hochschild’s study on flight attendants and their emotion work, published in The Managed Heart (1983), underscores that service workers are trained and expected to express particular emotions as part of their job. Indeed, a key aspect of their work is managing emotions. Here, it is important to recognize the distinction between emotion management and emotional labor. Emotion management is a
DOI: 10.4324/9780367817152-22
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“private act, influenced by broad cultural and social norms about what is appropriate to feel and express, but not directly regulated by other people or organizations” (Wharton 2009: 149). Emotion management becomes emotional labor when the act is done in a public realm and as part of paid work (see Wharton 2009 and Lively 2017 for review). Indeed, according to Hochschild (1983: 7), “emotional labor is sold for a wage and therefore has exchange value.” It is the analysis of emotional labor that is tightly linked to understanding the role of emotions in the economy. As such, emotional labor has been examined across a variety of occupational roles, including airline cabin crew attendants (Bolton and Boyd 2003; Hochschild 1983), nursing (Carson and Carson 1998; McQueen 2004), theater actors (Orzechowicz 2008), hospitality workers ( Jung and Yoon 2012), finance experts (Borch and Lange 2017), academics (Dickson-Swift et al. 2009), and social media influencers (Duffy and Wissinger 2017). For instance, in finance and academia, workers’ emotion management is focused on building legitimacy and constructing workers as “rational” or “objective” actors (Borch and Lange 2017; Dickson-Swift et al. 2009). In contrast, in other white-collar work, “passion” is an important cultural script and increasingly considered a desirable characteristic in hiring and promotions, and even in assigning value to people’s labor within organizations (Rao and Neely 2019). Passion also plays an important role in other forms of labor such as social media influencers, bloggers, and creators. Duffy and Wissinger (2017) find that for content creators, “the compulsion to simulate or, better yet, actually feel a particular sentiment is a job requirement” (4658). Workers in this industry must express authenticity about the products they endorse and express positive emotions, presenting a “likable persona” to attract more followers (Duffy and Wissinger 2017: 4659). Technology also influences emotional labor beyond the realm of social media. Smith (2012) argues that there now exists electronic or digital surveillance everywhere we go, and along with this, surveillance workers who experience and manage feelings of alienation, exploitation, and anxiety, in part, exacerbated by the fact that their jobs are often underpaid and under-resourced. In a recent study, Allison Pugh (2021) coins the term “connective labor” to emphasize aspects of professional work that involve not only emotional labor but also emotional recognition. Work of “therapists, teachers, coaches, primary care physicians, sex workers, even business managers and high-end sales staff – many depend on their ability to connect to others to make their contribution: clients healing, students learning, employees motivated and engaged, customers satisfied” (1). For Pugh (2021), emotion management is a part of such connective labor, which also involves emphatic listening and witnessing. A key challenge is that emotions in connective labor run against pressures of efficiency, measurement, and automation, generating a “colliding intensification” (1). Intersection with gender, race, and class There is a large body of research that shows how emotional labor is shaped by gender, race, and class. Much of the existing literature shows gendered emotion work in the service sector. Pointing to widespread expectations of gendered performance, Nixon (2009) found that unemployed men were reluctant to seek jobs in service sectors because those would require emotion work, considered a woman’s job. Importantly, emotion work is gendered even in industries that are not dominated by women. For instance, women lawyers must adopt the aggressive “Rambo litigator” style to be considered
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serious lawyers (Pierce 1996). The gendering of emotion work contributes to workplace inequality, because much of emotion work tends to be invisible labor. There are three types of invisible labor within nonprofit organizations, which is a female-dominated industry: background work (supporting more visible and recognized activities), empathy work (relationship building, counseling, crisis intervention), and emotional labor (managing client and worker emotions) (Kosny and MacEachen 2010). Emotion management in the criminal justice system is also gendered, with female counselors doing most of the emotion work and protecting predominantly male detectives and prosecutors (Goodrum and Stafford 2003). Research also points to how emotion work in professional and service sectors is influenced by race and class. For instance, Ispa-Landa and Thomas (2019) identified racial differences in women principals’ understandings of emotion work in their leadership roles. Specifically, White women principals describe a tension between showing emotional support and establishing authority. Women of color principals do not describe similar tensions, however. Instead, women of color viewed emotional labor as encompassing both showing support and establishing authority. Work in the nail salon industry also pointed to racial and class differences in workers’ emotion work. Workers at Korean-owned nail salons, for example, performed different “body labor” based on their clientele’s racial and class demographics (Kang 2003). Wingfield (2010) makes an explicit contribution in theorizing feeling rules as racialized in professional workplaces, arguing that Black employees have more restrictions on their emotional performance than their non-Black counterparts. Specifically, Black employees were expected to express pleasantness, conceal their anger and irritation, and remain silent regarding concerns related to race. Such emotional constraints that Black professionals experience in the workplace not only reflect racial inequality but also have implications for reproducing inequality since compliance with feeling rules may be reflected in performance evaluations that directly affect promotions and/or pay. Similarly, in an illustrative example of Black ballerinas, Robinson (2021) points to how emotional labor of those historically marginalized in the ballet profession is made particularly demanding because it is coupled with aesthetic labor. Unpaid emotional labor Other studies show that people, especially women, engage in emotion management not only as part of paid labor but also unpaid labor, including housework and childcare, which contributes value and therefore constitutes work, even if it does not have a price assigned to it. Gender disparities in emotion work exist within many households. In fact, women construct emotion work as a “family work role,” while men construct it as an aspect of “interpersonal relationship” with their partners (Erickson 2005: 348). Rao (2017, 2020) finds that wives of unemployed men engage in emotion work encouraging, assuring, and concealing their concerns about their husbands’ job searches. In this context, the wives’ emotion work is a resource that allows husbands to reap economic benefits in the form of their re-employment. These gender differences in emotion work within households persist in parenting responsibilities and affect women’s wellbeing (Wharton and Erickson 1995). Mothers who homeschool their children engage in “temporal emotion work”—sequencing and savoring—to manage both their emotions and their “subjective experiences of time” (Lois 2010: 241). Meanwhile, mothers in poverty engage in emotional labor as part
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of “inventive mothering” as illustrated on the case of “diaper work” (Randles 2021). Attending to children’s elimination needs is required of all parents. However, in the case of limited resources and limited access to disposable diapers, such “diaper work” requires particularly extensive physical, cognitive, and emotional labor from mothers (Randles 2021). Consequences of emotional labor The consequences of emotional labor have also been a subject of research. A consistent finding is that surface acting, such as changing one’s outwardly expressed feelings, is associated with emotional fatigue (Wharton 2009), while deep acting, such as changing one’s inner feelings, does not necessarily lead to emotional exhaustion (Grandey 2003). Wharton (1993) argues that emotional labor does not have uniformly negative consequences for workers. Instead, the effect of emotional labor on one’s wellbeing is shaped by workers’ degree of job autonomy and involvement and their self-monitoring and self-regulating abilities. For example, people who have less job autonomy, high job involvement, or low self-monitoring abilities are more likely to experience emotional exhaustion than their counterparts. In addition, when workers struggle with sustaining a sense of sincerity/authenticity, this can be a source of stress and burnout. Research also documents global inequality implications of emotional labor performance. Poster (2013: 206) describes Indian call centers as reflecting the “globalization of an affect economy” because of the outsourcing and extraction of emotional labor from the Global South to Global North. To evoke emotions from clients, call center workers engage in activities like emotional steering, trickery, deception, humiliation, and shame to increase profit, namely, by “creating intimacies for trust in credit exchanges” and “activating moralities of credit” (Poster 2013: 212). These call center workers also work to overcome possible distrust due to cultural dissonance by engaging in cultural trainings and “national identity management” (Poster 2007; cf. Rajan-Rankin 2016). In her book, Cech (2021) examines another downside to emotional expectations related to work that have to do with cultural narratives about work passion, which people use to make sense of their career decision-making process. Cech theorizes the “passion principle,” which is a “morally laden cultural schema that elevates self-expression and fulfillment—in the form of intellectual, emotional, and personal connections to an occupational field—as the central guiding principle for career decisions” (4). Cech documents downsides to the passion principle, as it contributes to the culture of overworking and takes advantage of “passionate professionals” (12). Moreover, there are class differences in that college-educated students from lower class backgrounds experience a greater emotional toll than their more advantaged counterparts during the job search process. While people from families who are familiar with white-collar, professional jobs received support and encouragement from their family members, working-class and first-generation respondents were often demoralized and internalized challenges during the job search process as personal shortcomings (156). In this way, the passion principle creates a culture in which occupational segregation and inequality are attributed to individualistic and meritocratic logics that neglect the structural forces at play. Organizational contexts and emotions Researchers have identified organizational contexts and events such as interactions with coworkers, customers, and superiors (Bono et al. 2007; Elfenbain 2007; Mastenbroek
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2000; Weiss and Brief 2001) that have emotional consequences for workers. Grant, Morales, and Sallaz (2009) examined how the same corporate-sanctioned meanings and emotion work expectations nevertheless led to varying emotional experiences of workers. In their study of nurses, they found that some experienced an “emotionally inconsequential spiritualism” by adopting their “hospital’s spiritual understanding of care but with a negligible impact on their self-feelings” (Grant, Morales, and Sallaz 2009: 354). Meanwhile, other nurses had an “emotionally alienating spiritualism” and “suffer[ed] from emotional dissonance” (Grant, Morales, and Sallaz 2009: 354). Similarly, conflict and emotion management at corporations depend on organizational structure and culture. Morrill (1995) found that even what is perceived as a conflict-prone situation would differ across organizations depending on their normative orders. For instance, managers at mechanistic bureaucratic organizations behaved differently than those at an expressive combative workplace. These findings show the importance of organizations’ cultural, network, and political characteristics in influencing emotion management in corporations. Research on worker cooperatives, or organizations that are collectively owned and democratically run by workers, also examined the impact of this organizational form and its culture on emotions in the workplace. Here, Hoffmann (2016) found that worker cooperatives allow workers to experience greater freedom in expressing positive or negative emotions such as enthusiasm or anger than traditional, hierarchical organizations, yet even people at worker cooperatives engage in other forms of surface and deep acting. Contributing a conceptual intervention, Lopez (2006) suggests that there are organizations that “support emotional honesty and authentic relationship building” (157), and “emotional labor is not the only organizational strategy for managing the emotional aspects of interactive work” (158). Lopez (2006) conceptualizes “organized emotional care” as a complement to emotional labor to better understand care work. He argues that emotional labor is coercive, with management requiring certain emotions. In contrast, organized emotional care is supportive because it does not prescribe feeling rules or emotions and prioritizes creating “hospitable conditions for the development of caring relationships between service providers and recipients” (Lopez 2006: 137). Organized emotional care is made possible through “organizational rules, procedures, and recordkeeping” that create organizational spaces in which there can be caring relationships and emotional honesty (Lopez 2006: 137). In contrast, at Motherhood, Inc., a for-profit company that tried to commercialize support and guidance for new mothers, employees enacted the organization’s euphemistic discourse by emphasizing the emotional support they offer and eliciting emotions from their clients (Turco 2012). For example, instructors would begin each class with a congratulatory remark toward mothers, remind them that it is a safe space to cry, and encourage them to share motherhood-related stressors (Turco 2012). In an insightful application, Orzechowicz (2008) proposed that theater is another context in which emotion management is supported rather than purely coerced (for some privileged actors, that is). Actors are characterized as “privileged emotion managers” (153) because of the institutional resources they can access when engaging in emotional work, as part of their occupational role. The actors have access to more “social resources, like training or preparation time,” and “people who act as emotional buffers” (154). For example, once a production begins, the crew is responsible for managing the actors’ stress, anxiety, and frustration, which becomes a part of their emotional labor. Shaping expressions of emotional labor is not the only way that emotions enter organizations. Weiss and Cropanzano (1996) developed affective events theory (AET)
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to examine the relationship between affect and (job) satisfaction. AET re-directs the focus from work environment features to “events as proximal causes of affective reactions” (11). Their theory considers time as an important factor and emphasizes the role of events at work that cause emotional experiences. More specifically, work events influence affective reactions, which then directly or indirectly influence behaviors; they can directly lead to affect-driven behaviors, or over time, they can influence work attitudes. Veiga, Baldridge, and Markoczy (2014) extend AET by further highlighting the role of time and cumulative effects of prior events that evoke the same emotions. Fisher (2002) finds that attitudes—not negative affective reactions—predict one’s intention to leave. Meanwhile, positive affective reactions—not attitudes—predict one’s helping behavior and high job satisfaction (Wegge et al. 2006). Relatedly, those who reported having more autonomy, participation, support, and welfare experience experienced fewer negative emotions at work. In contrast, exposure to negative experiences such as work-place bullying influences people’s emotions, job satisfaction, and intention to leave a job (Glasø et al. 2011). Several studies examine specific emotions in organizational contexts. For instance, pride that is felt because of positive feedback led to greater persistence on tasks (Williams and DeSteno 2008) and feeling pride increases salespeople’s performancerelated motivations such as their use of adaptive selling strategies, greater effort, and self-efficacy (Verbeke, Belschak and Bagozzi 2004). Relatedly, expressions of gratitude from a supervisor or beneficiaries of one’s work motivate people in their jobs (Grant and Gino 2010). In contrast, envy predicts counterproductive work behaviors (Khan, Quratulain and Bell 2014) and there are long-term organizational consequences of such emotions, including the spreading of rumors and gossip, jeopardizing organizational performance, and weakening relationships among coworkers (Veiga, Baldridge and Markoczy 2014). However, negative emotions do not always lead to negative consequences. Researchers examine how emotions like anger and fear spark proactivity, as opposed to their typical association with fight and flight (Lebel 2017). In certain situations, such as when one experiences anger and has a strong organizational identification, negative emotions can inspire people to change the status quo. Some scholars would refer to this as a sort of “moral anger” (Lindebaum and Geddes 2016). Similarly, Stickney and Geddes (2014) find that employees with high organizational commitment express their anger to those characterized as “relevant others,” such as management or others who are responsible for causing the anger. However, workers who are emotionally exhausted are more likely to suppress their anger and vent to those who are not involved in the anger-provoking event or remain silent.
Emotions and consumption Focus on emotions in economic life is also substantially present in studies of consumption. Illouz and Benger Alaluf (2019) offer a historical analysis of emotions and rationality in consumer culture. In the 20th century, there was a shift in the advertising industry from relying primarily on informational text to drawing on psychological research to reach consumers with products (Arvidsson 2003; Cross and Proctor 2014; Lears 1984). This line of work in the psychology of advertising during the early 1900s mainly focused on “cognition, memory, and sensorial experience,” trying to “awaken the memory of the sensation of past experiences” (Illouz and Benger Alaluf 2019: 243).
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Up until then, emotions were viewed primarily in relation to advertisements, while products were defined mainly as functional. Emotions and consumption practices Over time, with the influence of Freud, people began to be defined in psychological and emotional terms (Fox 1984; Kimmel 2013; Lears 1984). By the 1920s, psychologists and advertisers embraced the notion that products have an emotional appeal for many consumers. During this time, advertisements primarily targeted women, and the audience was characterized as “irrational and tasteless … chiefly driven by emotions” (Illouz and Benger Alaluf 2019: 243). In the 1930s, market research was developed, “support[ing] the view that emotional needs were as central to consumers’ decision-making process as self-interest and cost-benefit considerations” (Illouz and Benger Alaluf 2019: 243). Following this, marketing became targeted to consumer lifestyles and emotions and not only actual commodities advertised (Marchand 1985; Mazzarella 2003). The perspective of emotions as the “central motivational power of consumption” remains popular in behavioral economics, marketing, and psychology (Illouz and Benger Alaluf 2019: 244). In contrast, Illouz (2018) argues that the “emotional subject” was socially constructed through research on consumer psychology and behavior in the 20th century. This sociological perspective is critical to understand. The relationship between emotions and consumption is not unidirectional, whereby emotions motivate consumption. Instead, sociologists show that consumption can also shape people’s emotional identities. For example, Bourdieu ([1984] 2013) shows that people purchase products for their cultural meaning and relation to one’s own identity and relationships—not just for their material value (see also Featherstone [1991] 2007; Zukin and Maguire 2004). In addition, emotions are not “merely driving consumption” but are “constituted through practices of consumption” (Illouz and Benger Alaluf 2019: 245). People engage in emotional work to evaluate if a commodity aligns with one’s identity and social relationships. People’s social positions and identities shape consumption practices, and their consumption practices also inform their social positions and identities. Consumers experience different emotions based on how their class habitus and cultural competence positions them in social relations, and this emotional-habitus in turn shapes people’s “consumption desires, distastes, choices and behaviors” (Rafferty 2011: 257). For example, Joy and colleagues (2020) find that Mainlander Chinese people’s consumption of luxury goods in Hong Kong sparks feelings of envy, resentment, and status anxiety among Hong Kongese people. These emotions go on to shape Hong Kongese people’s consumption practices ( Joy et al. 2020). Meanwhile, celebrities shape fans’ identities through products and memorabilia, even after their death (Radford and Bloch 2012: 151). More recently, emotions have taken on a role in understanding branding, going beyond their role in advertising (Moor 2003). For the power of brands, developing a long-lasting emotional attachment and loyalty is key (Bergkvist and Bech-Larsen 2010; Gobé 2001; Lynch and De Chernatony 2004). Consumption of emotions Emotions not only influence consumption experience but they themselves can be an object of consumption. In this vein, researchers have studied consumption of emotions
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like fear and risk. Holyfield’s ethnography on white-water boating shows how companies build solidarity with adventure-seeking consumers and transform “fear to thrill, excitement, and fun” (1999: 23). Companies offer scripted narratives and feeling rules that shape consumers’ experiences. Other industries such as the airline industry also “sell risk.” Between the 1920s and 1970s, the airline industry witnessed infrastructure expansion and new technologies that increased airlines’ carrying capacities and their demand for new customers and flyers (Popp 2016). People’s concerns about the safety of air travel, however, led to airline marketing efforts that drew on the notion that “flying fears were feminine in nature” and “flight phobias were symptomatic of an underdeveloped psyche” (Popp 2016: 62). In this way, advertisers “stigmatize[d] cautiousness as outside the bounds of acceptable, and normatively manly, stances toward risk-laden technological systems” (Popp 2016: 75). Even car consumption “is never simply about rational economic choices” (Sheller 2004: 222). Rather, there are “automotive emotions,” which refer to “aesthetic, emotional and sensory responses to driving, as well as patterns of kinship, sociability, habitation and work” (Sheller 2004: 222). It is this automotive emotion that explains why cars persist in our culture and more socially and environmentally responsible alternatives still lack (Sheller 2004). Parents also engage in such forms of consumption centered on ideals of parenthood, motherhood, and care even before their child is born. Thomas’s (2017) research shows how prenatal clinics are transformed into sites of consumption by offering parents non-medical four-dimensional ultrasound scans. These scan appointments are ridden with emotions. Professionals engage in emotional labor to offer both medical expertise and a “joyful” experience for parents, who may be experiencing enthusiasm, enjoyment, fear, or angst. In turn, parents visiting these clinics have an emotional and social experience with each other and their unborn babies. Another sites of emotionally rich economic lives that impact consumer experience and simultaneously represent consumption of emotions are online dating sites and mobile applications such as Match.com, eHarmony, Tinder, Bumble, and Hinge, which offer a sort of marketplace for love and intimacy, fostering a “technology mediated romance” (Shank 2014: 517). These sites foster an environment in which customers adopt a capitalist mindset as they market themselves and compete with other users (Illouz 2007). In this context, people must express their emotions through written conversations that often reveal more personal information (Bridges 2012) than they would likely share in face-to-face interactions and naturally forming relationships (Baker 2007). There is even a new market of “love coaches” who help people market themselves online and offer guidance through the online dating process (Hochschild 2011). To contribute conceptually to the study of consumption of emotions, Illouz (2018) proposes the term “emodity” to characterize emotional commodities. Emodity is a “particular type of commodity deliberately designed to generate emotions and to be consciously consumed for that reason. In the case of emodities, both the producer and the consumer acknowledge that the economic end is a specific emotional state” (Illouz and Benger Alaluf 2019: 247). For example, Benger Alaluf (2021) explores how shifting attitudes toward health, pleasure, social class, and gender in Britain explain how holiday resorts became emodities.
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Emotions in economic interactions While attention to emotions prevails in discussions of emotional labor and consumption, there are fewer studies by economic sociologists who examine the role of emotions in other market spheres, although those studies that do exist showcase the range of emotional impacts in activities as varied as retail, hiring, housing, real estate, finance, and volunteering. For example, in a study of retail experiences, Pittman (2020; Pittman Claytor 2020) examines how perceptions of racial stigma shape retail experiences and how experiences of racism in retail settings shape consumer experience. Her interviews with working- and middle-class African Americans reveal how experiences with policing and discrimination in retail spaces affected their emotional relationship with shopping so that it was no longer considered an enjoyable, pleasurable activity. Emotions also influence the action of individuals in their decision to volunteer or donate to nonprofit organizations. Paxton, Velasco, and Ressler (2020) draw on a computational text analysis of nonprofit organizations’ mission statements to argue that “nonprofits attract donors and volunteers by connecting to their emotions” (1052). Moreover, this link between emotions and donations or volunteers varies by the nonprofit’s institutional field. Particularly for nonprofits in social bonding fields such as sports and recreational clubs, expressed positive emotions like “improving” and “dignity” are associated with higher donations and volunteers (1062). Meanwhile, for other nonprofits, a combination of positive and negative emotions in mission statements produces more volunteers. In real estate transactions, Besbris finds that real estate agents in New York City metropolitan area evoke emotional responses from homebuyers that subsequently affect purchasing decisions by (1) “matching” buyers’ traits to product’s traits to “produce excitement and arousal,” (2) sequencing and “showing products to evoke confidence and rationality,” and (3) “highlight[ing] market scarcity to produce anxiety” (2016: 462). In this way, market intermediaries such as real estate agents play a critical role in consumption. They elicit emotions from consumers that shape the outcomes of real estate transactions (478). Gut-feelings in economic decision-making There are some scholars who specifically call out the influence of gut feelings in economic decision-making. One notable study is Rivera’s (2015) qualitative analysis of job opportunities at elite professional service firms, which reveals that employers draw on subjective feelings of excitement and enthusiasm toward job applicants to evaluate them and make hiring decisions. Evaluators frequently referred to their “gut” feelings as informing their evaluation and comparison of applicants and their interviews (Rivera 2015). Rivera (2015) revises and extends Collins’ (2004) concept of interaction ritual chains to develop a theoretical model of “emotional energy development” in job interviews, in particular by arguing that generation of emotional energy begins before a face-to-face interaction. There are five phases of emotional energy development in job interviews: (1) expectation formation, (2) impression formation, (3) performance evaluation, (4) recall and rethinking, and (5) deliberation and decision (1358). These phases are interrelated. For example, the energy expectation of an applicant may result in a self-fulfilling prophecy during the impression formation stage.
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Gut feelings were found to have a role in rental housing markets as well. Rosen, Garboden, and Cossyleon (2021) conducted interviews and observations with landlords who rent in lower cost housing markets in Baltimore, Dallas, Cleveland, and Washington, DC. They find that landlords with large portfolios use “algorithmic proxies” to evaluate the “profitability of a particular tenant” (789) based on credit reports, residential history, and criminal history (814). In contrast, landlords with small portfolios use “gut proxies” (789). These “gut feelings” are racialized and gendered, discriminating against low-income, subsidized tenants of color, even within a racially homogenous applicant pool. As such, the research suggests that emotions play a large role in micro-level interactions that shape decision-making processes, which can subsequently have negative societal effects such as discrimination in the job or housing markets. Financial markets A burgeoning literature examines emotions in financial markets and financial transactions. For some, the role of emotions is akin to trust that serves to enable financial action (Barbalet 2009; Nooteboom 2006; Pixley 2009). Others examine conviction and confidence. Chong and Tuckett (2015) draw on interviews and ethnographic observations of financial fund managers to develop the notion of conviction narratives. Conviction narratives are stories financial decision makers tell themselves as a way of dealing with uncertainty and ambivalence of everyday financial decision-making. These narratives serve to increase excitement about opportunities financial managers identify and to decrease doubts and mitigate anxiety associated with those opportunities. Related to conviction narratives is the role of confidence. Swedberg (2013) applies it to understand the 2008 financial crisis and how the bankruptcy of Lehman Brothers led to the loss of confidence, as well as how the confidence was subsequently restored. Since finance has been heavily transformed by technologies (Knorr Cetina and Bruegger 2002; Pardo-Guerra 2019; Zaloom 2006), traders engaging in trading floors is a rarity. Nevertheless, in those spaces, the physical expression of emotions is highly present. Hassoun (2005: 104) documents “angry verbal outbursts, shoving, friendly, ambiguous, or aggressive backslapping, complicitous hand taps, hateful or empathetic looks, yelling, swearing, and insults.” But even in fully automating trading, researchers find emotional attachments. Borch and Lange (2017) examine high-frequency trading and find how traders grow emotionally attached to their algorithms and work to manage these emotions to ensure objectivity, “train[ing] themselves not to ‘overreact’” (296) as part of their job performance. Recent work examines the emotional underpinnings of financial valuation. Drawing on interviews with day traders and fund managers in the German financial sector, Lange and von Scheve (2021) identify two principles of the relationship between emotions and financial valuation, market sentiment, and market feelings. Market sentiment is “rooted in hunches regarding the goals, expectations, or feelings of a given financial market and its participants” and associated with emotional language that describes the market as “rational,” “ill,” “strange,” or “euphoric” (770). The second principle of market feelings is grounded in emotional calculations, which refers to the “affective (phenomenal, experiential) modes of practices of financial valuation” (762). For example, traders learn to “feel for the market” and “continuously review, validate and update them while engaging with the market” (769).
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Emotional embeddedness Advancing conceptual developments in the economic sociology of emotions, Bandelj (2009) draws on a relational perspective and coins the concept of “emotional embeddedness.” Emotional embeddedness emphasizes how emotions influence, and are influenced by, social relational nature of interactions during economic decision-making processes. Bandelj argues that attention to emotional embeddedness prompts analysts to rethink the extent to which economic action is rational. This is because feelings that occur during the ongoing economic interaction likely complicate the means-ends rational logic of any individual’s economic decision-making and result in creative action such as improvisation and situational adaptation. Improvisation describes situations that actors begin without initially clear ends and means but this clarity emerges as a result of emotional embeddedness during the process of economic interaction. Meanwhile, situational adaptation refers to situations where means or ends of an action change (e.g., actors choose new means or ends) because of felt and/or observed emotions during said economic interactions. Several scholars have applied the framework of emotional embeddedness. Biniari (2012), for example, examines corporate entrepreneurship and argues that low levels of emotional embeddedness, characterized by strong negative emotions between entrepreneurs and non-entrepreneurs, lead to a shared belief that “the entrepreneurial act does not belong in the social context” (146). In contrast, high levels of emotional embeddedness, characterized by strong positive emotions, result in a shared belief that “the entrepreneurial act belongs in the social context” (146). The two venturing programs examined in the study stopped operating, in part, because of negative emotional energy and “culture of envy” that was generated (163). Emotional embeddedness has also been used to understand small business ownership. Murthy and Paul (2016) find that “emotional conditioning processes and emotionally rich circumstances enable or compel individuals to become small business owners” (122). Emotional experiences of interactions with family members in one’s childhood and feelings of “joy” at the possibility of carrying on a family legacy had significant impacts on one’s decision to become a small business owner (131). Meanwhile, DeckerLange (2019) draws on emotional embeddedness to explain ownership transition choices that contradict means-end, instrumental logics, in which internal ownership transitions would be preferred. Following Bandelj’s (2009) discussion of “situational adaptations” and “improvisations,” the authors identify contingencies that may arise, such as family conflicts or new career opportunities that alter goals and course of action. Emotions in relational work Researchers also emphasize emotions in relational work. Relational work is the process in which actors match social relations, economic transactions, and media of exchange (Zelizer 2005, 2012). It has been documented in a variety of economic situations such as party promoters extracting free, unpaid labor from fashion model women (Mears 2015), non-professional investors’ stock market participation (Chen and Roscoe 2017), foreign investors managing risky transactions (Hoang 2018), governmental, advocacy, and human service organizations teaching about the social insurance market (Chen 2020), egg donations (Haylett 2012), job searching in low-wage labor markets (Ibanez 2021), and student loan borrowing (Stivers and Berman 2020).
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Some research in relational work has also explicitly focused on the role of emotions in shaping relational work, which may be made most visible in cases of mismatches between social relations, economic transactions, or monetary media. Relational mismatches would “elicit powerful emotions such as betrayal, shame, outrage, or disappointment. Alternatively, viable matches likely not only make sense but “feel right to the parties involved” (Bandelj 2020: 259). This is illustrated in a study of precarious and indebted families that encourage their daughters to sell sex (Lainez 2020). Drawing on ethnographic data collected in Southern Vietnam and Cambodia, the author posits how these parent-child relationships “are deeply imbued in affective undercurrents and power asymmetry” (1307) as families negotiate how to repay family debt. In a very different setting, Child (2021) shows the role of emotions in relational work implicated in direct sales, where “how to sell to a friend” means that distributors practice disinterest by downplaying their objectively apparent economic motives “in order to preserve or encourage good feelings about a relationship that is meaningful to them.”
Learning lessons and future research In common understanding, the realm of economy is often juxtaposed to the realm of emotions. Perhaps as a result, economic sociologists have not devoted much attention to the interaction of these two spheres. Still, as Illouz has argued, the rise of modernity has seen both the rise of homo economicus and the rise of homo sentimentalis (2007: 1). Illouz explains how Max Weber’s The Protestant Ethnic and the Spirit of Capitalism is about emotions in driving capitalist accumulation given that it is “anxiety provoked by an inscrutable divinity which is at the heart of the capitalist entrepreneur’s frantic activity” (1). Karl Marx places centrally alienation with concomitant feelings of loss of the bonds to the object of production. Georg Simmel discusses a blasé attitude in modern metropolis, which is an emotional state of reserve, coldness, and indifference. Emile Durkheim’s core concepts are those of solidarity and effervescence. Clearly, early sociologists have recognized that what happens in economy has to do, centrally, not peripherally, with emotions. So far, this premise of emotions and economy interplay has been best advanced in sociological research on emotional labor, a concept by Arlie Hochschild to document how workers manage emotions and “create a publicly observable facial and bodily display” (1983: 7), which is part of their labor that is sold for wages. Employers thus extract from workers not only physical or cognitive labor but also emotional labor. Researchers have shown that emotional labor is shaped by organizational contexts, that it varies by race, class, gender, and other social statuses, and is often performed in work that adds value but is not officially compensated, such as care work. As we reviewed, sociology of consumption also places emotions centrally both in how they shape preferences and consumption experiences and how emotions themselves are turned into commodities, or emodities (Illouz 2018), being consumed. Even if in the minority, some economic sociology work on financial, labor, and housing markets also interrogates emotions by highlighting the role of gut feelings in decisionmaking. This line of research is ripe for further exploration as is the concept of emotional embeddedness (Bandelj 2009), or how emotions arise inevitably as part of ongoing economic interactions, providing an alternative to rational action theory. Expanding research on relational work (Zelizer 2012), future studies should also examine better the role of emotions in matching economic transactions, monetary media, and social
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relations. Moreover, there is room to further specify features of socio-economic governance that scholars have called emotional capitalism (Illouz 2007) or the emotional logic of capitalism (Konings 2015). As economic sociologists pursue these lines of research, they would be well served to learn from the sociology of emotions. In this endeavor, they can consult numerous conceptual studies and research overviews (e.g. Ariza 2021; Bericat 2016; Cobb 2018; Denzin 1983; Hochschild 1979; Kemper 1981; Thoits 1989; Turner and Stets 2006; Weed and Smith-Lovin 2016). They should also explore interdisciplinary connections to behavioral economics, psychology, history, and neuroscience (e.g. Barrett 2017; Lerner et al. 2015; Leys 2017; Rick and Lowenstein 2008). Dialoguing with research on emotions can help invigorate economic sociological inquiry and urge analysts to examine the very definition of emotions and assumptions about their connection to economic processes. In many studies that we reviewed in this chapter, emotions are conceived as distractors that limit economic rationality. In others, emotions are sources of capitalist exploitation. In both cases, researchers seem to be trapped in dichotomies that remain unquestioned: the rational/irrational dichotomy or the cognition/emotion dichotomy (Barbalet 2002; Berezin 2002; Jasper 2011). These dichotomies reproduce the old debate about separate spheres of economy and society, which many economic sociologists have now dismantled (Bandelj 2020; Block and Somers 2014; Krippner and Alvarez 2007; Zelizer 2005). Following suit, economic sociologists integrating emotions would be well served to avoid the analytical dangers of the separate spheres arguments and, instead, enrich analyses of economic life by placing it firmly on its emotional foundations.
Note 1 Note that (at least American) economic sociology still has an uneasy relationship with studies of consumption, indicated by two separate sections within the American Sociological Association, one on economic sociology and one on consumers and consumption.
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20 Economy and social capital, markets and social networks Yanjie Bian and Lei Zhang
Introduction This chapter reviews three interrelated areas of substantive research of economic sociology with the attention paid to social capital and social networks. The first is the relationship between economy and social capital, and the focus of the review is on the roles of social capital in the informal economy, the knowledge economy, and the social economy. The second is the relationship between markets and social networks, paying attention to the roles social networks play in labor markets, capital markets, and housing markets. The third is the role of network-based social capital in transition economy, using China as an illustration. The concluding section highlights the directions of future research in these areas of substantive research.
Economy and social capital An economy is a system of human activities in the production, distribution, circulation, and consumption of goods and services (McEachern 2016). Social capital, on the other hand, refers to “the resources contacts hold and the structure of contacts in a network” (Burt 1992, p. 12). Social capital can be collective assets such as trust, norms of cooperation, and generalized reciprocity within and between social groups and communities (Putnam 2000), and it is also meaningful at individual levels because tangible and intangible resources mobilized from networks of social contacts constrain social actors and facilitate social actions (Lin 2001). In a conceptual synthesis, Woolcock (1998) differentiates three types of social capital: Bonding social capital is the resources embedded in networks of homogeneous social ties; bridging social capital is the resources embedded in networks of heterogeneous social ties; and linking social capital is the resources embedded in networks of hierarchical social ties. How do various types of social capital matter in different types of economy? The informal economy and social capital Since its “discovery” in the early 1970s, the informal economy has referred to forprofit and nonprofit economic activities and entities that are unregistered with the state and therefore outside state taxation or any form of regulation and monitoring by the government. The informal economy has several imageable labels, such as gray economy, shadow economy, underground economy, black markets, or simply the informal sector. Although some scholars assume that the informal economy is associated with
DOI: 10.4324/9780367817152-23
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developing countries and would disappear once these countries achieve sufficient levels of modernization (Becker 2004), it is existent in both developing (in higher proportion) and developed (in lower proportion) countries, making an estimated 31% of the world gross domestic product (GDP) from 1991 to 2017 (Medina and Schneider 2019). While an ongoing debate is about the ideological, moral, and legal status of informality (Steenberg 2016), the sizable informal economy is valued not merely for promoting local economies, but also for encouraging the sustainable use of goods, thus providing a catalyst for sustainability (Ruzek 2015). In the absence of formal support systems, social capital becomes the indispensable mechanism for initiating and operating the informal economy. This is evidenced in a variety of empirical studies on diverse forms of informal economy across the globe, including street vendors in Africa (Kebede 2018), unofficial payments to physicians in China (Chan and Yao 2018) and Romania (Wamsiedel 2022), indoor selling in Russia (Busse 2001), consumer markets and businesses by immigrants in Europe (Kloosterman, van der Leun, and Rath 1998), and informal banking in Japan (Rupp 2022). These studies indicate that the bonding social capital of dense networks supplies high levels of trust and norms of cooperation among entrepreneurs, and the bridging social capital of sparse networks generates business opportunities to sustain the informal sector. Oftentimes, the informal sector does not operate independently but is associated with the formal sector in the forms of stable suppliers and sale agents for national and foreign corporations, as illustrated in the tropical fruit packing industry in Jamaica (Portes and Landolt 2000), home-based tourism in rural America ( Jeong 2013), and local restaurant operations in Japan (Polese 2022). Nevertheless, social capital matters differently between the formal and informal sectors. A comparative study of 50 developing and developed countries around the world presents compelling results (Thai, Turkina, and Simba 2020). When countries have elevated levels of institutional trust from their citizens, the formal economy prevails in these countries. Conversely, in countries in which citizens have a low level of institutional trust, the informal economy is large, strong, and sustainable. While social networks and norms of trustworthiness facilitate both the formal and informal sectors, the formal sector more strongly values generalized trust (i.e., trust in anyone in society), whereas the informal sector favors particularized trust of personal ties. As a result, the effect of social networks is three times stronger on the informal sector than on the formal sector. Not only does the informal sector live on social capital, but it is also a rich source of social capital generation at local levels. Unlike the formal sector where processes of goods and services are streamlined in a robotic-like fashion, the informal sector is driven by social interactions in the forms of direct communications between the seller and buyer, as observed in flea markets or street markets anywhere around the world. “These markets are the city centers for social interactions, rich with social capital and sometimes the needed lifeline of the community that a formal economy cannot provide” (Ruzek 2015, pp. 28–29). It appears that an increase in social capital greatly improves the local economy, which to a large extent operates informally. The knowledge economy and social capital If the informal economy is more a phenomenon of underdevelopment, the knowledge economy is more associated with well-developed economies in which production and services are heavily based on knowledge-intensive activities that contribute to an
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accelerated pace of scientific and technological advance (Powell and Snellman 2004). Thus, a knowledge economy values human capital, intellectual property, creative ideas, novel innovations, and new strategies which provide an economy with competitive advantages. Among others, Burt’s (1992) theory of structural holes is a powerful explanation about how social capital matters for knowledge generation. In a sparse network of nonredundant alters, Ego can be connected to alters A and B who are otherwise disconnected from each other. This disconnection is a structural hole giving Ego the information and control benefits, which are the social capital resources that translate into three mechanisms of knowledge generation. The first is the mechanism by which brokerage across the structural holes between professional groups provides a vision of value-added knowledge otherwise unseen, generating good ideas that are disproportionately in the hands of people whose networks span structural holes (Burt 2004). The second is the mechanism by which network brokers with connections into multiple clusters of professions have the advantages in moving knowledge across clusters to where it is valuable, thus detecting innovative strategies (Burt 2017). The third is the mechanism by which network closure and brokerage work together to build the most efficient and effective network structure for team learning (Burt and Reagans 2022). If teams in a clique network have a shared incentive to find shorthanded terms (or “jargon”) that lead to efficient communication within teams, then teams in a network of connected brokers (having ties to different teams) have greater efficiency of creating shared jargon for knowledge generation. Knowledge generation frequently results from knowledge transfer across organizations. While the transfer of knowledge can be facilitated through the formal channels of interorganizational relationships, personal networks are the locus of novel knowledge creation (Podolny and Page 1998) because the most valuable knowledge passes through interpersonal ties of trusting colleagues and partners across organizations (Inkpen and Tsang 2005). Here, the value of bridging social capital can extend the range of ideas, expertise, and opportunities of application for knowledge generation, and the bonding social capital is instrumental in validating knowledge when society at large is in a shift from trust in recognized external sources of authority to more personalized forms of trust (Schuller 2006). Online social capital is increasingly significant in the knowledge economy. A study of fast-growing freelance professionals in Europe presents interesting results (Gandini 2016). Through a snowballing method, the researcher conducted in-depth interviews with 80 freelancers, 38 in London, and 42 in Milan, all working in the creative industries and all having social media accounts through which to hold connections in three or four digits. These freelancers conducted self-branding activities to establish a reputation in the respective industry to marketize their products, and this was done through social networking whereby “the branding of one’s professional identity and public image take place in a social realm, made of an interdependent relationship between offline and online networking” (p. 130). Clearly, freelancers’ self-branding and reputation capital are dependent upon the utilization and expansion of their social capital through online networking in the digital space. The social economy and social capital Separated from both the market and the state but part of the civil society, the globally emergent social economy is community-spirited, self-sustaining, and for the social
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benefits of the public (Kerlin 2010). Common forms of social economy include associations, cooperatives, foundations, and social enterprises, which have a Weberian “elective affinity” with social capital. The CONSCISE project illustrates the point. The CONSCISE project is the abbreviation of a three-year research exercise (2000– 2003) examining the “Contribution of Social Capital in the Social Economy to Local Economic Development in Western Europe” (Kay 2006). This project was conducted in eight localities across UK, Germany, Sweden, and Spain, with two localities selected in each country. Based on a survey of residents in the eight localities, a “local social capital” (LSC) index was constructed from respondents’ evaluations of trust, reciprocity, shared norms, shared commitment, social networks, and information channels in local communities. It was found that localities with a higher LSC index score tended to have a stronger and more sustainable social economy (Evan and Syrett 2007). One mechanism was the bonding social capital, which facilitated the emergence of local social enterprises, as stronger social networks and shared norms provided both the local needs and environments to make things happen. Another mechanism was the bridging social capital, for network ties to national and international companies across industries brought in opportunities and resources to sustain local social enterprises. Still another mechanism was the linking social capital, as the policy networks of state officials at local, national, and European levels were both evident and important in the development of the local social economy in several selected localities. The CONSCISE project also presented evidence of how local social enterprises generated social capital. One evidence was that existing social networks were strengthened to bond stakeholders within the local social economy. Another evidence was that new network ties were developed to both bridge among different stakeholder communities and connect local social enterprises to nonlocal stakeholders. While trust was the most important element for social capital building, values of generalized reciprocity and shared norms within and between social enterprises were instrumental in the process of social capital building. “By sharing values and then building and using networks, the qualities of trust, reciprocity and mutuality are nurtured. Through familiarity within such networks, appropriable social capital resources emerge for further development” (Evan and Syrett 2007, p. 68).
Markets and social networks Economists define market as a physical or virtual place where trade is conducted between buyers and sellers (McEachern 2016). For economic sociologists, buyers and sellers are embedded in the networks of ongoing social relationships (Granovetter 1985), and consequently, their market transactions are constrained by their social networks which flow market information and bond those buyers and sellers who depend upon each other in continuous economic exchanges (Borgatti and Halgin 2011). While recent reviews focus on social network mechanisms in various markets (Knoke and Bokun 2020; Zafirovski 2020), we pay special attention to how social networks matter in labor markets, capital markets, and housing markets. Social networks and labor markets While Rees (1966) is among the very first to observe that informal information networks are instrumental in helping people get blue-collar jobs, it is Granovetter (1973)
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who offers a theoretical explanation pointing to the strength of weak ties (SWT) in flowing job information. Granovetter’s SWT thesis is that weak ties of infrequent interaction and low intimacy connect different social circles and transmit nonredundant information about job openings across group boundaries, thus generating a greater propensity to match workers to jobs than strong ties of high familiarity and trust. Lin (1982) advances this reasoning by arguing that weak ties link people across ranks of social hierarchy, and the social resources that are mobilized from higher positioned contacts positively facilitate job-search outcomes. In Podolny’s (1993) reconceptualization, social contacts’ high status functions as a market signal about the ability of job seekers, who then obtain good jobs and high wage. Bian (1997) argues that information and influence are qualitatively different network-mobilized resources, and he demonstrates that strong ties are better able to flow influence of power than weak ties in China’s state job allocations. Empirical findings are mixed, however. Supporting evidence for the SWT thesis shows that weak ties tend to facilitate job searches for both the socially advantaged (Granovetter 1995; Lin 1999) and socially marginalized groups, such as women (Stoloff et al. 1999), older job seekers (Sharabi and Simonovich 2017), immigrants (Munshi 2003), and refugees (Beaman 2012). Other studies indicate that strong ties are more effective than weak ties to find entry-level jobs among graduate students (Kramarz and Skans 2014), to obtain work opportunities through Facebook friends (Gee, Jones, and Burke 2017), and to secure reemployment in declining industries (Brown and Konrad 2001) and after firm closures (Cingano and Rosolia 2012). However, a computer assimilation (Montgomery 1991) and a survey data analysis (Mouw 2003) show no causality between measures of social networks and outcomes of job search. Consequently, Mouw argues that the homophily of social contacts causes the problem of endogeneity, which makes the widely claimed causal effect of social networks on labor markets nonexistent or spurious. In response to this serious challenge, social network analysts have developed new approaches to studying the causal status of social networks in labor markets. One approach points to the causal effect of referrals. Among repeated applications in a large American retail bank, referrals are found to generate greater rates of job interview and job offer than nonreferrals (Fernandez and Galperin 2014), and this effect is revealed whether referrals are from coworker ties within internal labor markets in Sweden (Hensvik and Skans 2016), or they are from broader networks of social contacts in external labor markets in America (Schmutte 2015) and China (Shen and Bian 2018). Another approach is to reanalyze existing survey data by using counterfactual models to identify and control the sources of endogeneity, and these models demonstrate the causal effect of social contacts on job outcomes in both market and nonmarket economies (Chen and Volker 2016). Still another approach is to measure the information and influence that job seekers mobilize from social contracts, not such proxies as tie strength and contact status, and this approach shows that network-mobilized information and influence indeed increase a wide range of job quality measures (Bian 2019). Social networks and capital markets If the information flow mechanism of social networks prevails in labor markets, it is the bonding mechanism of social networks that predominates in capital markets. A capital market is a financial market in which long-term debt or equity-backed securities are
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bought and sold in various forms, and capital buyers and sellers tend to be embedded in durable networks of interpersonal and interorganizational relations (Mizruchi 1996). Research shows that social networks matter differently between matured and immaturely developed capital markets. In advanced industrial countries, capital markets tend to be well established and fully regulated by the government. Under this circumstance, social networks are used to develop bankers’ marketing strategies to balance trust and efficiency (Mizruchi and Stearns 2001). One strategy is to build trusting banker-customer relations by adopting a customer relationship management scheme to increase customer satisfaction, thus attracting big customers, reducing turnovers of small customers, and maintaining customer stability and growth (Mithas, Krishnan, and Fornell 2005). Another strategy is to strengthen banker-banker relations by maintaining networks of closure among existing associates and developing networks of brokerage to seek new cooperative opportunities (Burt and Merluzzi 2016). Still another strategy is to form interlocking directorates to facilitate communication among competitors, inter-bank monitoring and control, and collaboration with interlocked corporations to effectively manage market uncertainties and economic crises (Nash, Bouchard, and Malm 2018). Most countries around the world do not have matured and fully regulated capital markets. In underdeveloped economies, social networks play essential roles in informal banking, attracting international financial resources, and formulating domestic banking systems. In Africa, for example, only less than a quarter of adults have an account at a formal financial institution and the rest of adults rely on social networks and other informal methods to save and borrow (Klapper and Singer 2015), making the mobile phone network a popular device of financial service (Bongomin et al. 2018). In Indonesia, networks of family and community ties are the predominant mechanism of informal banking (Okten and Osili 2004), and in post-1950 India, the Chettiar bankers grew beyond the domestic borders to internationalize their banking operations into Singapore through their overseas family and clan networks (Tan and Tan 2014). In Latin America, during the late 19th and early 20th centuries, when domestic banking systems emerged to facilitate rising international trade in Argentina, Brazil, Chile, Mexico, and Peru, social connections to international bankers were instrumental in creating and improving bank laws and regulations (Zegarra 2014). In all developing countries, business start-ups obtain initial capital investments informally through family, community, and church networks, as shown in countries across Africa (Khavul, Bruton and Wood 2009), Asia (Okten and Osili 2004), and Latin America (Portes and Landolt 2000; Wydick, Hayes and Kempf 2011). Social networks and housing markets Social networks of homophily and trust (SNHT) influence major economic behaviors in housing markets. In rental markets, SNHT between local landlords and tenants serves as the informal dispute-resolving mechanism to circumvent the costly procedural formalism, which is frequently imposed on the less trustworthy non-local tenants found in both advanced European countries (Bonleu 2019) and underdeveloped African housing markets (Ansah et al. 2020). In home purchasing markets, SNHT is manifested in real estate agents’ brokerage ties, which perpetuate residential segregations along the divisions of race in America (Korver-Glenn 2018), ethnicity in Europe (Boschman and Van Ham 2015), and religion in Scotland (Dean and Pryce 2017). Finally, SNHT strongly influences people’s moving decisions throughout the lifecycle, from the nest
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leaving at young adulthood (Andersson 2021), to relocating at adulthood (Boyd 2008), and to deciding whether to stay in or move out of current neighborhoods during elderly (Choi, Kwon, and Kim 2018). In the internet age, online social networks play a significant role in housing markets. Bailey and his associates (2018) construct a large data set of 1.4 million Facebook users who lived in Log Angeles County in 2010 with 525,000 housing transactions made since 1993 and present valuable findings. First, while there is a relative clustering of friends near Los Angeles, the average person in the sample has Facebook friends in more than 55 different US counties throughout America. Second, positive housing price experiences of an individual’s friends significantly increase his/her probability of transitioning from a home renter to a homeowner. Third, individuals tend to purchase larger homes when their friends have experienced more positive recent housing price changes, and this effect is robust under different assumptions about buyers, their friends, and market situations. Finally, the effect of housing price experiences of buyers’ friends is repeated among sellers’ friends, indicating that friendship networks affect “both the buyers’ and the sellers’ valuations of the property and, thus, their reservation prices in the bargaining that determines the transaction price” (p. 2261). Clearly, housing markets are networked. Networked housing markets shape network formations and reformations for residents as well, especially for socially marginalized groups. One study shows that when homeless people are rehoused, they tend to restore their social networks similar in attribute to the networks of consistently housed people in their neighborhoods (Toohey et al. 2004). Another study shows that families rescued by state antipoverty policies are relocated to new neighborhoods, and these families reconstruct their local networks with more supportive, more resourceful, and more diversified social ties than before (Kleit and Carnegie 2011). Still another study shows that low-income people moving into housing cooperatives develop social interactions with and receive mutual help from new neighbors, and they are thus motivated to actively engage in civic activities in and around their neighborhoods (Saegert and Benítez 2005).
Network social capital in transition economy In this section, we discuss context, theory, and research on how network-based social capital (thereafter NSC) matters in transition economy, using China as an illustration. A transition economy is an economy which is changing from a centrally planned economy to a market economy (Svejnar 2002). While more than 30 countries in Europe (23), Asia (9), and Africa (1) are internationally recognized under the category of transition economy (IMF 2000), China is standing out not because of its population size (1.4 billion) but because of its astonishing achievements since the country began market transition in 1978. The World Bank (2022) shows that China’s GDP changed from $149.540 billion in 1978 (per capita $156.4) to $17.734 trillion in 2021 (per capita $12,556.3), now being the second largest economy of the world next only to the United States ($22.996 trillion in 2021, per capital $69,287.5). How has this remarkable economic growth been achieved? Did NSC make a difference? China’s transition economy In 1978, two years after the death of Mao Zedong, China’s ruler during 1949–1976, the new paramount leader Deng Xiaoping launched the reform and open-up policies that
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introduced market mechanisms into China’s centrally planned economy. Unlike the “shock therapy” programs implemented to radically privatize the former Soviet blocks in a matter of weeks or months (Svejnar 2002), Deng’s approach for China was piecemeal, growth-oriented, and gradual reforms, first to free product markets, then labor markets, then capital markets, and finally property privatization that prepared China to enter the World Trade Organization (WTO) in 2001 (Naughton 2007). While China today remains a Communist party-state, for the past four decades, its private economy has grown from nil to a phenomenal status, now making over 50% of state taxation, over 60% of total GDP, over 70% of technological innovations, over 80% of urban jobs, and over 90% of economic enterprises (Chang 2020). Chinese private economy has experienced three stages of development and at each stage, NSC made a difference. In the stage of initial development (1978–1991), the legacies of Maoist ideology continued to denounce privatization as the enemy of socialism. Under this politicized culture, private economy grew slowly in the forms of individual laborers and household businesses (legally allowed to hire up to seven workers), but sizable private economic entities were disguised under various labels of collective ownership. This was the stage for the model of “informal privatization” (Ding 2000), under which NSC mobilized from kin and pseudo-kin connections was the social foundation of economic organization and governance in the hidden and emerging private sector (Gold 1990; Lin 1995; Peng 2003). The June Fourth of 1989 crackdown on student prodemocracy demonstrations in Beijing’s Tiananmen Square put China into a chilling political atmosphere for three years, endangering the status of private economy. But Deng Xiaoping’s south China tour in Spring 1992 was a turning point; he called for further market-oriented reforms in bold measures, kicking off a new epoch for Chinese private economy (1992–2000). A new law removed the workforce hiring limit and legalized private enterprises to grow in their own rights, causing numerous economic organizations to take off their collective “red hats” to fully privatize (Ding 2000). This wave of mass privatization was further energized by a 1998 property rights reform under the phrase of “grab big, release small”, which restructured large state-owned enterprises (SOEs) into giant business groups but at the same time privatized small and medium SOEs, to qualify China for its entry into the WTO. During this period, the state sector continued to retain monopoly in industries of strategic importance, but market competition was intensified in the greatly expanded private sector (Naughton 2007). Regarding the role of the NSC in China’s restructured economy, scholars held competing views. One view was to stress the force of economic rationalization generated from marketization and privatization to resist the irrational behavior of relational favoritism, or locally termed guanxi (personalized relations of favor exchange), predicting the declining significance of guanxi in the increasingly rationalized Chinese economy (Guthrie 1998). In sharp contrast, the other view was to value both the resilience of Chinese guanxi culture (Yang 2002) and the social realities of Chinese business practices in which guanxi connections among strategic economic players, especially between local officials and private entrepreneurs, were considered to play critical roles in developing China’s market economy (Bruun 1995; Wank 1999). Subsequently, we saw different versions of “network capitalism” emerged to theorize about China’s emerging socioeconomic order (Boisot and Child 1996; Tung and Worm 2001). In the post-WTO stage of development (2001-present), Chinese economy grew in two seemingly conflicting directions. On the one hand, China’s entry into the WTO
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created new opportunities of economic growth on an unpreceded global level for China, letting many Chinese firms elevate their scale of production as well as operate in foreign countries. Consequently, China’s GDP grew from $1.339 trillion in 2001 to 17.734 trillion in 2021, making Chinese economy ten times bigger within 20 years (World Bank 2022). However, the state sector continued to retain its monopoly in strategic industries and the private sector began to face new challenges in a re-politicized business culture since Xi Jinping became China’s new paramount leader in 2012. This was the context within which scholars began emphasizing political dimensions of China’s NSC under the models of centrally managed capitalism (Lin 2011), political capitalism (Nee and Opper 2012), political embeddedness (Haveman et al. 2017), and political networks of trust-loyalty bonds (Bian 2019, 2021). A theory of NSC dynamism The authors of this chapter have developed a theory about the dynamics of NSC influence in transition economy (Bian and Zhang 2014). The basic idea is that transition from a centrally planned economy to a market economy is considered to occur in a two-dimensional space of changing degrees of institutional uncertainty and market competition. Institutional uncertainty is low when economic rules and regulations are specific, transparent, and compatible with one another, and it is high when they are ambiguous, non-transparent, and incompatible with one another. Market competition, on the other hand, is low when entry to market is monopolized by the state or non-state oligarch, and market competition is high when entry is open to multiple competitors. The increasing degrees of institutional uncertainty and market competition matter for the relevance and activeness of NSC. An economy of increasing institutional uncertainty is full of information asymmetries, is lacking formal institutions to ensure trust between economic actors, and is weak in legal enforcements to punish illicit behaviors. These institutional gaps or holes create space for NSC to play a large role of filling up the gaps and holes (Bian 2002) and, in the case of China, are the ultimate reasons for the rise of different models of network capitalism just reviewed. On a microlevel, NSC gives economic actors a competitive advantage because of its bonding and bridging values within and between these actors, and such values are more needed and more appreciated when an economy becomes increasingly competitive (Nee and Opper 2012). For Chinese transition economy, two propositions have been proposed (Bian and Zhang 2014). First, the higher the institutional uncertainty, the greater the roles that guanxi plays in maintaining economic actors’ comparative advantage. Second, the higher the degree of market competition, the greater the propensity that guanxi is used to strength economic actors’ comparative advantage. The interaction between these two propositions leads to four empirical testable hypotheses. Hypothesis 1 is that the pre-reform Chinese economy had relatively small space of NSC influence. Hypothesis 2 is that institutional uncertainty was rapidly increased by the three reform strategies during the initial stage of Chinese transition economy in which market competition began to increase, increasing the space of NSC influence. Hypothesis 3 is that post-1992 Chinese transition economy increased both institutional uncertainty and market competition to a high point, thus greatly expanding the space of NSC influence. Finally, Hypothesis 4 is that in the post-WTO era, while Chinese transition economy became more competitive on a global scale, institutional uncertainty is persistent or even rising in localities
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and industries where the reach of WTO influence is limited, but in other localities and industries, it becomes increasingly effective in reducing institutional uncertainty. Thus, the space of NSC influence is conditional upon the effectiveness of post-WTO institutionalization. Summary survey results We now focus on Chinese labor markets and present summary results on the changing impact of NSC on three sets of job outcome from Chinese surveys (for details about these surveys as well as summary results from them, see Bian 2019). We begin with job acquisition. A data set of 20,000 job seekers was constructed from large-scale probability sample surveys, and it shows the following results. First, job acquisition using NSC more than doubled in a span of 37 years, from 40% in 1978 to 90% in 2014. Second, during this period NSC ties of information flow and NSC ties of influence of power both were increasing, but labor market competition increased whereas institutional uncertainty decreased. Finally, the NSC influence on job acquisition increased when market competition and institutional uncertainty increased, but it significantly dropped to a lower degree when the level of institutional uncertainty decreased. These summary results are in strong support of the two propositions and four hypotheses just discussed. The same data set shows that among otherwise equal workers, users of influence ties to secure their jobs have a significantly higher job satisfaction than non-users and users of information ties, whether job satisfaction is measured in terms of respondent evaluation of work conditions, job compensation, or social relations in the workplace. Moreover, compared to otherwise equally qualified workers, users of influence ties to get jobs enjoy a greater probability of being assigned into both kinds of positions. All these results signify the political dimension of NSC in China’s transition economy. The impact of NSC on wage income is also significant. At entry levels, users of both information and influence ties to get jobs are significantly more likely to have a higher entry-level wage than non-NSC users. This robust positive impact exists in both the state and private sectors, among different occupational types, and between job stayers and job changers. NSC is also found to have a lasting wage effect in a worker’s job career, but only for users of influence ties. These findings make it explicit that in a durable Communist party-state, China’s NSC carries a great deal of political influence of power.
Conclusions Three conclusions are drawn from our review. First, through its bonding and bridging functions, social capital is the initiator and sustainer of the informal economy, is the facilitator and booster of the knowledge economy, and is the indispensable mechanism by which the social economy emerges and grows. Second, networks of strong ties and weak ties show differential efficacies in labor markets, capital markets, and housing markets, whereas weak ties of infrequent interaction and nonredundant contacts are instrumental in flowing market information across structural boundaries, strong ties of high intimacy and reciprocity function to mobilize the influence of power and strategic resources in both market and nonmarket systems. Finally, network-based social capital has the persistent and largely increasing effect on labor market opportunities
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and outcomes in Chinese transition economy, and much of this effect translates the political power and influence of the Communist party-state into the expanding market economy. Given space limitations, our review is less comprehensive than it should be, and it must be supplemented by other reviews of topical relevance in this handbook. For example, our review of transition economy has focused on China, overlooking other transition economies especially Russia. Also, we have focused on the bright sides of social capital and social networks and have not given sufficient attention to the dark sides. How do social capital and social networks facilitate social exclusion and segregation, nepotism and group favoritism, power abuse and corruption, as well as social injustice and in doing so perpetuate social inequality and deteriorate the moral foundation of modern society? These are some of the issues that require future research. In this regard, we have two recommendations for future researchers. One recommendation is that future researchers be to theorize the linkage between individual- and collective-level social capital dynamics, exploring how the two levels of social capital interact with one another to generate outcomes for individuals, communities, and society. The other recommendation is that future researchers be minded about contextual variation, exploring how cultural, institutional, organizational, and societal contexts matter for the formation and legitimation of social networks as well as for the generation and utilization of social capital.
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21 Uncertainty in economics and sociology Reza Azarian
Introduction The gulf between economics and sociology runs deep, as each belongs to a distinct school of thought and drives from a distinct set of ontological and methodological position (Ingham 1996; Kalleberg 1995; Trigilia 2002). Yet, the history of the relation between the two offers many examples of fruitful cross-fertilization, showing that, despite the above-mentioned differences as well as the long-standing professional and institutional barriers, a productive exchange of ideas between them is neither totally impossible nor futile. Whereas the most notable attempts on the part of sociologists have been undertaken by Max Weber (1978 and 1981), Emile Durkheim (1984), Georg Simmel (2011) and Parsons and Smelser (1956), many prominent economists – including Vilfredo Pareto (1963), Joseph Schumpeter (1954), John Commons (1934), Thorsten Veblen (1934) and Douglass North (1990) – have also found it rewarding to embrace sociological insights out of the conviction that economic behavior, phenomena and processes can be understood better when viewed within the broader social contexts where they occur. In our own time, the emergence of currents such as transaction costs economics and behavioral economics during the last decades has created new opportunities for an inter-disciplinary dialogue. By integrating concepts like institutions, hierarchies and trust-based relations and by acknowledging the prevalence of non-rational modes of decision-making, these brands of economic theory explicitly underscore the significance of non-economic parameters of economic behavior, thereby broadening their perspective and reaching out to other paradigms outside their original domain. Yet, despite the existence of these common grounds, the two disciplines continue to be mutually exclusive and, apart from a few cases (Beckert 1996; Gibbons 2005; Granovetter 1985; Powell 1990; Williamson 1994), the communication between them remains rather sparse. However, it appears that a “rapprochement” (Zelizer 2007: 5) between the two is considerably facilitated once specific issues and/or areas are in focus. Therefore, this chapter finds it more productive to narrow down its scope and focus on the issue of uncertainty and its impact on firm behavior – which arguably is the most fertile common ground for an inter-disciplinary dialogue (Azarian 2016). What follows is a brief account of the conceptualization of uncertainty within economic theory and sociology, which offers a review of the attempts made within these disciplines to integrate into analysis the causes, effects and consequences of uncertainty.
DOI: 10.4324/9780367817152-24
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Uncertainty and its treatment Uncertainty is a fundamental, indispensable and omnipresent element of economy, affecting the day-to-day operation, the overall performance and the very survival of any firm. In manufacturing, for instance, any producer is constantly confronted with the challenge of remaining in the market: Will it manage to secure the supplies it needs in order to set up a production process? Will it be able to realize its intended production schedules and business plans? Will it succeed in preserving its niche in, and its share of the market? Will it be able to keep up the sales volumes that are necessary to secure its existence? Will it be able to continue to deliver the quality that it is known for – the quality that it has chosen to commit itself to offer and that it is keen to preserve as an important feature of its public image or identity? Moreover, uncertainty is also a multi-facetted and multi-dimensional phenomenon, stemming from different sources, taking various forms and coming in changing degrees. For instance, as far as modern industrial production is concerned, uncertainty not only is induced by the structures and dynamics of the particular branch in which a producer is operative but might also be triggered by factors in the larger environment. It may, for instance, emerge in the wake of the introduction of novel technologies, new sources of raw material, or new modes of organization, calling for the re-consideration of the manufacturing process in profound ways. Alternatively, it can have its cause in the political processes forming the regulations that affect the market conditions. Still more, uncertainty may have different types of impact on the different aspects of the firm’s performance and/or on various parts of its organization. It may, for instance, affect the firm’s choice of strategies for securing its downstream supplies, influence its ability to adapt to the changing market conditions with sufficient flexibility, hamper or facilitate its entry into new markets and/or business fields, or even give rise to tension among various formal sections and/or informal groupings inside its organization. Given the obvious multiplicity of the causes, effects and forms of uncertainty, the literature on the topic is unsurprisingly vast and rich in insights, gained from various perspectives. Yet, it seems possible to discern some fundamental underlying issues that integrate the bulk of this overwhelmingly immense literature. First, it is characterized predominantly by a focus on the relation between uncertainty and rationality or more specifically, it is mostly concerned with, and revolves around, the constraining impact of uncertainty on the ability of actors to foreseen the outcome of different available courses of action. The effect of uncertainty in this regard is basically a matter of temporality of purposeful action and derives from the complexity and changeability – and thereby the unpredictability – of the environment. In other words, driven by anticipations and speculations about the future outcomes of the present decisions and plans, economic action is by its nature an uncertain kind of venture. It, in fact, is bound to be uncertain because – like any other type of purposeful human conduct that is fueled by expectations – economic action inevitably involves choices and decisions to be made in the present with an eye on certain desired outcomes to occur at a later point in time. The actual outcomes of these choices and decisions however are contingent upon innumerable factors, many of which lying beyond the actors’ control, some even beyond their perceptual horizon. Therefore, as actors lack full control of how events unfold, their schemes of action – no matter how carefully and rationally designed – will most likely derail from the outlined trajectories and the actual outcomes will deviate substantially from the ones intended.
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The second overarching issue in the literature regards the focus on the so-called boundary uncertainty, that is the uncertainty that any given firm (or organization) inevitably confronts at its interfaces where it is involved in transactions with other firms in its immediate environment. This focus on boundary uncertainty is derived from the image of firms as open systems – an image that since the 1960s and through the works of people like James Thompson, William McEwen and James Evan has served as the point of departure for the study of all kinds of organizations, firms included. Accordingly, any organization is inevitably dependent for its survival on an array of external resources that are controlled by other organizations and is therefore forced to engage in repeated transactions with these other organizations. This dependency on external resources constitutes the source of the uncertainty that the focal organization constantly confronts, giving rise to the vulnerability that derives from the possibility of the environment changing so that the stable and ample supply of the vital resources is no longer assured (Pfeffer 1981; Pfeffer and Salancik 2003). Obviously, this kind of uncertainty has long-reaching constraining effects on the focal organization’s ability to pursue successfully its action plans, particularly because the transactions at the boundaries do not unfold under any single organization’s uncompromised discretion. Hardly surprising, boundary uncertainty has received much scholarly attention over the years, and many scholars, especially within the fields of business and organizational studies, have tried their hands at analyzing it. However, two specific accounts of boundary uncertainty, belonging to two different theoretical traditions, have undoubtedly had the greatest impact. The first one comes from the resource dependency theory, which considers the erratic fluctuations in the in- and output of vital external resources controlled by other organizations as the main source of environmental uncertainty. The other account is developed within transaction costs economics and revolves mostly around what in economic literature is referred to as behavioral uncertainty (Akerlof 1970; Spence 1974; Williamson 1985), that is, the kind of uncertainty induced by the cognitive limitations and opportunistic dispositions of economic actors. It is, however, worth mention that these two accounts are complementary in that whereas the former is mainly concerned with the properties of the flows of resources and focuses chiefly on how unpredictable fluctuations and other irregularities in these flows turn the environment unreliable, the latter account deals mostly with the act of transaction itself and the complexities that are normally involved in the development, maintenance and functioning of long-term, specialized inter-organizational transactions. The third and final issue to be discerned in the literature regards the various protective devices and coping strategies used by organizations in their struggle against uncertainty. This fundamental issue, which is a direct and natural implication of the first two ones mentioned above, has its origin in the fact that the ultimate cause of uncertainty is the structure of the environment in which the actors operate. That is, the very possibility of successfully pursuing a designed course of action is basically contingent upon the constitution of the relevant part of the environment and is negatively related to the complexity and changeability of that part. As Simon (1965) pointed out long ago, the more changeable and complex the constitution of this environment, the more severe constraints imposed on the rationality of the actors and on their ability to materialize their objectives along the outlined paths (Dequech 2000; Dosi and Edigi 1991; Dow 2004); and “the more complex and unique the issues [the actors] confront, the more uncertain the outcome” (North 1990: 22) and the greater the risk of deviating from the pre-designed course.
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In this regard, however, firms are of course no exceptions. As important economic agents in market-oriented economies, they typically exercise considerable discretion over large quantities of human and material resources to which they seek to add value in the most efficient ways. Yet, like other organizations, they are basically forced to rely on their necessarily limited, incomplete, unsystematic and idiosyncratic understanding of the parts of the outside world that is of significant relevance. In their pursuit of materializing their objectives, they lack sufficient full control over the development of events and even the consequences of their own actions. Subsequently, the overriding concern of any firm operating is to develop devices and strategies that efficiently minimize the contingencies in the relevant part of its environment. In fact, the development of such devices and strategies stands out as an indispensable precondition for the materialization of any rational design of action; and the more complex the environment is, the more urgent it becomes for the firm to deploy remedial devices and strategies that by keeping at an arm length various kinds of uncertainty and by lessening or delaying their effects, turn their changeable and uncertain environment into a sufficiently manageable context of action.
Uncertainty in economic theory Awareness of the role of uncertainty in economic life dates back to the beginning of the 18th century at least. It prefigures already in the work of early economists such as Richard Cantillon and Daniel Bernoulli who, long before the publication of Adam Smith’s Wealth of Nations, launched their attempts at scientific inquiry of economic life (Ekelund and Herbert 1990). It was, however, Frank Knight – the founder of the Chicago School of Economics – who effectively for the first time underscored the significance of uncertainty for economic analysis. In his seminal book – Risk, Uncertainty and Profit from (1921) – Knight uses the concept of uncertainty to refer to “the fact of ignorance and the necessity of action upon opinion rather than knowledge” (Knight 1921: 267). In his terminology, the concept of uncertainty stands for the lack of sufficient knowledge concerning the nature of the decision-making situation at hand and is distinguished from the knowable and calculable risk, which might be tied to different possible outcomes of alternative courses of action. More technically, whereas risk in Knight’s interpretation refers to situations where a given decision-maker can assign mathematical probabilities to the randomness that he faces, uncertainty refers to situations when this randomness cannot be expressed in terms of specific probabilities. Defined as such, the Knight’s notion of uncertainty basically reflects, and corresponds to, the impossibility of envisioning in advance and preparing for all upcoming circumstances and for all future turns of events. Because of this impossibility, uncertainty, according to Knight, is always present in economic life and coping with it constitutes an indispensable element of economic action. Therefore, this kind of action can be best characterized as rationally chosen action in a state of uncertainty. It is worth mentioning that Knight’s insight is clearly paralleled in the writings of John Maynard Keynes who in General Theory of Employment, Interest and Money (1936) introduces – very much in the same fashion as Knight – a distinction between risk and uncertainty. Accordingly, the state of uncertainty under which real-life businessmen have to make their decisions results from the impossibility of acquiring complete and reliable knowledge about the future courses of events. In his view, although firms and their managements are potentially capable of acting rationally, they nonetheless live in
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an uncertain world where widespread uncertainty places severe limits on their capacities to make detailed rational calculations about future, where relevant probabilities are unavailable and many possible outcomes are simply unknown to them. As he puts it, they “have, as a rule, only the vaguest idea, if any, about the most direct consequences of [their] acts” (Keynes 1973: 184), and yet, they face the necessity for action and decision; and being compelled to act, they act as if they had a reliable, exact balance sheet of costs and benefits of alternative courses of action, each accompanied by its known probability” (Keynes 1973: 114). Eventually, however, other economists, including John Hicks (1931), Michal Kalecki (1937), John von Neumann and Oskar Morgenstern (1944), Leonard Savage (1954) and George Stigler (1939), begun to realize the constraining impact of uncertainty on the rationality of action and to include this impact in the analysis of various economic phenomena (Arrow 1951). As result, the previously unchallenged status of rationality as the prevailing principle of action was now increasingly questioned, and issues related to uncertainty begun to receive much more attention. As the outcome of this development, the recognition of the gravity of uncertainty and its effects on rationality has been generalized and encapsulated by the concept of bounded rationality (Simon 1956 and 1965), which, with its reference to the cognitive and perceptual limitations on the part of the actors, has since its introduction proven to be a major step toward a more systematic undersigning of uncertainty and its implications for rational action. According to this notion, uncertainty makes rationality “problematic” (March and Simon 1958: 138) in that actors typically lack “a complete description of the world which [they] fully believe to be true” (Arrow 1974: 33). The main reason is that the real-world actors – be it individuals or organizations – experience limits in formulating and solving complex problems, as they by their constitution are incapable of gathering and processing all the relevant information that is needed to make a fully rational decision. Moreover, not only full information is impossible due to “the limited computational powers of the decision-maker” (Simon 1986: 210), it is also costly to acquire, sort out and decipher the information that is actually available (Cyert and March 1963; Heiner 1983). Subsequently, just like any other commodity, the use of information is subject to the principle of marginal utility, that is, its consumption is optimal when the marginal costs of information search and acquisition are equal to its expected return (Stigler 1961). That is to say, the difficulties and costs involved in gathering and processing sufficient information may therefore induce actors to decline to search further and to prefer instead to make their decisions on the basis of the already available or more easily assessable information (Arrow 1982; Bates 1994). Facing the immense problems and high costs of complete information, perfectly rational decisions are accordingly often not feasible in practice, and real-world actors are therefore typically forced to limit and simplify greatly the choices available. Hence, rather than being an optimizer, the typical real-world decision-maker is a satisficer (Simon 1956: 214) – that is one seeking a satisfactory or “good enough” solution to the problem at hand rather than the optimal one. During the last three or four decades, however, a whole approach in economics has developed which, grown through a series of influential work done by people like Ronald Coase, Douglass North and Oliver Williamson represents a broad-fronted attempt to elaborate on the implications of uncertainty for economic action. This approach, which is known as transaction costs economics, is indeed an ensemble of different currents with diverse sources of inspiration and different choices of focus, addressing the
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problem of uncertainty at different analytical levels. Nevertheless, it mainly focuses on behavioral uncertainty that firms meet at their interfaces and, drawing on the fundamental notion of the costliness of market transactions, sets out to reveal how various societal arrangements such as institutions, hierarchies and trust-based relations reduce uncertainty involved in boundary transactions and thereby facilitate the smooth conducting of the exchange between the trading parties. Within this perspective, the transactions that occur in the real world are by far more complicated than the way they are conceptualized in the neo-classical economics. That is, taking place in an uncertain world, these transactions are far from being simple and unproblematic events to be taken for granted. On the contrary, since they usually occur under the conditions of bounded rationality and opportunism, they are potentially hazardous. Their execution often involves non-insignificant coordination problems in terms of discrepancy of the intentions and abilities of the trading parties to conduct co-operatively. Consequently, the termination of these transactions normally devours certain quantity of resources and efforts to minimize the uncertainties involved and to secure a certain degree of alignment of incentives between the trading parties. In other words, according to the basic tenets of the transaction costs perspective, there are basically two circumstances that, when occurring together, make market transactions costly. On the one hand, the costliness of transactions is a function of the uneven and asymmetric distribution of information between the transacting parties, which, in turn, is induced by the bounded rationality of actors, that is, their cognitive and perceptual limitations that cause them considerable difficulties and costs involved in gathering, processing and deciphering all the relevant information that is required for making fully optimal choices and rational decisions. On the other hand, the asymmetric distribution of information creates potential for opportunism that is, opportunity for “self-interest seeking with guile” (Williamson 1985: 47) or more specifically the pursuit of maximizing self-interest through any kind of premeditated and purposeful deceit, including deliberately withholding or distorting important business information, shirking, or failing to fulfill formal or informal promises and obligations. In other words, due to these uncertainties, which typically prevail in spot markets, one-shot transactions between anonymous parties can become costly. This is so because the opportunities for profit caused by the uneven distribution of information between the parties can be abused by dishonest actors, who behave opportunistically and who seek to take advantage of the insufficiency of the other party’s information about the object of transaction. Hence, the overriding necessity of crafting devices and deploying strategies – such as vertical integration and/or truest-based inter-firm relations – that can reduce the vulnerability induced by bounded rationality and safeguard the boundary transactions against the hazards of opportunism.
Uncertainty in economic sociology The issue of uncertainty has on the whole received little explicit attention by sociologists who in their writings have addressed economic phenomena. For instance, although economic issues did occupy a central place in the conceptual frameworks developed by the founding fathers of the discipline, the treatment of uncertainty in classic texts is rather fragmentary and largely limited to some brief and implicit references made in passing. Neither have contemporary economic sociologists shown much enthusiasm
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regarding uncertainty as a fundamental condition of economic action. They in fact have declined to recognize fully the severe constraints it imposes on the rationality of actors and on their action capacity and, subsequently, have failed to integrate into their analysis the issue that stands at the heart of the transaction costs economics, notably the powerful inducement that uncertainty generates in actors to deploy diverse strategies (such as imitation) and design various social devices (such as trust-based relations) in order to reduce its paralyzing impacts on economic action. Yet, uncertainty is not entirely absent in economic sociology, and there are indeed some significant works within this sub-field that do address the issue. Among the works that explicitly deal with uncertainty in economic life, one stands out in particular, notably Jens Beckert’s excellent article from 1996 – What Is Sociological about Economic Sociology – where he draws on Knight’s fundamental insight and begets the question as to how actors can act rationally under uncertainty. In his critical review, he argues that under uncertainty the assumption of rationality cannot be maintained convincingly as the core behavioral premise of economic theory; Or as he (1996: 805) puts it, “if we assume uncertainty, it is impossible for the actor to deduce rational strategies from their given goals of utility optimization or profit maximization.” Furthermore, Beckert argues that the significance of uncertainty derives not only from its constraining impact on the ability of actors to know in advance all the possible outcomes of a given decision and to calculate their probabilities but also – and especially – from the forceful inducement that uncertainty generates in these actors to craft various remedial devices that by bringing some order and predictability in their operational environment make it possible for them to pursue their rational designs of action. In addition, there are a number of other works in which sociologists put uncertainty in the center of the analysis, although the majority of them do that in a rather implicit way. For instance, a strand of network studies – like the ones done by Mark Granovetter (1985) and Brian Uzzi (2001) – has over the years drawn implicitly and/or explicitly on resource dependency theory and transaction costs economics in order to illuminate the important role that trust-based linkages among firms play in providing protection against both supply uncertainty caused by unpredictable market fluctuation and against potential opportunistic behavior of other players in the market. Or, to mention another set of works, Hirsch (1972) and Geertz (1978), respectively, discuss differential promotion and cliantization as uncertainty reducing strategies in imperfect markets. Going beyond the sheer acknowledgment of the problem of uncertainty, these works explore the ways in which actors belonging to diverse contexts craft different arrangements in order to cope with it. The former, for instance, focuses on the high level of demand uncertainty that “cultural organizations” such as moviemakers and book publishers confront in the downstream markets for their outputs. To cope with this uncertainty, the organizations engaged in the production and distribution of books, phonograph, music records, and motion pictures use a number of strategies – such as “over-production and differential promotion of new items and the cooptation of mass-media gatekeepers” – in order to secure favorable assessments of their new products before these reach consumers (Hirsch 1972: 657). In the other work, Geertz (1978) examines the ways in which information deficiency in traditional bazars is coped with through clientization. Accordingly, bazars are characterized by the scarcity of precise information, which due to the inefficiencies built into these institutions, is distributed asymmetrically and is kept that way to offer advantage and gain, whereas, like any other market, the well-known principles of rationality and
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profit seeking as well as the mechanism of demand and supply do govern transactions in bazars, yet in these traditional markets Information is poor, scarce, maldistributed, inefficiently communicated, and intensely valued. Neither the rich concreteness or reliable knowledge that the ritualized character of non-market economies makes possible, nor the elaborate mechanisms for information generation and transfer upon which industrial ones depend, are found in the bazaar: neither ceremonial distribution nor advertising; neither prescribed exchange partners nor product standardization. The level of ignorance about everything from product quality and going prices to market possibilities and production costs is very high, and much of the way in which the bazaar functions can be interpreted as an attempt to reduce such ignorance for someone, increase it for someone, or defend someone against it. (Geertz 1978: 29) The solution to this institutional deficiency is clientization, basically meaning the establishment of stable business relationships between the seller and buyers for repetitive purchases of particular goods and services. Through clientization, the diffuse mass of consumers is divided into clients and others, each receiving different treatment from the seller, and in this sense clientization represents an actor-level attempt to counter-act, and profit from, the system-level deficiencies of the bazaar [including] its structural intricacy and irregularity, the absence of certain sorts of signaling systems and the undeveloped state of others, and the imprecision, scattering, and uneven distribution of knowledge concerning economic matters of fact. (Geertz 1978: 31) Perhaps less noticed, however, the realization of the importance of uncertainty runs even deeper in economic sociology and can be traced back to the writings of the founding fathers of the discipline. For instance, the topic constitutes an integrative underlying theme is much of Emile Durkheim’s writings on economy, as he examines the implications of the transition from traditional to modern industrial societies. According to him, within these nascent societies, uncertainty presents itself as a fundamental prevailing challenge, stemming from the new organization of economy with its characteristically high level of division of labor and structural complexity. The dissolution of the confined local systems of production and the emergence of large-scale markets brings along fundamental changes such as the weakening of the previously close relationships between producers and consumers and the increased risk of the latter being out of touch with the former – a condition that, according to his account, inevitably gives rise to recurrent mismatches between supply and demand and the ensuing over- and under-production crises. More specifically, in new societies, the widely scattered and un-coordinated producers can no longer fully scan the market and are no longer able to make realistic estimations about the actual demand and well-founded assumptions regarding the supply, that is, the outputs shipped to the markets by their competitors. Having to longer access to reliable relevant market information to build their production plans on,
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the producers are left with one option only, that is, “the process of trial and error.” In his own words, As long as the segmentary type of society is strongly marked, there are nearly as many economic markets as there are different segments. Consequently, each of them is very limited. Producers, being close to consumers, can easily estimate the extent of needs to be satisfied. Equilibrium is therefore easily established and production regulates itself. By contrast, as the organized type of society developed, the fusion of different segments involves the fusion of markets into one single market, and gradually involves almost all of society. This becomes more widespread, tending to become universal … The result is that each industry producers for consumers who are dispread over the length and breadth of the country, or even the entire world. Contact is then no longer sufficient. The producer can no longer take in the market as a glance, nor think of it as a whole. He can no longer understand its limits, since it is, so to speak, limitless. Accordingly, production becomes unbridled and unregulated. It can only trust to chance, and in the course of a process of trial and error, it is inevitable that the mean and the proportionate will be exceeded, as much in one direction as in another. From all this come the crises which periodically disturb economic functions. (Durkheim 1984: 305) Another fundamental consequence brought about by the wholesale structural transformation of society regards the alternation of the nature of the relationships among individuals, now chiefly formed because of mutual interdependence caused by functional differentiation and specialization of the involved parties, rather than relying on their communal similarities. Early on, Durkheim realizes that the strong endorsement of competitive individualism, which is characteristic of the emerging societies, makes it necessary to find ways to contain the pursuit of economic self-interest in order to avert the otherwise overwhelming risk of economic chaos or anomie. That is, in modern social contexts, the traditionally defined and normatively regulated relations of the past are increasingly re-placed by impersonal, interest-based linkages among strangers who are brought together primarily in order to satisfy their mutual material needs. As the constraining sway of traditional norms no longer can efficiently confine the parties’ pursuit of economic gain, new regulative devices are needed to shield the parties against the hazard of potential opportunistic behavior. What in other word is needed is new institutionalized – that is, socially regulated and sanctioned – forms of transaction that, when efficiently enforced, can provide protection against behavioral uncertainty. Hence, the necessity and centrality of formal contracts, without which many of the complex economic transactions of modern economy would be virtually impossible to maintain. As Durkheim (1984: 160) puts is, Undoubtedly, when men bind one another by contract, it is because, through division of labor, whether this be simple or complex, they have need of one another. But for them to co-operate harmoniously it is not enough that they should enter into a [informal, trust-based] relationship, nor even be aware of the state of mutual interdependence in which they find themselves. The conditions for their co-operation
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must be fixed for the entire duration of their relationship. The duties and rights of each one must be defined, not only in the right of situation as it presents itself at the moment when the contract is concluded, but in anticipation of circumstances that can arise and modify it. Furthermore, anticipating the transaction costs economists’ recognition of the fact that all contracts, especially the long-term ones, are inevitably “incomplete and imperfect documents” (Williamson 1985: 164), Durkheim asserts that although “most of our relationships with others are of a contractual nature” (1984: 1610-161), we cannot foresee the variety of possible circumstances that may arise during the period our contract will run, nor fix beforehand, by means of a simple mental calculation, what will be in every case the rights and duties of each person, save in matters of which we very special practical experience. Moreover, the material conditions of life prevent a repetition of such operations. Finally, yet another important sociological line of work where uncertainty constitutes the central theme consists of Harrison White’s writings on production markets, which according to him represent a distinct genus of organization, profoundly different from the one that economic theory usually theorizes about. Given the importance of White’s account as an illustration of how these central institutions of modern economies can be analyzed from a sociological point of view, it is presented at some length below.
Uncertainty in production markets Drawing a on a host of insights from economic theory, White’s account of production markets is a novel, network-based model. Accordingly, the overall structure of the modern production apparatus can basically be viewed as a gigantic and incomparably dense network texture of interdependencies. Within this network texture, numerous directional flows of intermediate products run through numerous long streams of product refinement, connecting individual firms together back and forth in the long production chains. Located within such a network structure, there are numerous specialized production markets, each consisting of a small set of firms that produce largely the same but slightly differentiated array of products. According to White, any such market has a number of features that distinguishes it from a typical exchange market. For instance, due to the similarity of their positions with regards to the particular stages of the manufacturing process in question, the firms in a production market not only perform roughly the same function but also have a relatively high level of niche overlap that is a high degree of common dependency on key external resources (Hannan and Freeman 1989; Podolny et al 1996.) Moreover, due to the similarity of their function, the firms participating in a production market make up a set of comparable units that, on the whole, are interchangeable in the eyes of upstream suppliers and downstream customers and that share a stable collective identity – a collective identity that derives from their common specialization. Furthermore, through their specialization, the firms in a particular market are inevitably tied down and, therefore, unable to “bounce in and out” (White 1993: 162) freely and frequently as they are assumed to do in the theories of the mainstream economists. In other words, given the high level of its specialization, any individual producer firm is
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strongly tied down through various substantial material and non-material investments that are not easily re-deployable, not only leaving the firm with very small possibilities to alter its output but also making exist practically a non-option. As the pursuit of competitive advantages by under-cutting prices (McConnell et al 2011) becomes less workable, the comparable firms in the market compete primarily through qualitative product differentiation (Chamberlain 1948). That is, each firm in the market endeavors to create and sustain an individual niche for itself by performing its function in a fashion slightly different from its peers in order to diminish as far as possible its inter-changeability and make itself discernible in the eyes of the downstream consumers. For the purpose of this chapter, however, the most important feature of these markets concerns the role of demand uncertainty in triggering imitation as an uncertainty copying strategy made necessary because of the demand uncertainty that poses particularly severe constraints on the possibility of producer firms to make rational production decisions (Burt 2000; Knorr Cetina 2004). To unpack the point, the existence of a sufficiently large and relatively stable demand for its specific output is obviously a necessity for any producer firm to survive, while, on the other hand, insufficient sales, irregular demand and/or unstable prices are serious obstructions to any production schedule and/ or investment plan. Yet, the actual demand in the market is determined by a combination of parameters that lie outside the control of the firm and remains unknown and even unknowable in advance. As result, the firm lacks the necessary market information it needs to determine exactly what versions of given products and what quantity to produce, what prices the consumers will be willing to pay for them and what profits it can expect. The only realistic option available to the individual producer firm for meeting this challenge, according to White, is peer imitation. That is, instead of speculatively estimating or predicting the demand in the upcoming business period, the firm monitors alertly its closest competitors in search for reliable guidance and for actionable relevant information on its downstream market to act upon; Or as White (1981: 6) puts it, rather than being the “speculative virtuosos” pictured in economic theory, real-world business people are “prudent observers” who know the world is much too complex to compute as economic theorists would like them to do and is anyway too opaque to provide enough data to permit such speculative analyses [of actual demand]. Instead, businessmen are attuned to tangible evidence from their own specific market as to what volume and value are permitted in their niche among the specific set of producers. This peer monitoring takes place in both formal and informal ways, that is through “business reports, trade associations, lunches and gossip” (White 1981: 12; 1993: 167) and is focused on a pair of easily observable values, namely the volume of output of each one of the peers in the last business period and the size of the revenue that each has received for its output in that period. Effectively summarizing the previous business period for every other firm in the market, these observable values provide the focal firm only with some rough information of course, and yet, this rough information, according to White, is the best tangible evidence a producer firm can obtain for forming its own estimates regarding the most realistic volumes and prices for the upcoming period. This kind of information, in other words, is the most steadfast indicator that can “guide a real firm in a real market toward volumes and price that demonstrably can be sustained” (White 1981: 6).
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Yet, it should also be underlined that imitation in production market is different from what is normally referred to as herd behavior (Grossman and Stiglitz 1976; Hey and Morone 2004; Hung and Plott 2001) where imitation essentially consists of following certain actors like the key investors in financial markets. Given the specific nature of competition in production markets, the imitation among the producer firms is a more complicated process in that it occurs in the form of watchfully positioning oneself in relation to others through differentiating performance and constantly seeking a distinct role and an individual identity, while simultaneously preserving basic comparability and remaining within the boundaries of the market. Put differently, the comparability and inter-changeability of the firms that are in the same market give also rise to a resilient incentive for distinction and, in effect, a sharp and constant competition among them that is carried on mainly through quality variations as each firm performs its function in a slightly different fashion. In White’s own words, “within each market individual producers must push apart, must differentiate themselves in qualities of product” (1995b: 60), each trying to find for itself a “distinct position” (1995a: 62), assuming a “distinct role” (1981: 3), or simply “defining [an individual] niche” (1981: 10) with regard to quality. As result, any given production market can be described in terms of a spread of a small number of firms, each having an individual quality niche within a larger common frame that is set by the collective identity of that particular market. Given the dynamics of the modern economies, however, the range of quality that defines any specific market never stays the same for any longer period of time but is re-considered and renewed constantly. Consequently, rather than being able to select their individual niches from a stable, readily available menu, the firms in any specific market are induced to seek competitive advantages through continuous innovations and updates in quality variations. Trying to hit a moving target, any individual firm in the market therefore has no alternative but to make the most of the only information it can acquire on the likely choices of its peers to determine the nature of its own action situation and to identify the options and impediments that this situation embraces; and once the firm has, on this basis, formed its conception of the upcoming array of quality choices in the market, it is provided with the guidance it needs to try to nestle itself on that array and find a business opportunity for itself in terms of a sustainable position in relation to its peers.
Some concluding remarks Uncertainty has profound and far-reaching implications for the particular shapes that economic actions, processes and organizations take. Against this backdrop, it becomes imperative for economic actors in general, and firms in particular, to design uncertainty reducing devices and to deploy coping strategies that can relax the constraining impacts of uncertainty imposed on their ability to materialize their objectives – devices and strategies that can bring sufficient degree of orderliness and simplicity in the relevant part of their immediate environment and that thereby make it possible for them to operate in a relatively manageable domain with a certain level of stability, predictability and calculability rather than fumbling in a world permeated by contingency. This leads us to the fundamental novel insight that any case of contextualization of economic action – the very core defining concern of economic sociology – might in fact be seen as a response to uncertainty.
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At any rate, the treatment of uncertainty – both in economics and sociology – is still in need of much more explicit, systematic and theoretically broad elaboration of a host of questions regarding, for instance, the diverse causes and effects of uncertainty as well as the repertoire of coping strategies and devices deployed by various actors in different contexts. Furthermore, much explorative work is needed to examine how uncertainty can best be understood and characterized and how it can best be integrated into the analysis of economic action. To optimize the outcome of such an enterprise, however, the treatment of the issue needs to be broadened enough to include insights from other disciplines than economics, including law, social anthropology, social psychology and sociology, each having a rich legacy of dealing with pertinent aspects and thereby capable of making its own distinct contribution to a fuller treatment of uncertainty.
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Part IV
Special branches and problems of economic sociology
22 Sociology of production, work, and industrial relations Christoph Deutschmann
Historical background The concepts of production and work are genuine inventions of the modern age. In the societies of ancient Greece and Rome, all kind of physical work was considered to be socially degrading. The inferior status not only of slaves but even of artisans derived itself precisely from the heteronomous character of their work, as Hannah Arendt (1958) had shown. Social esteem and freedom were confined to those, who, as members of the political community, or philosophers, could avoid work, engage in public affairs, or lead a leisurely life devoted to philosophical contemplation. In the Christian tradition, the basically negative evaluation of human work continued. Labor meant toil that was interpreted as a “curse” imposed on Adam by God, after he had expelled him and Eva from the paradise. In the Christian teaching, God, not man, was considered to be the true creator of nature as well as of the social world. Only with the Reformation, and Luther’s and Calvin’s interpretation of everyday labor as a divine “vocation”, a more positive evaluation of human labor gradually gained influence. However, still it was a long way to go to the modern idea of man as the true “producer” of society and material welfare, which came up in Europe not earlier than in the 17th century. I confine myself here to briefly recapitulating the approaches of three authors who have greatly contributed to developing the modern understanding of production and work: John Locke (1632–1704), Adam Smith (1723–1990), and Karl Marx (1818–1883). a
John Locke: In contrast to the negative evaluation of work predominant in the Biblical tradition, Locke viewed work in a much more positive light. In his “Second Treatise on Government”, he interpreted labor as the key vehicle of humans to appropriate nature privately, and to create their own world based on freedom beyond the state of nature. By hunting, fishing, cultivating land, or manufacturing goods, humans are transforming nature in a way which meets their wants and which constitutes a morally legitimate claim of private ownership. Private property, which includes the property of land, lays the ground for a free and peaceful civil society; hence, it is the first responsibility of the state to protect and safeguard it. Originally, the private appropriation of nature and land was considered legitimate only in so far, as it did not exceed personal needs, as Locke argued. This changed with the introduction of money, which Locke characterized as a storable medium, depending in its value on social agreement. By exchanging surplus goods against
DOI: 10.4324/9780367817152-26
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money, men could enlarge their property beyond the limits of personal needs in a socially legitimate way (Locke 1988 [1698], chapter V.). Adam Smith: For Smith, as for Locke, labor is the key source of wealth and the ultimate standard of value: It was not by gold or by silver, but by labour, that all the wealth of the world was originally purchased; and its value, to those who possess it, and who want to exchange it for some new productions, is precisely equal to the quantity of labour which it can enable them to purchase or command. (Smith 1999 [1776]: 133)
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Differently from Locke, Smith’s analysis did not focus on the individual work effort, but on the social system of production, which he characterized as a “division of labour” (Smith 1999[1776]: 109f.). As Smith showed, the productivity of labor does not only depend on the dexterity of the individual worker, but is greatly enhanced by the social division of labor. The functional separation of different trades and employments allows to simplify and to speed up single operations; moreover, it paves the ground for the invention of machines facilitating and abridging labor even more, and making it superfluous in the last instance. The division of labor tends to deepen with the size of the market, and with the efficiency of the transport and communication infrastructure; it is developing beyond local and national confines and reaching its highest degree of refinement on the global level. For Smith, as for Locke, money-based private exchange on markets is the key social mechanism, which mediates the social division of labor. Different from Locke’s emphasis on the link between property and labor, however, Smith distinguished between three classes of proprietors: laborers, capital (Smith called it “stock”) owners, and landlords. His analysis focused on the market processes determining the market revenues of each of the three classes of proprietors. Karl Marx: Though Marx incorporated much of Smith’s analysis into his theory, his key term is not division of labor, but “production” (Marx 1953[1857]). Originally, Marx borrowed it from Hegel and his idealistic philosophy of history, where it did not have an economic, but a spiritual meaning. The “world spirit” – a key concept in the Hegelian system, which comes down to a philosophical reinterpretation of the Christian idea of God – “produces” history by differentiating itself and subsequently becoming conscious of its own objectivations. Marx, aiming to overcome Hegel’s idealism and to develop a materialist theory of history, combined Hegel’s concept of production with the ideas of classical political economy (besides Smith mainly Ricardo). Marx explicitly acknowledged the “tremendous progress” (my translation) made by Smith in developing the abstract category of labor (Marx 1953[1857]: 24). This, however, did not simply mean to equalize labor and production with economic production in the sense of Smith and Ricardo. Rather, Marx emphasized that men, when producing their means of subsistence, always are also “producing” their social relationships and institutions underlying the productive process. Production is a process through which not only the material subsistence of society is being provided, but – whether voluntary or involuntary – its social and institutional infrastructure too. It is just due to their interpenetration with the productive process that social institutions are assuming their “real” and existential character; later, Emile Durkheim (1982[1895]) should speak of institutions as “social
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facts”. Social institutions and norms cannot simply be conceived as an ideal “superstructure” erected on a material and economic “basis”, as a widespread misunderstanding of Marx goes. Rather, with his concept of production, Marx took up an idea that was central for 18th-century European enlightenment: the idea that men are the “producers” of their own social reality, which is something different from pure nature as well as from pure spirit or communication. At the same time, Marx emphasized that no single human generation is the sole producer of that reality; rather, every generation stands on the shoulders of its ancestors, relying in a largely unconscious way on the communicative frames, social institutions, and material infrastructures, which it has inherited from them – and so forth. In this way, production can be described as a historical process which is constantly changing its own preconditions. In his critique of the Marxian concept of production, Jürgen Habermas (1981: 489f.) has argued that the concept does not distinguish sufficiently between the dimensions of the symbolic reproduction of the socio-cultural life-world, on the one hand, and that of economic and technical efficiency, on the other. Against Habermas’ insistence on the distinction between “life world” and “system”, I argue with Hans Joas (1992), that Marx’s concept of production shows a close affinity with the idea of creativity, which later was developed by the authors of American pragmatism, in particular John Dewey and George Herbert Mead. Production, or “practice”, as Marx called it in his early writings, is a “creative” process which cannot be reduced to the dimension of technical efficiency. Rather, production is an intrinsically social activity; it always implies a – however rudimentary – social division of tasks and functions which is mediated by symbolically structured interaction and communication. On the other hand, production is never a communicative relationship between human actors alone, as it always implies a tripartite relationship between at least two actors and some third object. Due to their productive activity, humans are capable of generating something genuinely new; thus, “production” can be conceptualized only in an open and dynamic way (Deutschmann 2011). The social institutions evolving in the productive process are constituting a framework for the development of productive forces, which in its turn may have a stimulating or retarding impact on economic and technological progress. In cases where institutions are blocking productive development, they may become the focus of political counter-movements, or even revolutions. The key institution, Marx was dealing with, was property rights – a field, which experienced revolutionary transformations just in Marx’s times. The key changes consisted in the liberalization of markets, in their territorial expansion as well as in their social disembedding – changes, which later had been summarized by Karl Polanyi (1944) with his well-known concept of “Great Transformation”. Large pieces of formerly communal or feudal lands became commodified, which meant that the peasants living on the land lost their means of subsistence and became dependent on the growing labor market. Though these changes had started already in 16th-century England (Marx, MEW 23: 741f.), the commercialization of peasant labor reached a preliminary climax in the early 19th century. Moreover, many workmen became redundant due to the liberalization and mechanization of the craft industries. While the social position of feudal landowners declined, the power and wealth of private capital owners rose – a process, which was fueled by the political transformations in England and France. As a result of these changes, the relationship between private property and labor, as it had been described
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by Locke, turned upside down. Instead of being a precondition for private property, labor now became a commodity subject to the apparently unlimited power of the capital owners, and suffering from exploitation, long hours, low wages, and miserable market conditions. All these changes, which still were far from developing fully in Locke’s and even in Smith’s times, culminated in the “Great Transformation” of the early 19th century, which since then is going on around the globe (Perelman 2000). The comparatively egalitarian “commercial society” of Adam Smith gave way to the capitalist class society, which became the focus of Marx’s analysis.
Capitalism Though the concept “capitalism” was not introduced by Marx himself, but by later scholars – in particular Werner Sombart, Max Weber, and Joseph Schumpeter – the basic ideas underlying it came from Marx. Up to the present day, the concept plays a key role in sociological analyses of production and work. What does it precisely mean? First of all, most authors agree that the term capitalism refers to a society that is dominated by commodity exchange on globalized and disembedded markets. The regime of markets and firms transcends regional and national boundaries, and it does no longer extend only to finished or intermediate products and raw materials, but also to the conditions of production, including land, labor, means of production, and – last but not least – money. The nexus of markets and money, to put it differently, is taking an encompassing, roundabout character, permeating society in an extensive as well as an intensive way. This has far-reaching implications for the governance of production and work. It should be recalled that wage labor, though not being completely absent in pre-capitalist societies, is a historically rather new phenomenon. In most times of history, labor was not a commodity, but had the character of slave, serf, artisanal, or family work; it took place either in larger organizations, like armies, monasteries, or farmyards, or in households, workshops, and local communities. The commercialization of human labor, as well as that of the other conditions of production, developed at a larger social scale in Europe not earlier than in the late 18th and 19th century. It is particularly the exchange of labor for wages, which requires a special sociological consideration, as it is a transaction that neither fits into the patterns of “normal” market exchange nor into the logic of economic textbook models. The liberal model of a market society is confronted with the problem how to deal with the poor, who do not have anything valuable to offer at markets. The solution was sought in the social construction of labor power as a commodity. What the worker can offer at the market is not the result of his/her labor, but his/her capacity to work, which is being treated as if it were a commodity. Karl Polanyi (1944) has rightly pointed to the “fictitious” character of this construction, since the person of the worker, though formally being treated as a free-market subject, de facto cannot be separated from his/her labor power. Neither are workers born for the sake of selling their labor power at the market, nor can the supply of labor power be adapted to market conditions in the same way as the supply of ordinary commodities can. Falling wages, for example, often will not result in a decline of the supply of labor power. To the contrary, since workers are existentially dependent on wages as a source of their subsistence, they will put in extra hours, or take on second jobs to compensate for the decline of their income. As a result, wages will continue to fall. In contrast to the ordinary merchant or businessman, who can take the position of an observer
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toward his/her own business, the worker is involved into the turnover of his/her commodity in an immediate, personal sense. This means a relationship of existential dependence of the worker on capital as his/her counterpart at the market, which Marx (1968[1844]) in his early writings circumscribed with his concept of “alienation”. Labor, which Marx considered to be the original source of value in line with Locke, Smith, and Ricardo, finds itself in a position of absolute powerlessness vis-àvis the suppliers of the conditions of production. The work contract, as they key social institution underlying capitalism, is an exchange relationship where the subsistence of labor power is exchanged against the surplus value, which the capitalist may gain from the employment of workers. The conditions of production are now taking up a life of their own in their function as “capital”, determined to generate profits and – hence – new capital to be accumulated further. Capitalism is a society that, due to the logic of capital investment, is determined to continuous economic “growth” and accumulation. As it is well known, Marx did not believe into the sustainability of such a social system; instead, he expected a continuous aggravation of its internal contradictions and social antagonisms. The continuous accumulation of capital would lead to a rising share of constant capital, and to a complementary relative decline of labor. Since labor is the only source of value, the unintended consequence of capitalist accumulation is a long-term trend of the rate of profit to fall. Capitalist dynamics thus tends to undermine its own real preconditions; as a consequence, the political overthrow of capitalism by the working class finally would become inevitable. As we know today, things did not run exactly in this way, and this is the point, where we can turn to the modifications of the theory of capitalism by Max Weber and Joseph Schumpeter (for reasons of space the contributions of Sombart cannot be considered here). I start with Schumpeter, who devoted the entire first part of his famous study on “Capitalism, Socialism and Democracy” (Schumpeter 1950) to a detailed review and critique of Marx’s theory. Schumpeter basically acknowledged Marx’s intention to integrate economic with sociological analysis, and he supported his conceptualization of capitalism as a dynamic system, which is bound to growth as well as to periodic crises. Moreover, Schumpeter shared Marx’s views about the self-undermining effects of capitalist dynamics, and his skepticism about the long-term chances of capitalism to survive. In this respect, Schumpeter’s analysis also shows some parallels with that of Max Weber, which we will come to below. At the same time, Schumpeter pointed to serious shortcomings in the Marxian approach, preventing him from an adequate understanding of capitalist dynamics, which are related namely to the Marxian theory of value, to his concept of social classes, and to Marx’s failure to distinguish between the roles of the capitalist and of the entrepreneur. As Schumpeter argued, Marx is deeply misunderstanding the capitalist growth process, when conceptualizing it simply as an accumulation of labor values in the sense of Ricardo. What actually happens with the capitalist economy is something very different, and much more complex: As a matter of fact, capitalist economy is not and cannot be stationary. Nor is it merely expanding in a steady manner. It is incessantly being revolutionized from within by new enterprise, i.e., by the intrusion of new commodities or new methods of production or new commercial opportunities into the industrial structure as it exists at any moment. Any existing structures and all the conditions of doing
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business are always in a process of change. Every situation is being upset before it had time to work itself out. Economic progress, in capitalist society, means turmoil. (Schumpeter 1950: 31/31) The market value of production does not correspond simply to the quantity of “socially necessary labor”, as Marx had pretended in line with Ricardo. Rather, it is determined by a permanent struggle of entrepreneurs in all sectors of the economy to come as close as possible to the position of a monopolist. Since the competitors do not sleep, such monopoly positions can be maintained only temporarily at best. The innovation contest, which is covering much more than prices, including quality, sales efforts, and service (Schumpeter 1950: 84), is going on permanently. Profit, though it presupposes the creativity of labor employed in production as well as in management, marketing, and distribution, does not come simply from exploitation. Rather, it is the premium for the creativity of the entrepreneur, and for the temporary monopoly, which he/she enjoys in the case of success. Since no possible observer is able to anticipate the emergence of innovations and their interaction in the entire economy, there is no chance to explain the development of markets in terms of a general theory (be it the Marxian or the neoclassical one), beyond the actual movements of supply, demand, and prices.1 According to Schumpeter, the key social figure promoting the innovative process is the entrepreneur. Here, we arrive at the other deficiencies of Marxian theory mentioned above, its failure to distinguish between the roles of the capitalist and of the entrepreneur, which is related to Marx’s one-sidedly dichotomous model of social classes. Schumpeter raises two objections against Marx’s conception: first, Marx exaggerates the “definitiveness and importance” (Schumpeter 1950: 19) of the dividing line between capital and labor. Though Marx deems social mobility between classes to be possible, mobility is largely confined to downward mobility from capitalist and petty bourgeois positions into the proletariat, not the other way round, as in fact it happens too.2 Despite the misery of the proletariat in the 19th century, the capitalist class structure is not as socially closed, as premodern status hierarchies had been. This leads to Schumpeter’s second point, which is Marx’s exaggeration of the antagonism between the two classes. In Marx’s scenario, the development of capitalism is characterized by an increasing social polarization between a progressively diminishing circle of powerful and wealthy capitalists, on the one hand, and an ever-growing, impoverished proletariat on the other. What Marx is neglecting is the entrepreneur as a social figure crossing the class divide into the upward direction. Beyond rational or hedonistic motives, he is being driven by the dream to erect his “private empire” (Schumpeter 1987[1911]: 138, my translation). The entrepreneur makes his way upward by promoting “new combinations” in technology, as well as in organization, logistics, and marketing. Capitalism is opening a historically new way of social advancement: social rise via entrepreneurial success at markets (Schumpeter 1950: 73, 1987[1911]: 99f.). Entrepreneurial success as a phenomenon of individual action, in turn, is the basis of capitalist dynamics as a collective phenomenon. As one could expand beyond Schumpeter, entrepreneurship and creativity did not remain confined to the middle classes. With the expansion of public education, and the development of firm internal labor markets, the chances for social advancement began to improve for skilled manual workers too, whose contributions to the innovative process became increasingly recognized. Critics of Marx have to admit that the excessive accumulation of financial wealth in the late 19th, and again in the early 21st
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century (Piketty 2014), largely conforms with Marx’s predictions. The same applies to the persistence of large strata of low-skilled and degraded work in the advanced capitalist economies, even more so to their expansion since the late 20th century (Braverman 1974, Castel 2000). Nevertheless, from a contemporary perspective, Marx’s long-term model of an increasing social and political polarization of classes appears overly simplistic. What happened, instead, is a process of social and cultural differentiation of the working class, driven by the individual quest for qualification and social advance, that began to develop since the late 19th century in the advanced capitalist countries. Skill differentials between unskilled, semi-skilled, and professional workers gained importance; “blue” collar became separated from “white” collar. In particular, it was the status group of “white collar” workers, which showed a tremendous increase and internal hierarchization from the early 20th century on (for the United States, e.g., Mills 1951). Today, it is the dominant stratum of employees in the advanced capitalist economies, including a large variety of occupations ranging from the often-talked “knowledge” workers (Moulier Boutang 2012) to unskilled service work. The future of entrepreneurship, and thus of capitalism, nevertheless, was seen in a dim light by Schumpeter. Here, his analysis shows parallels with that of Marx, and even more so with that of Max Weber. As Schumpeter argued, the emergence of big corporations, and the gradual displacement of owner-led small and middle firms by “monopolistic practices” does not necessarily curb competition and innovation. Nevertheless, the spread of mass production, and of centrally managed organization tends to create a social environment, which puts a premium on rational calculation instead of entrepreneurial creativity. The consequence is that “innovation itself is being reduced to routine. Technological progress is increasingly becoming the business of teams of trained specialists who turn out what is required and make it work in predictable ways” (Schumpeter 1950: 132). And he continues: The perfectly bureaucratized giant industrial unit not only ousts the small or medium-sized firms and ‘expropriates’ its owners, but in the end also ousts the entrepreneur and expatriates the bourgeoisie as a class. … The true pacemakers of socialism were not the intellectuals or agitators which preached it but the Vanderbilts, Carnegies and Rockefellers. (Schumpeter 1950: 134) Additional factors contributing to the decline of entrepreneurship are cultural environment increasingly hostile to bourgeois values – including feminism, as Schumpeter (1950: 157f.) emphasized – and the decline of political protection, which the bourgeoisie enjoyed from the side of the traditional aristocratic and military elites. Schumpeter’s conclusion is that socialism can work and that its advent – not via spectacular revolutionary action, but via unspectacular “rationalization” of everyday economic and social life – appears almost inevitable. In Max Weber’s analysis of capitalism, the term “rationalization” is playing a key role too. Different from Schumpeter, however, Weber did not interpret the rationalization of production and economic life as a symptom of degeneration of capitalism, but contrarily as its very essence. At first sight, Weber’s conceptualization of capitalism appears comparatively parsimonious. It seems to confine itself largely to an enumeration of the institutional prerequisites of capitalism, which he interprets as an almost perfectly “rationalized” economic system (Weber 1972[1921]: 31f.): capitalism presupposes the
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general recognition of money as a medium of exchange and debt repayment; hence, economic action is characterized by “formal rationality” in the sense of orientation to monetary profit. Formal rationality of economic action manifests itself in double entry bookkeeping, which – in turn – is impossible without a clear separation of business from the private household sphere. Moreover, it presupposes the availability of free labor and of the material means of production at the market; the latter taking the nature of “capital”. Weber does not deny the social contradictions imminent in market exchange, which he characterized as a kind of “struggle”, often stopping short of physical violence. Nor does he underrate the conflicts evolving in the employment relationship, which he describes as a “bureaucratic” form of dominance of capital over labor based on legal rules (Weber 1972[1921]: 551f.). Nevertheless, Weber was convinced that in the long run capitalism does not have a chance to escape the fate of being encapsulated more and more into the iron cage (“stahlhartes Gehäuse”; Weber 1988[1920]: 203) of rational management and bureaucracy. Though this diagnosis shows some similarity with Schumpeter’s, it appears more abstract and analytically less refined. What should not be forgotten, however, is that Weber is arguing from a historical and theoretical perspective much larger than that of Schumpeter. Weber is analyzing the economy in its interrelationships with other social subsystems, in particular religion, polity, law, family, in a long-term historical view, which is guided by the idea of “rationalization”. “Rationalization” means the progressive mastery of outer and inner nature by conscious and purposive human action, and the parallel “disenchantment” of nature. As Weber viewed it, this is a process setting in not only in the European new age, but in much earlier stages of historical and religious evolution (Weber 1972[1921]: 245f.). As soon as primitive magic is being overcome by the conception of “spirits” or “demons” working behind everyday experience, a second ideal world beyond the natural one is emerging. With the increasing abstractness of religious beliefs, condensing themselves in the conception of gods, and, finally, of one almighty god, the cleavage between both worlds tends to widen. It is the mission of prophets and priests to bridge the gap between the natural and the supranatural world via theological narratives of salvation. Redemption is made dependent on the individual observation of rituals, social rules, and ethical principles. These rules and principles have a “rationalizing” impact on social action, as they do not only make the believers accountable to God, but indirectly also to each other. The point of the famous “Weber-thesis” on the link between Protestantism and capitalism (Weber 1988[1920]: 17f.) is that Weber interprets the “ascetic” variants of Protestantism – in particular Calvinism, Methodism, Pietism, and other Protestant sects – as a culmination point in the long-term process of rationalization of religious beliefs. With God becoming a completely transcendent and unknowable entity to the Calvinist believer, the only remaining option to reassure him/herself about his/her state of salvation consists in “this-worldly asceticism”, i.e., the development of a distanced and calculative attitude toward everyday work and life. In this way, Calvinism inadvertently paved the way for the rise of capitalism as a secular and non-religious form of society. It is not that capitalism is spiritually “based” on Protestantism, as a widespread misunderstanding of Weber’s thesis goes. Weber’s and Schumpeter’s predictions about a creeping death of capitalism via bureaucratization, nevertheless, turned out to be hardly more successful than Marx’s predictions about a proletarian world revolution, as we will see more in detail in the subsequent chapters. This does not mean that, viewed from a contemporary perspective,
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the future of capitalism appears in a bright light. To the contrary, instead of bureaucratization, we are observing a spread of new digital technologies, whose implementation in almost all spheres of social life poses fundamental threats to entrepreneurship and individual freedom (Zuboff 2019). The global inequalities of income and wealth again have become almost as excessive as they had been already in the “Belle Epoque” before World War I (Piketty 2020). The most serious challenge for the future of capitalism without doubt is climate change, and the need to stop and even reverse the dramatic devastations of the natural environment, which two centuries of fossil-energy-driven capitalist growth have left. In the short term, the development of new technologies fighting the greenhouse effect may help to stimulate a new cycle of capitalist growth. With the progressive implementation of these technologies, however, advocates of the “degrowth” scenario may increasingly find support.
The management of capitalist production With the theories of Smith, Marx, Schumpeter, and Weber, we have collected some basic insights, which have been taken up and elaborated by the contemporary sociology of management and work. In a nutshell, these elaborations can be circumscribed with four keywords: the openness of the work contract, the transformation problem, historical changes in management approaches to solve the transformation problem, and the power asymmetry between capital and labor, which gave rise to the development of industrial relations (IR). While the first three points will be dealt with in this section, the development of IR requires a special consideration, which will be subject of the last section. The openness of the work contract In a capitalist society, the production process, including the employment of labor, is institutionally mediated by markets. This is a statement, which immediately requires two caveats: first, even in an advanced capitalist society a large part of total work still is being done outside markets, e.g., in in the form of unpaid household and care work, or of voluntary work on the communal level. Second, the work contract is a contract of a very special kind, which must be distinguished clearly from contracts about the delivery of a specific product or service. Rather, the work contract is “open”, in so far as the details of the work process, and the concrete tasks and outputs are not determined contractually, but left to the discretion of the employer. Only the terms of remuneration, and certain formal aspects of work performance, such as working hours and occupational areas, are being agreed upon in advance. The work contract can be characterized as an agreement, which grants the employee a wage or salary for his willingness to place his time and effort at the disposal of the employer (Simon 1976). Consequently, the work contract shows a dual nature: on the one hand, it is a market agreement between formally equal partners; on the other hand, it is a relationship of authority, which gives the employer a legitimate right to dispose over the capacities of the employee. The fairness of the balance between performance and remuneration, and the legitimate degree of entrepreneurial or managerial control always have been “contested” issues (Edwards 1979). Not only the standards about the quantity and quality of work set by the employer are a source of conflicts, but also the adequacy of actual work performance to given work standards and levels of remuneration. Many of these conflicts cannot be
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settled unilaterally by management prerogative, but give rise to individual and collective negotiations between workers and employers. What at first glance appears to be the most effective disciplinary means at the disposal of the employer – his/her right to hire and fire – tends to go blunt, if being used too frequently. Faced with rising replacement costs, and the inefficiency of sanctions, many employers tend to opt for incentives, which may vary between efficiency wages, and internal qualification and promotion schedules. The employees, in their turn, may put the management under pressure by restricting their cooperation to the very minimum of formal observance of work standards, or – conversely – develop “voluntary” levels of commitment beyond formal standards. As Michael Burawoy (1979) has shown, such “power games” are widespread in shopfloor IR. With increasing complexity of technologies, the position of employees in such power-games tends to strengthen, as technologically sophisticated processes cannot be coordinated by hierarchical command, but are requiring genuine creativity and commitment from the side of the employees. The transformation problem Different from other commodities, the use value of labor power cannot be consumed immediately after buying. Rather, the transformation of labor power into actual work is a process of its own, taking place in a separate social arena beyond the market, namely the “organization”. By “organization” I am referring here largely to private capitalist firms, though production can also be organized by public corporations, the state, or worker cooperatives. Organizations are social systems coordinating the employment of labor, and mobilizing its individual and collective potentials in order to fulfill specific aims, which in the case of private firms usually is profit. Due to the openness of the work contract, the potentials of labor cannot easily be recognized in advance. Labor is a factor of production which is endowed with the capacity of creating something genuinely new – a capacity, which is vital for the capitalist entrepreneur in his/her quest to win an edge on the markets via innovations. Moreover, labor, different from machines, is capable of learning and developing new competencies in the process of its use. Whether and how far such skills can evolve is depending on individual as well as on organizational factors. Not only individual ambitions, educational and occupational biographies, and certificates are important, but also the qualification chances offered by the organization itself. As Andrew Friedman (1977) has shown as early as in the 1970s, firms are pursuing very different organizational strategies in order to solve the transformation problem, and to mobilize the potentials of their employees. With regard to their logic, these strategies can be classified along with a basic dichotomy, which he circumscribed with the terms “direct control” versus “responsible autonomy”. The strategy of direct control aims to minimize the problems resulting from the openness of the work contract by promoting the organizational standardization and technical mechanization of the production process. The advantages of such a “low trust” policy for management lie in the high transparency of the performance of every individual worker, in low wages, training and recruitment costs. However, management also has to pay a price in terms of low worker motivation and innovativeness, high employment turnover, lacking internal employment flexibility, and a rigid and costly control system. The alternative strategy of “responsible autonomy” is characterized by the aim of building mutual trust in employeremployee relations, which goes parallel with management deliberately limiting the degree of bureaucratic and hierarchical control. The openness of the work contract is
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seen primarily not as a risk for management, but as a chance for employees to identify with the organization, to manage their tasks autonomously, to take responsibility, and to promote process or product innovations. If such a strategy is successful, this may help to increase the internal employment flexibility of the firm, and its adaptability to market changes and new technologies. However, the management has to pay a price too, which lies in higher wages and fringe benefits, low external employment flexibility, and costly and time-consuming procedures of intra-firm consensus building. Usually, firms do not opt for only one of the two strategies, applying it to all employees. Rather, they tend to apply the patterns selectively to different departments, and groups of employees. Up to the present day, the pattern of responsible autonomy tends to be dominant in planning, administrative, engineering, sales and marketing departments, and in clerical and white-collar work. On the other hand, the pattern of direct control is still widespread in the areas of manual industrial and service work. Depending on many factors, such as technology, size of firm, subcontracting and outsourcing policies, and business field, the relative weight of both strategies varies considerably across and within firms. Henry Mintzberg (1979) has developed a more complex model of organizations, which takes account of the environmental factors, and shows how the formalization of organizations and the standardization of products and qualifications vary with the complexity of the environment. The model distinguishes between five types of organizations: the simple structure, the machine bureaucracy, the divisional form, the professional bureaucracy, and the “adhocracy”. An important point in Mintzberg’s theory is that it is just extremely complex economic environments which make organizations take recourse to the “adhocracy” as a model characterized by low formalization. Management strategies, as well as forms of organization, do not only vary with the complexity of the environment; they are also changing historically. The “Taylorist” and “Fordist” conceptions of management, which came up and spread internationally since the 1920s, were characterized by a strong bias toward the principle of direct control – the “machine bureaucracy”, or the “divisionalized form” according to Mintzberg. With the development of industrial Postfordism, and the spread of knowledge-intensive service industries since the last third of the 20th century, the strategy of responsible autonomy – in Mintzberg’s terminology: the model of “adhocracy” – has gained importance. In so far, the actual development ran counter to the predictions of Schumpeter and Weber about progressive rationalization and bureaucratization of capitalism. Nevertheless, the pattern of direct control by no means has disappeared. These long-term changes need to be considered in some more detail. Historical changes of management concepts The well-known doctrines of Taylorism as well as that of Fordism are embodying certain strategies of industrial management; however, they are much more than just strategies. As Jens Beckert (2016) has shown, investment and consumption decisions in capitalism largely are taking place under conditions of uncertainty. Therefore, management strategies must be embedded into more encompassing symbolic representations of the market environment of the firm, which – in their turn – can serve as a socially shared background for the legitimation of the strategies chosen. These representations can be characterized as “imaginaries of technological and economic futures” (Beckert 2016: 90). They do not describe reality as it is, but depict an ideal to be achieved in a
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prescribed succession of actions.3 Imagined futures are playing a key role in governing capitalist growth in all its fields, including not only investment in financial assets, technologies, or consumption, but also organizational design and logistics. As it is well known, Taylorism and Fordism were key imaginaries determining the design of industrial organization and production in the 20th century. For reasons of space, it is not possible here to reconstruct the long and complex historical process, through which the paradigms of Taylorism and Fordism became established in practice since the early 20th century (for more details, e.g., Piore and Sabel 1984). The only point I want to make here is that paradigms are social constructions, which are subject to the flow of time in a double sense. First, as just mentioned, their function lies in the transformation of the uncertainty of historical time into an orderly sequence of actions; second, they are by themselves subject to the flow of time, as their existence follows a characteristic cyclical pattern of rise and decline (Deutschmann 2019: 107f.). This becomes evident from the fact that economic, technological, or organizational paradigms are always selective, since none of them can anticipate the potentials of human creativity as a totality. They are focusing on particular aspects of the boundary relationships of firms with their economic and technological environments, while neglecting others. Therefore, they always have their “blind spots”, and the unintended consequences of continuous neglect of the blind spots tend to accumulate, as a particular paradigm is getting institutionalized in industrial practice. It is just the practical success of paradigms, whose unexpected side-effects finally will make radical change more and more urgent; as a consequence, a new imaginary may arise. It is exactly what happened with the concepts of Taylorism and Fordism, as they became dominant in the advanced industrial economies during the first decades after World War II. In their strategic foci, both concepts were largely complementary: while Taylorism concentrated on maximizing the quantitative efficiency of manual work, Fordism had its focus on developing technologies of mass production. The unintended consequences of the practical dominance of these concepts were foreseen as early as since the middle of the 20th century by authors such as Jean Fourastié, Peter Drucker, Daniel Bell, or Piore/Sabel: just as a consequence of the flooding of markets with cheap mass products, the demand for individualized products and services would rise. The services sector would expand relative to industrial manufacturing, technologies of mass production would give rise to those of “flexible specialization” (Piore and Sabel 1984). The economization of manual labor by Taylorist methods, too, had its side effects, in particular the incessant expansion of technical and administrative staffs required to plan, synthetize, and supervise atomized work operations. As a consequence, the focus of rationalization shifted from operative work to the agents of rationalization themselves; new concepts aiming to decentralize industrial management and to reallocate control from the hierarchy to the shopfloor, such as “lean production” (Womack et al. 1990), gained room. Similar effects came from the “information revolution” (Freeman and Louca 2001) resulting from technical innovations in the areas of computers, telecommunication, and the Internet. The digitalization of work did not have the effect of making labor redundant altogether, as not few observers predicted. The decline of blue-collar– manufacturing work was at least partially compensated by an increase of service, technical, planning, and intellectual jobs, many of them requiring academic qualifications. As a result, the often-contended trend toward a polarization of qualifications did not materialize; to the contrary, some authors have observed a long-term upgrading of the
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occupational structure at least in some countries, such as Germany, Sweden, Spain, and the United Kingdom (Oesch and Piccitto 2019). With the spread of the information economy, digitally based networks and platforms emerged, and became important for the coordination of production as well for private and public communication (Castells 2000, van Dijk 2006). Nevertheless, these developments do not give unanimous support to fashionable theories of “cognitive capitalism” (Moulier-Boutang 2012), emphasizing the centrality of “knowledge” and “human capital” as factors of capitalist growth, and celebrating innovation networks as a powerful social force bringing about deep transformations of capitalism. If it is true that even capitalist management today is fully acknowledging the value creating power of “human capital” – doesn’t this render the Marxian theory of classes, and his critique of capitalism, obsolete? Though the Marxian, as well as the Schumpeterian and Weberian, predictions about a progressive bureaucratization of capital and subsequent degradation of work did not materialize as a whole, two reservations must be made. First, one could argue with Shoshana Zuboff (2019) that digital information technologies have opened the way to data-based forms of social surveillance and control, which are even more dense and encompassing than bureaucratic control ever could had been. Second, degraded, poorly paid and little qualified work by no means has disappeared. To the contrary, the financialization of capitalism and the deterioration of labor market conditions for large groups of the working population have resulted in a re-emergence of social class divides in the advanced capitalist economies since the late 20th century (e.g., for the United States, Zweig 2000). The spread of digital platforms has led to a strong expansion of service jobs blurring the distinction between employment and self-employment, and often characterized by low pay, insufficient health and social security provisions, and digitalized surveillance of performance; often these jobs are done by women and migrants (ILO 2021).
The development of IR In a first, most general sense, the term “industrial relations” circumscribes the economic and social relations between employers and employees in capitalist firms. In a second, more specific meaning, the term denotes the collective structures that have emerged between the actors participating in these relationships, with enterprise-level co-determination, and collective bargaining as their institutional cores. A set of formal and informal rules governing the determination of wages, the conditions of employment, and the regulation of conflicts between employers and employees has emerged (for an overview Dunlop 1993[1958], Blyton et al. 2008). Historically, IR developed first in the craft industries since the late 18th century. With the rise of the general union movement, mounting strike movements, and the gradual abolition of coalition bans since the late 19th century, the labor market power of unions rose in hitherto non-unionized industrial branches too – changes, which could be observed in the United States as well as in Britain and Western Europe. Instead of permanently calling for the police against the unions, the employers gradually learnt to defend their interests by organizing themselves in employer federations, thus turning the weapon of collective action against the unions themselves. This, however, meant that the employers inadvertently were now putting themselves on an equal footing with the unions. No longer could the unions be treated as outlaws; rather, they increasingly saw themselves being recognized as partners in collective negotiations. This paved the way for the rise of institutionalized systems of IR, which emerged in Western Europe after World War I, in the United States
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with the National Labor Relations Act (NLRA) of 1935. The institutionalization of IR did not remain confined to the enterprise level, but became extended to the national level, and anchored in national labor legislation. Nevertheless, the centralization of IR and their integration with the national welfare states followed very different national paths, ranging from the highly centralized Scandinavian IR systems to the enterprisecentered Japanese system. Why is collective bargaining so widespread in the area of labor relations? The dominant motives for collective action, without doubt, are lying on the side of labor, as they are rooted in the structural asymmetries of market power between labor and capital highlighted above (Chapters 2 and 3). Due to their existential dependence on wages as the key source of their living, and due to the condition of latent or manifest oversupply prevailing on many – though not all – segments of the labor markets, the workers find themselves in position of structural inferiority vis-à-vis the capitalist employers. To counter the imminent downward spiral of wages and work conditions, they try to organize in unions, aiming to fix collectively agreed minimum standards of work, and striving for an elementary level of economic security for the individual worker. Seen from this angle, the unions could not be considered as a social factor running counter to the logic of markets, as neoclassic critics often have argued. To the contrary, it can be argued with institutional economists that just by enabling the individual worker to withdraw from unacceptable jobs, and to choose jobs freely according to personal preferences, the unions are breaking the unconditional dependency of individual workers from capitalist employers. Thus, it is only the unions who are bringing their members in a position to act in the same way as other market actors do. This is not to say that the introduction of collective bargaining was in line solely with the interests of workers, and that the employers did not profit from it. Where IR, especially on company level, are intact, employers may gain from lower transaction and fluctuation costs, despite having to pay higher direct labor costs. For successfully promoting innovations, firms are dependent on a committed workforce; this explains why IR issues were increasingly taken up by management theory, and became a key component of the management of “human resources”.4 Moreover, collective wage agreements help to reduce market uncertainty for firms, and to create a predictable environment at factor markets. This may explain why employers, despite sometimes harsh conflicts with the unions, were in their majority by no means reluctant to enter into cooperative relationships with the unions. The institutionalization of IR reached its climax in the two “Fordist” decades following World War II. Since the late 1960s, however, unionization rates as well as the coverage of employees by collective bargaining started to decline in almost all developed industrial countries, including those with firmly institutionalized IR systems, such as Sweden and Germany (for Germany: Müller-Jentsch 2017). The decline of collective bargaining turned out to be a long-term trend, which continued even after the millennium turn; in the OECD countries, the average percentage of employees organized in unions decreased from 20.9% in 2000 to 15.8% in 2019 (OECD 2020). The reasons for these developments have often been analyzed in the literature. Many of them had to do with structural economic changes: on the one hand, the drastic decline of the manufacturing sector since the late 20th century has led to a parallel reduction of blue-collar industrial employment, which had been one of the traditional strongholds of the unions. In the expanding service sector, on the other hand, unions and, with them, collective bargaining have notorious difficulties to gain ground. This applies to highly
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digitalized service industries – software, telecommunication, new media, and financial services – as well as to low-skilled service work, such as in retail, trade, transport, call centers, or in the fast food sector (“McDonaldization”). An expanding layer of wellpaid, professional experts in digitalized services feel little need to organize in unions; rather, they prefer to rely on their individual bargaining power. At the same time, due to spatial dispersion of employment in digital platforms, and due to the social heterogeneity (in terms of gender, ethnicity, age, legal status, etc.), and high turnover of many employees doing simpler jobs, it is extremely difficult for the unions to win members and to organize solidaric action – despite often very poor working conditions. A further factor contributing to the decline of unions has been the deregulation and dismantling of the public sector, and the outsourcing of public employment, which had been a further traditional stronghold of the unions. Finally, an important context factor had also been a neoliberal political and ideological climate, which puts high emphasis on individualist competition, and discourages solidaric organization for common interests. Nevertheless, even today it would be clearly premature to proclaim the end of unions and IR. Given the demographic constraints to be expected on the supply side of labor markets in the developed capitalist countries, and given the increasing complexity of labor relations due to digitalization and globalization, employers may well find themselves in a situation where they will have to invent the unions anew, should they have disappeared.
Notes 1 Friedrich A. Hayek, who came up with a similar argument in his widely celebrated essay on the use of knowledge in society (Hayek 1945), could have made his point even much stronger, had he integrated Schumpeter’s analysis into his argument (instead of polemicizing against it). 2 There seems to be only one passage in the third volume of “Capital”, where Marx is conceding that upward mobility from the proletariat into the capitalist class could be possible. He concludes: “The more a ruling class is able to incorporate the most able men from the dominated classes, the more solid and dangerous is its rule” (Marx, MEW 25: 614, my translation). 3 Instead of speaking of “imaginaries”, other authors have also introduced terms like “paradigm” (Dosi 1982) or “vision” (Dierkes et al. 1996) to circumscribe the symbolic framing of capitalist innovation. 4 As a consequence, some authors have abandoned the term “industrial relations” altogether, and are replacing it by “employee relations” (e.g. Hollinshead et al. 1999).
Bibliography Arendt, H., 1958. The Human Condition. Chicago, IL: The University of Chicago Press. Beckert, J., 2016. Imagined Futures. Fictional Expectations and Capitalist Dynamics. Cambridge/ Mass.: Harvard University Press. Blyton, P., Bacon, N., Fiorito, J. and Heery. E., (eds.) 2008. The SAGE Handbook of Industrial Relations. London: SAGE. Braverman, H., 1974. Labor and Monopoly Capital. The Degradation of Work in the Twentieth Century. New York: Monthly Review Press. Burawoy, M., 1979. Manufacturing Consent: Changes in the Labor Process under Monopoly Capitalism. Chicago, IL: University of Chicago Press. Castel, R., 2000. Die Metamorphosen der sozialen Frage. Konstanz: UVK. Castells, M., 2000. The Information Age: Economy, Society and Culture, Vol. I: The Rise of the Network Society. 2nd edition. Oxford: Blackwell.
440 Christoph Deutschmann Deutschmann, C., 2011. A pragmatist theory of capitalism. Socio-Economic Review 9(1), pp. 83–106. Deutschmann, C., 2019. Disembedded Markets. Economic Theology and Global Capitalism. Abingdon: Routledge; see also: Kapitalistische Dynamik. Eine gesellschaftstheoretische Perspektive, 2nd edition, Wiesbaden 2019: Springer VS. Dierkes, M., Hoffmann, U., and Marz, L., 1996. Visions of Technology. Social and Institutional Factors Shaping the Development of New Technologies. Frankfurt/M: Campus. Dosi, G., 1982. Technological paradigms and technological trajectories: A suggested interpretation of the determinants and directions of technical change. Research Policy 11(3), pp. 147–162. Dunlop, J. T., 1993[1958]. Industrial Relations Systems. Revised Edition. Cambridge/Mass.: Harvard Business School Press Classic. Durkheim, E., 1982[1895]. The Rules of Sociological Method, New York: The Free Press (Original: Les Règles de la Méthode Sociologique, Paris 1895). Edwards, R., 1979. Contested Terrain: The Transformation of the Workplace in the Twentieth Century. New York: Basic Books. Freeman, C. and Louca, F., 2001. As Time Goes By. From the Industrial Revolutions to the Information Revolution. Oxford: Oxford University Press. Friedman, A. L., 1977. Industry and Labour: Class Struggle at Work and Monopoly Capitalism. London: Macmillan. Habermas, J., 1981. Theorie des kommunikativen Handelns, Vol. 2. Zur Kritik der funktionalistischen Vernunft. Frankfurt/M: Suhrkamp. Hayek, F. A., 1945. The use of knowledge in society. American Economic Review, 35(4), pp. 519–530. Hollinshead, G., Nicholls, P., and Tailby, S., 1999. Employee Relations. London: Financial Times Management. ILO., 2021. International Labor Organization. World Employment and Social Outlook 2021. Joas, H., 1992. Die Kreativität des Handelns und die Intersubjektivität der Vernunft, Frankfurt/M: Suhrkamp (English version: The Creativity of Action. 1996. Chicago, IL: The University of Chicago Press). Locke, J., 1988 [1698]. Two Treatises on Government, ed. by Peter Laslett. Cambridge: Cambridge University Press. Marx, K., 1953[1857]. Grundrisse der Kritik der Politischen Ökonomie (Rohentwurf). Berlin: Dietz. Marx, K., 1968[1844]. Ökonomisch-philosophische Manuskripte aus dem Jahr 1844, in: Karl Marx and Friedrich Engels. MEW Ergänzungsband, Schriften, Manuskripte, Briefe bis 1844, pp. 467–588. Berlin: Dietz. Marx, MEW 23: Marx, K., 1988[1867]. Das Kapital. Kritik der Politischen Ökonomie. Erster Band. Marx-Engels Werke Bd. 23, Berlin: Dietz. Mills, C. W., 1951. White Collar. The American Middle Classes. New York: Oxford University Press. Mintzberg, H., 1979. The Structuring of Organizations. Englewood Cliffs N.J.: Prentice Hall. Moulier-Boutang, Y., 2012. Cognitive Capitalism. Cambridge and Malden: Polity Press. Müller-Jentsch, W., 2017. Seven decades of industrial relations in Germany: Stability and change in joint learning processes. Employee relations 40(4), pp. 634–653. OECD., 2020. Organization for Economic Co-Operation and Development (OECD) Stat: Trade Union Dataset, www.oecd.org/employment/ictwos-database.htm. Oesch, D., and Piccitto, G., 2019. The polarization myth: Occupational upgrading in Germany, Spain, Sweden and the UK, 1992–2015. Work and Occupations, 46(4), pp. 441–469. Perelman, M., 2000. The Invention of Capitalism: Classical Political Economy and The Secret History of Primitive Accumulation. Durham, NC: Duke University Press. Piketty, T., 2014. Capital in the Twenty-First Century. Cambridge/Mass. The Belknap Press of Harvard University Press.
Sociology of production, work, and industrial relations 441 Piketty, T., 2020. Capital and Ideology. Cambridge/Mass.: The Belknap Press of Harvard University Press. Piore, M., and Sabel, C., 1984. The Second Industrial Divide. Possibilities for Prosperity. New York: Basic Books. Polanyi, K., 1944. The Great Transformation: The Political and Economic Origins of Our Time. London: Rinehart & Company. Schumpeter, J., 1950. Capitalism, Socialism and Democracy. 2nd edition., New York: Harper. Schumpeter, J., 1987[1911]. Theorie der wirtschaftlichen Entwicklung: eine Untersuchung über Unternehmergewinn, Kapital, Kredit und den Konjunkturzyklus, 7.ed. Berlin: Duncker&Humblot. Simon, H., 1976. Administrative Behaviour. 3rd edition, New York: Simon & Schuster. Smith, A., 1999[1776]. The Wealth of Nations, Books I-VI, ed. by Andrew Skinner. London: Penguin. Van Dijk, J. A.G.M., 2006. The Network Society. 2nd edition. London: SAGE. Weber, M., 1972[1921]. Wirtschaft und Gesellschaft. Grundriss der Verstehenden Soziologie, 5.ed., Tübingen: Mohr. Weber, M., 1988[1920]. Gesammelte Aufsätze zur Religionssoziologie. Tübingen: Mohr. Womack, J. D., Jones, D. T., and Roos, D., 1990. The Machine That Changed the World: The Story of Lean Production. New York: Harper Collins. Zuboff, S., 2019. The Age of Surveillance Capitalism. The Fight for a Human Future at the New Frontier of Power. New York: Public Affairs. Zweig, M., 2000. The Working Class Majority. America’s Best Kept Secret. Ithaca: Cornell University Press.
23 The sociology of economic enterprise, management, entrepreneurship, and innovation Public sector, private sector, and non-governmental organizations Jerald Hage The sheer length of the title hints at the richness of literatures in what might be more simply called the economic sociology of organizations. To provide a cognitive map that allows the reader to assimilate many but certainly not all intellectual traditions, let’s start with the two major ones implicated in the first part of the title: an economic one originating in the seminal work of Adam Smith (1776) on enterprises and the second, a sociological one, in the equally insightful work of Max Weber on rational-legal state agencies (Gerth and Mills 1946; Weber 1947). The central contrast is the coordination of the market and the motivation of self-interest vs. the coordination by bureaucracy and the motivation of a stable career. Over time, this singular view of two arch-types of organizations has been transformed in light of the emergence of new kinds of firms/market contexts and public sector organizations/environmental problems and an increasingly more complex institutional context. As these transformations have occurred, new theories and concepts about organizations have been developed with interesting parallels between the two traditions (Fligstein 2001).1 Interstitial between them have been management theories, which in many ways not only borrow from both economics and sociology but also have some distinctive contributions to make, especially relative to problems of managerial benefits and power. Furthermore, the differences between management theories and economic theories are sometimes difficult to draw since their focus is more on the firm than the state or non-government organizations (hereafter NGOs). All three kinds of organizations are very much alike, exhibiting many of the same structural characteristics and therefor problems. As Simon (1991) argues, two key problems affect all organizations: motivation (self-interest vs. social values) and coordination (which mode is best).2 Over time, both motivations and coordination mechanisms have become more complex.3 Despite Smith’s market perspective, we should refer to our economy as an organizational economy—not a market one—because most of the individuals employed in this sector of society are inside organizations and I might add not concentrating on marketing. Transformations in the theories about organizations/environments can be somewhat simplistically categorize into three phases, which some might call the three industrial revolutions (Bell 1973; Landes 1969; Toffler 1970, 1980), reflecting an economic perspective, or three stages in knowledge creation or growth, a more sociological lens (Hage, and Powers 1992; Hage 2020).4 Knowledge growth, defined as the capacity to produce new products and provide innovative services including the underlying science involved (Hage and Powers 1992; Hage, 2020: 14–16), gradually requires institutional transformations in the way in which knowledge is created; these are called stages. The three stages in knowledge creation are labeled entrepreneurial,
DOI: 10.4324/9780367817152-27
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team research, and the research network (Hage 2020: chapter 1). Parallel changes, that is, a movement toward inter-organizational cooperation and coordination, occur in other inter-organizational configurations (supply chains and delivery systems) because of the increasing need to learn new information quickly. A common consequence of knowledge growth across these three stages is the changing nature in the division of labor, both at the managerial and the worker level. For the development of socio-economic theory about organizations, the most important modification was the differentiation of management separate from owners or shareholders. The second major development was the steadily increasing importance of skills or expertise, that is, human capital (Becker 1994 [1964]). In turn, the growth in the variety of occupations and the level of expertise within the organization establishes an internal dynamic in the hierarchy of authority or power structure of the organizations as well as the necessity for new forms, most notably the inter-organizational network (Alter and Hage 1993; Hage 1980). Despite these changes, the essential motivational dialectic can be framed around the ideas of self-interest—whether profit or career—vs. the pursuit of values other than profit with which one identifies, which originates in the juxtaposition of Smith vs. Weber’s writings.5 However, the relative importance of these two motivations for creating an organization alters across time with social values steadily increasing in importance as exemplified by the emergence of NGOs attached to social movements, especially in the third stage. Parallel to the shifts from self-interest to social values has been a movement from short- to long-term perspectives in organizational strategies as exemplified in sustainability issues not just for corporations but for the planet and a more complex view of the institutional environment as indicated in the stakeholder’s perspective (Freeman, R. E. 1984; Savage, Nix, Whitehead and Blair 1991). The objective of this entry is to synthesize the evolution in the perspectives in economics, sociology, and management about private, public sector, and NGO organizations to provide a more complete socio-economic theory of organizations. Although conducting an historical review of the relevant literature, our focus is primarily on concepts that are still resonant today. The emphasis remains on how does an old or new concept and its attendant theory provide fundamental insights about making contemporary organizations effective and/or efficient. Even though we begin with Adam Smith, the father of economics, it is not our intent here to provide a history of economic thought, which is aptly described elsewhere in this volume, but only those aspects of market theory relevant to how one manages a firm. The first section contrasts and compares the economic theory of the enterprise and the sociological theory of bureaucracy, specifying where they are different and where they are alike. In the second stage of knowledge growth during the latter part of the 19th century, discussed in the second section, institutional transformations involved new organizational forms in both the private and public sectors reflecting emergent industrial sectors and additional governmental responsibilities, most notably in local government, that gradually required the creation of new organizational theory and the beginnings of a distinctive theory about management. The dominant theme in many of these new theories in this second phase revolved around the theme of governance.6 Finally, in the contemporary era, the third stage of knowledge creation, which started unfolding in the latter part of the 20th century and the beginning of the 21st, has seen the proliferation of still more organizational forms, the three dominant ones being a new kind of high-tech firm, both large and small, centered on the Internet and software development that creates platforms, NGOs, power sharing forms (Hage 2020: chapter 6), and also, surprisingly, an explosion of start-ups.
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Perhaps of more import for an economic sociology of organizations is the rise of several categories of inter-organizational networks that deny the logic of transaction costs (economics) or need for organizational autonomy (sociology) and represent a new form of coordination as well as a novel form of social organization. From the perspective of economic sociology, coordination involves more than achieving the equilibrium of prices but the coordination of activities within and between organizations and the production of knowledge (for an extended discussion of inter-organizational network coordination see Alter and Hage 1993). This period has been particularly fecund in the development of several new management theories that stress social values other than self-interest. In this contemporary period, a dominant theme in many of the new theories focuses on the evolution of organizational environments and forms.
The birth of enterprises and state bureaucracies The economic perspective on the firm really starts with the thesis of competitive markets at the dawn of the industrial age (Smith 1776). Entrepreneurs motivated by their self-interest to maximize profits strive to provide their products at the lowest possible cost. Consumers, sharing the same self-interest, search to find products at the lowest possible price. The competition between firms of the same kind and the pursuit of lower prices by consumers is the invisible hand that creates a market equilibrium. The key point is that the pursuit of self-interest as a motivational principle is the invisible hand that coordinates the market. What economists took away from this work were the laws of supply and demand as well as the production function view of the firm. However, what we want to emphasize is the importance of the division of labor providing the efficiencies that can’t be obtained within the marketplace, hence the need for an organization. Some outputs can be broken into separate tasks that allow workers to concentrate on developing more skill or conversely and more typically in the first industrial revolution eliminate the need for skills. The combination of complex tasks divided into discrete motions allows for the production of products more efficiently than via a series of market exchanges (Simon 1991). This perspective emphasizes cost or price as the prime goal of entrepreneurs and consumers respectively, but let us not forget Smith’s critical insight about the production process, which is actually where Smith began his famous treatise. The character of the division of labor represents one way of distinguishing between organizational forms without reference to an objective or goal and helps us to define the organizational form. The nature of competition began to change dramatically during the 19th century with the rise of leviathans that became monopolies or oligopolies and even bought their suppliers or distributors when it was profitable to do so (Chandler 1977). Some of these large organizations drove down costs by hiring women and children, paying poor wages and working them incredibly long hours, and other horrors that Smith had not anticipated because he believed that entrepreneurs would have enlightened self-interest and take the long view, a perspective that Marx and Engels critiqued in their famous manifesto about capitalism written in 1848 and reprinted in (Feuer 1959: chapter 1). The key point is that with capitalism, we observe the rise of large organizations with considerable power to control their markets and influence state policies. Max Weber (Gerth and Mills 1946; Weber 1947) suggested that a solution to coordination of activities such as the provision of services lay not in markets but instead in a strict hierarchy of authority with clear limits on the rights and responsibilities of
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each level, a division of labor filled by technically competent office holders, and procedures and rules that specify what is to be done, frequently referred to as “red tape” (Hage 1980: 24–28). Although Weber was writing about public sector organizations, his model provides a good blueprint for large capitalist firms as well, as exemplified in the Pennsylvania Railroad (Hage 1980). Here we see the beginning of one central economic sociological question that informs this chapter: how does the internal structure of an organization whether public, private, or NGO relate to the characteristics of the market or public service sector? The first theory about this was not developed until the second stage of knowledge creation, and then largely occurred in the sociological and management literatures. At the same time, let us recognize that Weber was concerned with the state and public organization. Just as capitalism emerged in the 18th century, state bureaucracies were evolving toward rational-legal authority independent of the whims of monarchs. These public agencies provided the kind of stable environment that firms needed, including defense of borders by the military, regulation of trade, and enforcement of contracts by courts, necessary components for competitive markets. Thus, state bureaucracies become necessary for the rise of capitalism (North and Thomas 1973). One major difference between an enterprise and a public agency reflects a shift in vocabulary about the objectives, from efficiency—as measured by reduction in costs or price—to effectiveness such as providing services not obtainable in the marketplace including police protection against crime, primary education, and clean water—all examples from the 19th century—and in the case of another word important to Weber’s discussion, predictability about their provision, i.e., being able to obtain a service everywhere needed, a typical kind of market failure. Another name for this kind of organization besides bureaucracy was rationallegal authority, to distinguish it from patrimonial bureaucracy, which had less stability because it depended upon the authority of a monarch or emperor and had less consistent forms of rewards, e.g., booty. The key was to create an authority structure to effectively carry out the responsibilities of governments free of the arbitrary self-interest of monarchs. The motivation problem was satisfied by a stable career, salaries, and job security, hence the beginning of different reward systems that attract specific kinds of individuals, risk in the economic sphere, and stability in the public sector. Predictability stemmed not from the discipline of the market but instead the careful rules outlining what was to be done, reflecting another way of viewing the production process and the division of labor. Hidden in this thinking is the assumption that these tasks are easily codified by rules and do not change much over time, akin to those in Smith’s pin factory but now applied to administration. In other words, these prescriptions work for mass markets or public sectors with repetitive tasks, e.g., social security checks, tax collection, and fighting of wars.7 Again, there is little consideration of the variety of organizational forms except for the historical predecessor of patrimonial bureaucracy.8
Differentiation of markets/public sectors and the emergence of management: Four organizational forms and three methods of coordination Knowledge creation in the second stage manifested itself in several important ways. First, as economic organizations grew in size, management differentiated from owners and stockholders. Second, scientific research became a new industrial activity, and
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a distinctive avenue for the development of products, replacing the tinkering entrepreneurial model implied in Smith’s thinking and characteristic of the first industrial revolution (Landes 1969). In parallel, research universities and the pursuit of medical knowledge occurred in the public sector as new governmental responsibilities became apparent. Third, engineers and technically trained workers emerged in the new sectors associated with industrial research, and more specifically chemicals, electrical products, and transportation. All of these changes had a number of implications for the basic question of how does the nature of the market/public sector connect to the internal structure of an organization and vice-versa. Furthermore, these changes led to new insights about motivation and coordination. Organizational sociology and management theorists most closely associated, responded by expanding the simple model of bureaucracy to include at least four forms of organizations (Burns and Stalker 1961; Hage 1965, 1980; Mintzberg 1979; Perrow 1967; Quinn and Rohrbaugh 1983) created by cross-classifying two fundamental dimensions, namely, the absence or presence of inputs from technical workers and researchers by the size and stability of market/public sector demand.9 The four forms are small low-tech or craft, large low-tech or mechanical bureaucracy, small high-tech or professional-organic, and large high-tech or mixed mechanical-organic bureaucracy.10 The tech dimension represents how much input of human capital there is, that is, the level of education as well as the differentiation of various specialties, most notably research. Sectors with research activity were considered to be less stable because product innovation produces change. The relative size of an organization directly connected to the size and stability of its market. In other words, mass markets are associated with the large dominant corporations. Above, I noted that the first mass markets involved unskilled labor and assembly-line technology. But mass markets could also exist in organizations that relied upon research to develop new products. Their production systems involved technical specialists, thus making engineers an important new managerial specialty. A distinctive division of labor exists between in the large high-tech and the large low-tech with the latter representing the unskilled labor, assembly-line production system discussed by so many social critiques of capitalism (Feuer, 1959: Chapter 1; Hage 1980: figure 12.7). But the most influential contingency theory that emerged was James D. Thompson’s (1967) book, Organizations in Action, that postulated the actions of management to handle the problem of uncertainty given different technological arrangements and in particular three methods of activity coordination: impersonal (rules), personal (supervision), and group (team).11 These three modes of coordination then were tested for their relationship to task uncertainty within work organizations by Van De Ven, Delbecq, and Koenig, Jr. (1976), extended to inter-organizational work by Alter and Hage (1993) again with empirical data, and then made part of Grant’s (1996) discussion of how to integrate knowledge. The central insight is that as tasks become more uncertain or complex, then coordination moves from impersonal to group methods. Turning now to the word innovation in the title of this chapter, organizational sociologists and some management theorists focused on factors that affect the amount of innovation in an organization defining innovation as some new product or service added to an organization.12 In a review of the literature, Hage (1980, 1999) found that a diversity of occupational specialties, values favoring change, and a prior history of innovation were associated with higher innovation rates. This second factor is an important one, because it indicates that even in profit-making organizations, there can be a larger
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vision that favors innovation, perhaps providing a better sense of identity to return to Simon’s (1991) distinction. However, if the objective is simply making a profit, then innovation ceases, as many case studies indicate (Christensen 1997; Hage 2011). Shifting to governance issues within the sociology and management literatures most closely aligned, three themes can be found associated with the second stage: (1) the distribution of power in the social structure and the relative power of management vis-à-vis shareholders; (2) coordination difficulties in organizations doing research; and (3) the most common organizational form for a research organization. The growth of managerial specialties in high-tech organizations forces the hierarchy of authority to become more decentralized (Hage 1965, 1980: chapter 3). Furthermore, given managerial control, one occupation might be able to seize the levers of power as did the accountants in General Motors (Pfeffer and Salancik 1978). Relative to power and rewards, an issue not really broached by the economists, once managers control the top positions, they proceed to ensure that boards of trustees are filled with loyal individuals who then approve their large salary increases, establishing one of the major causes of income inequality in the United States (Hage 1980). This problem is not as great in Europe where governments frequently ensure representation of the workers and even the public on boards. Furthermore, Pfeffer and Salancik (1978), management theorists, provide a series of prescriptions about how management can increase its power vis-à-vis various external agents. As research becomes a separate and important department in an organization, problems of communication develop. One of the most striking examples of this can be found in the failure of Xerox management to adopt many of the brilliant products developed in Xerox PARK (Chesbrough 2006). Lawrence and Lorsch (1967) documented the reasons for this problem in the different values associated with the nature of subenvironments that researchers, marketers, and production managers interact with. They also identified several mechanisms that can be used to solve these blockages including managers trained in several perspectives, departments that are interstitial, and of course frequent communication across sub-divisions. Chandler (1962) first identified the M-type organization, that is, the large high-tech organization that has multiple divisions for different product families, in his famous research on DuPont. Then in his later work (Chandler 1977), he expanded on the importance of management in large organizations, whether low- or high-tech, having to solve three major coordination problems within the organization: vertical (from raw materials to delivery), horizontal (reduce competition via mergers), and international (across different countries and cultures). He also argued that managers preferred longterm growth and stability rather than short-term profits, thus modifying a major tenet of Smith style organizational economics. Given the separation of owners and managers, new issues arose that several economic theories attempted to tackle, such as the economic interests of the managers (property rights) and the distribution of rewards to them (agency theory). Many economists (Alchian and Demsetz 1972) in their view of the firm reject the Weberian notion of a hierarchy of authority and instead argue that it is a network of contracts, implicit or explicit, that connect the different workers and occupational specialties. Relative to scale, they suggested two hypotheses about how best to manage firms, first is that the greater the need for specialized knowledge to manage interdependencies, i.e., the argument for managerial specialties, the more centralized the governance should be in agreement with Weber but in contradiction to the research evidence (Hage
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1980: chapter 3). The second hypothesis is as firms grow in size and specialized knowledge expands, firms become less efficient, thus moving toward an external division of labor and the rise of networks (Alter and Hage 1993; Hage 1980: chapters 12 and 13). An important theme pursued in the economics literature builds upon Schumpeter’s (1934) argument that larger organizations are more likely to innovative. In general, recent reviews of the literature suggest that this is the case (Camisòn-Zomoza, LapiedraAlcami, Segarra-Ciprés, and Boronat-Navarro 2004; Mandel 2011). However, this ignores the feedback effects of the pursuit of firm research on how even scientific knowledge grows (Hage 2020: 83–85). Agency theory (Fama 1980, Fama and Jensen 1983a, b) focuses on the separation of managers who make decisions and owners who assume the risk of capital investment. The theory observes the inherent difficulty of measuring contributions of managers and team members given the possibility of shirking. Different economic forms emerge to solve this problem. Small low-tech entrepreneurial firms tend to rely upon social capital, i.e., family and friends, for labor and money. Partnerships are a preferred model for artistic and other kinds of intellectual production besides scientific ideas, e.g., law firms, where no management exists because the partners perform this function. When entrepreneurial firms grow and become successful, typically they evolve into corporations where the owners are shareholders.13 By extension, small high-tech entrepreneurial firms use the profit-sharing model as a way of ensuring that everyone contributes. Non-profits rely upon donations and thus the issue of risk-taking largely disappears; the donors’ rewards are social recognition as well as the social values pursued. These different organizational forms represent variations on the four-fold typology discussed above. Beyond the particular organizational forms’ solution to the problem of shirking by management, the thesis of stewardship developed by Donaldson and Davis (1991) argues that economists over-emphasize self-interest in their models providing support to the Simon’s (1991) discussion of identity. One can see this as a continuing dialectic about the motivations of individuals, with economists assuming self-interest but others arguing that this does not apply in all cases. Finally, Cyert and March (1963) as well as March and Simon (1958) made major contributions to the economic side of management in their behavioral theory of the firm, which recognizes that an organization is a political arena with different occupations. And Simon won a Nobel Prize for his thesis that managers satisfice rather than optimize profits, consistent with the research of Chandler (1977). But this strategy diminishes innovation in organizations even if they have research capabilities as has already been suggested. Several other management theories developed just before and after the Second World War focusing on motivation but were more concerned with workers and their needs and thus how managers should lead. McGregor (1960) built his Theory X and Theory Y upon Maslow’s hierarchy of needs. Theory X assumes that managers and workers work for extrinsic reasons—money and career—consistent with economic models and thus will shirk if given the opportunity—while Theory Y starts with the assumption that managers and workers have intrinsic interests, similar to Weber’s model and the stewardship theory of the firm. In the former case, managers engage in close supervision, emphasize rewards and penalties. In the latter situation, managers can use rotation of work and other methods to increase job satisfaction especially when the work is boring and repetitive. Equally focused on worker motivation is the human relations school (Coch and French 1948; Roethlisberger and Dickson 1939), a movement that was
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stronger in Britain and Scandinavia than in the United States.14 In this thinking, open communication and even giving workers a say about their work conditions was stressed with the view that improving morale helped the bottom line of efficiency. In one sense, this movement was before its time because the ideas have become very important in the third stage of knowledge creation (see below). More turbulent markets require organizations that are more adaptive, both in terms of having a decentralized power structure and a strategy of pursing innovation. Beyond this, group decision-making—contrary to Weber—is superior to the lone executive, when the products and services are not standardized. A major new theme about motivation is the idea of intrinsic rewards, not only for the scientists and researchers but also for workers depending upon their work conditions and the leadership style of managers (Blauner 1964). Coordination problems develop in several important areas: between owners and managers and between managers in different departments and especially between research and production. The three modes of coordination identified by Thompson (1967) were to have considerable influence on the developing of theory in the third phase. But perhaps the most important theme to emerge is the power of managers and its consequences for developing organizational economic theory.
Evolution of markets and organizational forms: the rise of interorganizational coordination If the defining characteristic of the second phase was the addition of research and its implications for the firm and government agencies, the distinctive aspect of the third phase was the growing complexity and difficulty of research problems as well the kinds of issues that consumers and the public demanded be addressed (Hage 2020), making coordination of activities in and between organizations the more important venue than the invisible hand of the market and hence the value of Thompson’s (1967) insights on how to accomplish this. These shifts in the institutional environment of organizations resulted in more differentiation of organizational forms, whether public or private, and the emergence of specialized organizations along the idea-innovation network (Hage and Hollingsworth 2000). Thus, the growing complexity of the institutional environment results in the broad and now highly recognized movement toward interorganizational relationships and networks as distinctive organizational forms (Aiken and Hage 1968; Alter and Hage 1993; Gomes-Casseres 1996; Hagedoorn 2002; Meeus and Faber 2006; Provan, Fish, and Sydow 2007; Womack, Jones, and Roos 1990). This development means a whole new way of thinking about coordination issues, which are obviously more complicated in the inter-organizational context because of multiple levels, administrative and operational (Alter and Hage 1993). The changes in the nature of consumer preferences broadly conceived from a predominately self-interest mode of thinking to a concern about social values are not just a function of more education and thus a human capital perspective but result from more and more individuals growing up in integrated environments and developing a concern for others (Hage, 2020: chapter 2). A number of consequences flow from this simple but quite profound difference. First, relative to economic firms, demands increased for the elimination of what economists call externalities, that is, pollution, energy consumption in production and operation, and threats to safety and the environment (Hage and Powers 1992). It is interesting that economists have never really advanced a theory
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about consumer values, always assuming that low price was the common denominator, although over time adding qualifications about the quality of products or services. Second, relative to public sector agencies, demands intensified for the solution to major “diseases” (cancer, senility, genetic defects), answers to social problems generated by business cycles (unemployment, lack of health insurance, and safety nets more generally), and reduction in systemic defects such as racism, social inequality, and rising violence. Again, these issues have been more pronounced in the United States than in Europe for historic reasons, mainly the lack of a safety net. Finally, a third consequence is the number of young individuals who want to work independently and/ or solve national/global problems ranging from homelessness, black lives matter to global warming and international terrorism leading to a proliferation of new NGOs and an expansion of existing ones as well as a growth in entrepreneurial efforts. Barring starting their own enterprises or working for an NGO, Generation Y is likely to select business firms that have a social conscious and maintain a balance between work and leisure (Rischel 2018). Oddly enough, the recent expansion in startups leads me to think of this age as the entrepreneurial generation rather than the end of the 18th century when Smith published his work. Admittedly, the motives for starting one’s own business can be mixed, inspired by both economic interest and social values about racism, the homeless and saving the planet, the same dialectic, updated that started with our comparison of Smith and Weber. —A good example of the combination of motives can be found in the young founders behind the high-tech Internet companies of Microsoft, Apple, Google, and Facebook who have had visions of new services but amassed enormous fortunes and a great deal power as well with their radical innovations. —And what is interesting is that many of them after retiring have invested their billions in good causes. Obviously, managers must be aware of these changes in the motivations of individuals. The more interesting by-product of these motivational changes in the members of post-industrial society is the implicit longer temporal horizon implied. Being concerned about the externalities of products produced, solving major health, social, and systemic problems whether in the society or the planet necessitates a much longer perspective than implied in the objective of a quick profit. These are largely intractable problems and require determined efforts over extended time periods.15 In the economic sociology of organizations, this shift manifests itself in evolutionary theories in sociology, economics, and management. Before discussing these new perspectives, let us continue with our major theme of how new organizational forms fit changes in the market/environmental context. The most distinctive new organization forms are small and large high-tech Internet companies as a consequence of this new technology. These differ from the large hightech form in the previous phase, which consisted of separate departments of research for product development and production of them in Germany and the United States (Homburg 1992; Reich 1985). In companies based on providing products for the Internet, research in the sense of software development and production are essentially the same. Therefore, the specific communication problems found in the large high-tech companies such as Xerox reported above do not exist. They have other kinds of communication problems, however, because these companies frequently have long working hours. Many of the new start-ups are small high-tech companies writing software for the Internet with the some hoping to grow into large and successful platforms as did Facebook, Google, and Amazon, to cite three quite different Internet services.
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Associated with many of these new small high-tech start-ups is another new form, the incubator or accelerator, which facilitates start-ups (Hage 2020: 295–956). Another less important observation is that the relative inputs of human capital in all four forms associated with the second phase require increased skills levels and training of most notably the use of computers and Internet but also the use of new technologies in previously low-tech small companies involved in home construction, policing, elementary education, etc. Furthermore, the expansion of research has facilitated the growth in many kinds of small high-tech companies associated with the idea-innovation chain (Hage and Hollingsworth 2000; Powell, Koput, and Smith-Doerr 1996) such as consumer survey firms for the use of cell phones, design companies for the development of new chips, and investor organizations or “angels”. Other new organizational forms reflect organizations attempting to cater to the needs of their employees for more autonomy. Two distinctive forms are the mission or cultural form where values provide coordination and the self-management form where coordination occurs at the employee level (Hage 2020: chapter 6). Examples of the former include Ben and Jerry’s when it was founded, Southwest Airlines, the Navy Seals, the kibbutz in Israel, and Zappos. Illustrations of the latter are to be found in the book Reinventing Organizations (Laloux 2014), and while many of them are located in Europe, they provide a rich variety of organizations that can be self-managed, including some large companies. These new forms are quite different from Weber’s strict hierarchy of authority because power is delegated downwards to individual employees or self-managed teams. They can be considered as logical evolutions from the organic model of Burns and Stalker (1961) that implicitly emphasized teams. Also, the subtitle of Laloux’s book says it all, a guide to creating organizations inspired by the new stage of human consciousness, illustrating what was argued in Hage and Powers (1992) two decades earlier. Although inter-organizational networks have been part of the organizational world since the industrial revolution, the existing supply and distribution chains evolved in the third stage of knowledge creation allow for much more organizational autonomy consistent with the arguments made above. Whitford (2005) documents the evolution of American manufacturing supply chains toward decentralization. But another and even more compelling reason was the need to draw upon the expertise of the companies in the chain and to respond quicker to changes in either the availability of materials (Womack, Jones, and Roos 1990) or alterations in customer demands (Piore and Sabel 1984). With this, we have the emergence of a new form of coordination, interorganizational, that is neither the invisible hand of the market nor the visible hand of management, but the pooled expertise of multiple managements situated in quite different market/public sector/NGO situations. The most important new inter-organizational form is one that connects the development of basic research to the production of new products or the resolution of new public responsibilities, which is called the idea-innovation chain (Hage and Hollingsworth 2000). Its effectiveness depends upon on close and frequent interaction organizations in which are located the different problems that have to be solved as an idea takes shape and is developed. Countries that lack innovativeness find that the reasons for this are not so much the deficiencies in R&D investment but instead whether coordination exists between basic science, applied research, product development, manufacturing, quality control, and distribution, which are located frequently in different organizations. In the absence of coordination between these areas of expertise, “valleys of death” are likely to appear (Branscomb and Auerswald 2001). Another new form of inter-organizational
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network has developed in the health and welfare sector as there has been increasing recognition of multi-problem clients that require services over a considerable time periods (Alter and Hage, 1993; Provan, Fish, and Sydow 2007). Another defining characteristic of the third phase, given concerns about eliminating the externalities of products, finding solutions for major diseases, social problems, and systemic racism and inequality to say nothing about global warming, the topic of innovation has shifted to the problem of how to define and produce radical innovations (Hage 2020: 86–95). These “big” problems require significant advances in knowledge as well as new forms of economic and political organization. However, given the difficulty of measuring radical innovations, the literature has tended to focus on case studies in industry and science. The only census of radical innovation of which I am aware is the study of major scientific breakthroughs in biomedicine from 1880 to 1980 (Hage and Mote 2008, 2010; Hollingsworth 2006). One of its major findings was the importance of first teams and second organizations in fostering radical innovation. The problem of monitoring contributions becomes even greater with interorganizational coordination. Transaction cost theory, which began with Coase’s (1937) arguments about the need of an organizational hierarchy to reduce transaction costs in the implied contracts between the workers along a production line, was applied by Williamson (1975) to the inter-organizational relationships that corporations depend upon for supply and distribution, especially in other countries. But these can be applied to other kinds of inter-organizational networks that have been discussed. From Williamson’s perspective, reducing transaction costs or uncertainty about whether contracts will be honored explains when it is beneficial for the corporation to buy its suppliers or distributors—usually when they are only a few—to avoid dependence. However, what we observe in the real world is a movement away from these concerns about cheating and shirking to active cooperation between organizations that appreciate increasingly that they cannot handle all problems by themselves. Furthermore, rising levels of education mean that more and more individuals not only want more autonomy but are capable of handling this autonomy (Hage and Powers 1992) because they have learned how to negotiate and established safeguards within and between teams to prevent a tendency for shirking. Responding to these various changes in the nature of knowledge growth and in particular its acceleration, as well as the fundamental shifts in individual values because of higher rates of college graduation, has stimulated a number of new perspectives and modifications of the existing paradigms. A common theme that unites many of these new approaches to the economic sociology of organizations is evolution and the recognition of the importance of knowledge shaping the nature of competition as well as the internal workings of organizations and the proliferation of inter-organizational networks. Organizational managers have to adapt to these changes to be successful. In economic meso-theory, we have the knowledge evolution of firms (Nelson and Winter 1982; Nelson, Dosi, Helfat, Pyka et al. 2018). On the sociological side, population-ecology (Hannan and Freeman 1977, 1984) extended the temporal horizon while institutional theory examined the importance of the institutional context (Campbell, Hollingsworth and Lindberg 1991; DiMaggio and Powell 1983; Meyer and Rowan 1977) and network theory raised a whole new set of theoretical issues (Aiken and Hage 1968; Hage and Hollingsworth 2000; Powell, Koput, and Smith-Doerr 1996), and finally evolution theory provides a longer time span (Hage 1980, 2020). Within management theories, the resource-based view (Barney 1991; Barney, Wright and Ketchen, Jr. 2001) and
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the knowledge-based perspective (Grant, 1996; Kogut and Zander 1992; Nonaka and Takeuchi 1995), including organizational learning (Argote and Miron-Spektor 2011), have become important in strategic thinking and emphasize the role of knowledge including what is embedded in firms. The longer time perspectives suggested by strategic thinking led to the thesis of corporate responsibility (Bowen 1953; Freeman, R.E.1984; Latapi Agudelo, Johannsdóttir and Davidsdóttir 2019) and corporate sustainability (Elkington 1994, 2004, 2018; Salzmann, Ionescu-Somers and Steger 2005). Our concern throughout is that these many different perspectives illuminate each other and create a more complete economic sociology of organizations. Within organizational economics, the evolutionary perspective took off with the ground-breaking work of Nelson and Winter (1982).16 They took Becker’s (1994 [1964]) work on human capital and emphasized its organizational implications as skill sets that are the routines that provide control to organizations, thus echoing Weber’s thesis without his vocabulary. Innovation results in new routines and therefore new skill sets and becomes a major source of evolution, which is defined by the changes in routines. This work has had a considerable impact on management theories of organizations because it shifted the perspective to an endogenous one and reinforced the behavioral theory of the firm. Turning now to its impact on management theory, in the early 1990s, strategic thinking began to emphasize the resource-based view of the firm and especially the role of knowledge (Barney 1991; Wernerfelt 1984). Barney and others (Barney, Wright, and Ketchen, Jr. 2001) argue how you integrate resources provides an organization’s competitive advantage. Over time, the importance of capital as the key resource declines while knowledge becomes strategic (Grant, 1996; Kogut and Zander 1992). Grant (1996) defines firms as integrating specialized knowledge, consistent with the above discussion that this task can’t be easily handled in the marketplace because of the immobility of tacit knowledge. Given the importance of this integration of knowledge, building upon the work of Thompson (1967) and other organizational sociologists, Grant notes the mechanisms of rules, plans, mutual adjustment, and teams for coordinating knowledge. Within this new perspective about knowledge, especially important was codifying tacit knowledge contained within workers’ and managers’ experience via specific routines developed by the Japanese (Nonaka and Takeuchi 1995) and thus increasing organizational learning (Argote and Miron-Spektor 2011) to continue to maintain competitive advantage.17 But the more striking change in management theory was the recognition that there was something more than profit derived from efficiency. Rather than just shareholders, the stakeholder perspective expands the number of interested parties perceived as critical for the success of firms (Freeman and Reed 1983). From this perspective, the issue is creating value beyond just profit. Once one discovers stakeholders, it is not a large intellectual leap to strategies that involve social responsibility and thus sustainability of firms. A careful review of the empirical literature on sustainability (Salzmann, Ionescu-Somers and Steger 2005) indicates that the evidence in support of this strategy is not all that striking in part because of the great diversity in organizational situations (technology, market) and methods. However, clearly more and more companies are constructing indices about social responsibility with this objective in mind, and it is now even influencing the investment strategies of hedge funds. Clearly, maximization of profits is no longer acceptable, and it has been replaced by the idea of shared value (Latapi Agudelo, Jóhannsdóttir and Davídsdóttir 2019).
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In sociology, Hage (2020: chapter 6) synthesized many different perspectives by providing a theory of organizational evolution in the three stages discussed above. Returning to social forces in the institutional environments of organizations, Hage argues that the emergence of new occupations, the upgrading of skills in existing ones, and the availability of individuals with complex cognitive structures and capable of emotional empathy alter the internal structure of organizations to have a more complex occupational structure, decentralized power, and a network of communication that involves the whole person, specifying in more detail the emergence of the new forms described above. These same forces alter the competitive situations of firms by increasing the number of competitors and accelerating the rate of product/service change, leading to demands for regulation and of course the customization of products and services. Effective managers handle the push of supply and the pull of demand by innovating for niche creation to create competitive advantage, be highly adaptive to change, reduce the externalities of products or services, and, of course, customize them. These make inter-organizational networks a viable solution for handling these issues because networks bring to bear a greater diversity of expertise for solving these problems. By constructing an evolutionary theory of both supply and demand, a solution is found to the evolutionary thinking within organizational economics that has tended to overemphasize the supply side (knowledge) and ignored the changes on the demand side (values) (Dopfer and Nelson 2018) Throughout, I have emphasized the long-term evolution toward the increasing importance of social values, but it would be wrong to ignore the counter trend in what might be called the “spirit of capitalism” and how it has affected the public sector and NGOs. The logic of competitive markets has led to the development of performance measures of public sector organizations under the theme of accountability and with this logic salary equivalents to those found in the private sector for the heads of public sector organizations and NGOs. The visibility of the various measures of success, as Frank and Cooke (1995) would predict, has accelerated the race toward inequality. Perhaps the most perverse example of this is how many hospitals have become profit centers and physicians have created their own organizations with disastrous consequences for the cost of health care in the United States, another example of American exceptionalism (Rosenthal 2018). However, despite these glaring and critical exceptions, in general, the values of many individuals have moved in the direction of social responsibility and sustainability in all three kinds of organizations.
Conclusion Across the long arc of the past two and a half centuries, the major ideas that remain important and need to be considered in the socio-economic analysis of organizations are the following themes: (1) the different kinds of markets/public sector dimensions and the appropriate organizational form for these contexts; (2) the most important motivation for a specific context; and (3) the most appropriate method of coordination of activities within and between organizations for the same context. Knowledge creation in the three stages has led to a considerable variety of market/public sector contexts, the creation of new forms and a shift in the relative importance of the kind of motivation and the most appropriate coordination mode of activities. Given the greater importance of inter-organizational forms, the motivation of social values other than the pursuit of pure profit, and the group coordination mode in the
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third stage of knowledge evolution, does this mean that the invisible hand of the market and the bureaucratic form are no longer relevant? Not at all. For mass markets of standardized products/services with stability, Weber’s model is still very much the appropriate choice of form, and these organizations dance to the logic of competitive markets. Other important concepts concern the relative power and rewards of management. Certain forms discussed reduce problems of shirking. But in large organizations, the power of management leads to exorbitant pay, contributing to social inequality. Also, one occupation may dominate, reducing the effectiveness of decision-making. The strategy of stakeholders counterbalances these problems and increases the likelihood of a firm’s strategy embracing social responsibility, sustainability, and the necessity of radical innovation. Moving to the recent growth of mission and self-management organizations, it suggests that these are important areas for future research and the development of socio-economic theory. Also worth pursuing is the study of incubators for start-ups. Although a great deal of research exists on inter-organizational relationships of firms and innovation, research on inter-organizational firm networks along ideainnovation chains needs to be conducted especially for issues involving sustainability. Equally worth pursing is research on the effectiveness of inter-organizational networks with group coordination for solving several contemporary public and social problems ranging from social inequality to saving the planet.
Notes 1 On the evolution of industrial economics, see figure 1 in Park, Wafa and Shin (2012). 2 Rather than values, Simon uses the word identity. Clearly the two are related. This article is still very much worth reading for its remarkable integration of both the economics and sociology of organizations in its discussion of authority. 3 For a much more complex rending of this simple dichotomy, see Hollingsworth and Boyer, (1997); Chapter 1, their typology of coordination contrasts the horizontal vs. vertical distribution of power with self-interest vs. obligations. The concept of social values moves considerably beyond their idea of obligations. 4 Still another perspective focuses on technological waves starting with Kondratiev, but more recently found in the work of Freeman, C. (see Clark, J., C. Freeman, and L. Soeté, 1981; Freeman, C., 1984). 5 Weber defined this dialectic quite clearly in his distinction between zweck-rationality and wert-rationality, with the most interesting examples of the latter being charismatic leaders. For research that operationalizes values other than in self-interest of the leadership, see Hage and Dewar (1973). The dominant theme is the attempt to change society, which can also occur in business firms. 6 The dates in the development of new ideas do not always fall neatly into these stages. In particular, organizational theorists were quite slow to recognize the profound changes that unfolded in Germany starting in the middle of the 19th century and continuing in the latter part of that century in the United States. The first real recognition in economics is Landes (1969), in management, Burns and Stalker (1961), and in organizational sociology, Hage (1965). 7 Historically, it is interesting that Weber used the Prussian military, which in the latter part of the 19th century was the dominant one, as his model. In one sense, I am being ironic because wars always require innovations, but unfortunately, the observation that American Army always fights the last war is apt here. 8 I am ignoring charismatic authority and it’s implied organization, which can fit some NGOs or social movement organizations to save the environment or create racial justice. 9 Not all of these authors used these same dimensions for their typologies, but it was a common theme to many of them, most notably, Burns and Stalker, Hage, Lawrence and Lorsch, and Perrow.
456 Jerald Hage 10 I ignore the variations on this. Some had three (Lawrence and Lorsch, 1967) and some five (Mintzberg, 1979). 11 This book has many more citations than any of the other major works cited in this chapter, although in some cases I have not been able to get an accurate count of some of the major ones, e.g., Burns and Stalker (1961), Lawrence and Lorsch (1967), and Schumpeter (1934). 12 Digging deeper, the new product or service could be recognized by the addition of new activities or new clients. 13 At the same time, one should recognize that in many instances, a relatively small number of shareholders might hold a controlling interest in a company and also be involved in the management. 14 In particular, the Tavistock Institute in London pioneered in human relations techniques to achieve higher morale. A review of the literature indicates that not in all cases did Theory Y or consultations with workers raise morale and productivity during the 1950s. 15 Although not a theme in this review, it is interesting to note that public bureaucracies do better on long-term sustained investment and product development. In contrast, firms are better when they require adaptiveness to rapid technological change. Thus, the United States is strong in computers, whereas France has superior urban transport and modern railroads. While the French state did develop Minitel, a remarkable achievement, it never responded to continued technological changes (Cohen, 1992). 16 Within macro-economics, however, the evolutionary perspective has not so far had much of an impact, especially in the United States. 17 Some of these new techniques built upon the American concept of quality control circles.
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24 Fiscal sociology Alexis Spire
Introduction Fiscal sociology is a multidisciplinary approach that views taxation as a structuring characteristic of democratic states. This line of research, which emerged at the beginning of the 20th century, is based on the hypothesis that the fiscal prerogatives of the state are not merely technical issues but rather reflect the power relations at work within contemporary Western societies. The challenge for fiscal sociology is to reflect simultaneously on tax collection, public spending and the relationship that taxpayers have with taxation. A central hypothesis of this research programme is that the conditions of implementation of the tax system and the modalities of public spending are two fundamental dimensions for understanding modern states and the transformations of society. A crucial element of the approach of fiscal sociology is the use of comparative analysis across several countries. From this perspective, taxation is not merely considered as a sovereign prerogative of individual states, but is studied as an instrument of public policy that is subject to both circulation between countries and appropriation by taxpayers. The term “fiscal sociology” was popularized by Joseph Schumpeter in a text written just after the First World War: The Crisis of the Tax State (1991 [1918]). This theorist of innovation actually borrowed the term from another Austrian economist, Rudolf Goldscheid (1917), who had placed the issue of taxation at the heart of his evolutionary theory of the state. For this Marxist economist, society could be divided into two social classes: “the workers”, who contribute to the functioning of the state through paying taxes and performing military service, and “the capitalists”, who benefit from the service provided by the state. From this viewpoint, the tax system constitutes the material manifestation of the link between state finances and the social order, and it is through this mechanism that certain classes become richer at the expense of others (Goldscheid 1917: 203). In his text on the crisis of the tax state, Schumpeter (1918) takes up Goldscheid’s idea that “the budget is the skeleton of the state stripped of all misleading ideologies”. For Schumpeter, the state and taxation are so closely intertwined and interdependent that the expression “tax state” appears almost as a tautology. For almost a century, several authors have taken up the principles of fiscal sociology, and in particular the objective of reflecting simultaneously on tax policy, public spending and debt. However, this work has remained outside the fields of economics and sociology, two disciplines that have long considered taxation to be a technical matter that is not a suitable subject for theoretical reflection. However, fiscal sociology is not a fixed paradigm and can be combined with very different theoretical frameworks, “such as public choice, neo-Marxist, institutional, transaction-cost, exchange, and rational
DOI: 10.4324/9780367817152-28
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choice theories” (Campbell 1993: 180). In recent years, fiscal sociology has undergone a profound renewal, to the point of becoming an important field in economic sociology. Since the 2008 financial crisis, the issue of taxation has returned to the centre of public debate, and several authors are now working to extend the perspective pioneered by Schumpeter, in a field that has been named The New Fiscal Sociology (Martin et al. 2009). The challenge for these authors, who are strongly attached to the study of the long history of social phenomena, is to renew classical approaches “by placing the social relations of taxation at the centre of any historical or comparative account of social change” (Martin et al. 2009: 2). One of their objectives is to bring together different disciplinary currents – notably economics, history, sociology and political science – by considering taxation as the equivalent of a social contract binding the members of a given society and playing a key role in the historical evolution of states. This “new fiscal sociology” therefore attempts to produce new readings of the history of each country, from a comparative perspective, taking the tax system as a starting point and showing all the social and political implications that have arisen from it over time. Several works have successfully provided a history of fiscal policies encompassing the evolution of economic growth, the development of political institutions and the transformation of power relations between social groups (Brownlee 1996; Daunton 2001, 2002). Rather than limiting itself to reassessing the economic and political history of a country, work in fiscal sociology favours the use of comparative analysis in order to highlight the role of fiscal policies beyond national differences (Steinmo 1993; Prasad 2006; Martin et al. 2009). To this end, three major areas of research have been opened up and continue to drive the renewal of work on taxation, which we shall address in turn in this chapter. The first of these areas is fiscal sociology’s grounding in the principle that any fiscal policy is intrinsically linked to the legitimacy of the state and its capacity to collect money in the name of the general interest. Each tax system is thus analysed in a historical perspective as the product of compromises between the social forces that make up society. This results in different forms of sovereignty, democracy and social solidarity. Second, we will discuss fiscal sociology’s interest in the relationship between the taxpayer and the state, a relationship that has led to tax revolts from time to time but which, during calmer periods, is based on consent to taxation. Whereas economics studies fiscal policy in terms of major aggregates such as the rate of compulsory levies, the growth rate or price stability, fiscal sociology is more concerned with social groups and the practices and perceptions of taxpayers. The third area opened up by fiscal sociology, discussed in the final part of this chapter, is that of the consequences of taxation on social groups and inequalities. Indeed, taxation is not only an instrument for implementing public policies (in favour of certain economic sectors or in order to encourage certain practices considered as being beneficial, particularly for economic growth or the environment); it is also a tool for redistribution by means of social welfare benefits or the financing of public programmes and, as such, it is capable of changing the balance and inequalities between social groups. After the 2008 financial crisis, fiscal sociology experienced a resurgence of interest because it appeared to offer answers to questions arising from the need to rely on taxpayers to support the banks and revive the economy. The same thing has happened in 2020 in the wake of the crisis caused by the Covid-19 pandemic: the use of lockdowns to stop the spread of disease was accompanied by a shutdown of the economy, which led to a very large intervention by states. This has led to record levels of public debt, which in the longer term raises the question of how to draw on taxpayers once again
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and convince them to bail out the public finances that have been ravaged by the pandemic. One criticism of the new fiscal sociology is that it focuses too much on examples from the history of the United States. In this chapter, care will be taken not to privilege any particular country, since the theoretical questions raised by fiscal sociology and the conceptual tools provided for answering them go far beyond the scope of American national history and have inspired work on many other societies.
The legitimacy of the tax state From the perspective of fiscal sociology as it was elaborated in 1917 by Rudolf Goldscheid, the main actor of capitalism is the tax state. At the end of the First World War, the necessities of reconstruction forced the Austrian political authorities to draw on the help of its taxpayers, and it was in this context that Joseph Schumpeter developed the founding principles of fiscal sociology, which he conceived as a reflection on the legitimacy of the state’s ability to collect and spend the money of its citizens. For many authors claiming to work in fiscal sociology, this definition remains valid and has even regained a certain topicality since Theda Skocpol’s (1985) call to put the state back at the centre of theoretical discussion in political science (“Bringing the State Back In”). Theorizing the tax state Schumpeter’s work first made it possible to formalize the fundamental questions on which fiscal sociology is based: “What is the nature of the tax state? How did it come about? Must it now disappear and why? What are the social processes which are behind the superficial facts of the budget figures?” (Schumpeter 1991 [1918]: 100). The answers he gives to these questions are situated at the macroeconomic level: by guaranteeing a supply of revenue to the state, taxes ensure its survival. The tax system and the ways in which it is applied therefore provide the best key to understanding modern states. This approach presupposes a clear separation between the public and private spheres, even though this boundary can be porous and can change over time: by means of taxation, the state becomes involved in the private economy and thus it acquires more and more means to regulate and direct it in the direction of greater growth. For Schumpeter, the structure of public finances reveals the power relations that exist within a society: “public finances are one of the best starting points for an investigation of society, especially though not exclusively of its political life” (Schumpeter 1991 [1918]: 101). Fiscal policy, far from being at the exclusive service of a single social class, is the cornerstone of the government’s economic policy, allowing it to intervene in the interests of certain groups. A few years before Schumpeter, Edwin Seligman, professor of economics and founder of the American Economic Association, had also given much thought to the relationship between the development of states and that of tax systems. In his Essays in Taxation (1895), he emphasized that fiscal justice is not a fixed and immutable concept: it evolves as social and economic conditions change (Seligman 1895: 1). Until the end of the 18th century, at a time when the market was still in its infancy, states imposed taxes on people and things, and required payments in kind (such as “corvee”, the provision of unpaid labour to a feudal lord in the medieval era). The characteristic feature of modern states, on the other hand, is that they apply levies on transactions, thereby obliging taxpayers to pay their dues in money rather than in kind. The state was then able to extend its functions, to the point of becoming indispensable: “the state is as necessary
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to the individual as the air he breathes” (Seligman 1895: 73). In this new configuration, the taxpayer consents to taxation not with a view to receiving protection or benefits in return, but because “the state is a part of us” (Seligman 1895: 72). This reversal paves the way for a principle of taxation in which each taxpayer pays according to their abilities (based on one’s “faculty”) and no longer according to what they receive in exchange, or in other words, a principle of progressive taxation that would later become established internationally (Woker 2018). The framework of fiscal sociology laid down by Schumpeter and Seligman has greatly inspired sociologists who have worked on the links between the history of states and the development of fiscal systems. For example, Charles Tilly’s work contributed to establishing the idea that wars played a crucial role in consolidating the legitimacy of states and their ability to levy taxes (“extraction”): the emergence of the state as a centralized organization capable of imposing its rules and its power of “coercion” on a given territory can be viewed as an unintended effect of the armed conflicts that took place across Europe between the 15th and 19th centuries (Tilly 1990). Pierre Bourdieu extends this analysis by emphasizing that modern states were able to introduce taxation and persuade the public to accept it precisely because they were able to create state bodies and institutions capable of bringing about a recognition of their legitimate monopoly over the management of society (Bourdieu 2012: 117). The origin of modern states cannot, however, be reduced to their monopoly of tax collection guaranteed by their powers of coercion: the success of states also stems from their capacity to establish the rules of the market, and to act as arbiters of conflicts and as defenders of private property (Bonney 1999: 6). By generating new demands for infrastructure, the development of markets and economic growth has led to the expansion of tax systems. Having been developed as a tool for studying the history of European countries, this analysis of the modern tax state was later extended to apply to other national spaces, particularly China and Japan (He 2013). In more recent periods, and especially in the 20th century, wars once again played a crucial role in the transformation of states. In the United States, as in the United Kingdom, France and Belgium, the advent of the redistributive tax state, embodied in the rise of progressive taxes, was only able to overcome the resistance of conservatives in the exceptional period ushered in by the First World War. Using tax data from 20 countries located in Western Europe and North America, Scheve and Stasavage (2016) show the sharp increase in top marginal income and inheritance tax rates during the two World Wars and then their decrease after the 1970s. Nevertheless, it was not the situation of war itself that led to increased taxation of the wealthiest: although the rich were taxed more during the two World Wars, this was conceived as being in compensation for the systematic mobilization of a whole generation of men of military age. In Scheve and Stasavage’s view, this argument proved decisive – at least until the end of the 20th century – in convincing public opinion of the legitimacy of highly progressive direct taxation. The crisis of the tax state When the rapid growth of the post-war decades began to falter in the 1970s, the radical critique of public intervention began to enjoy greater success, leading to a renewed reflection on the legitimacy of the tax state (Hürlimann et al. 2018). From a Marxist perspective, O’Connor pointed out that states had come to take on an ever-increasing
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number of prerogatives: protecting the private accumulation of capital, guaranteeing the reproduction of the economic system and at the same time preserving social harmony: “The socialization of costs and the private appropriation of profits creates a fiscal crisis, or ‘structural gap’, between state expenditures and state revenues” (O’Connor 1973: 9). The increase in public spending and the growing difficulty of raising taxes force the state to go into debt. Since political elites are more dependent for their re-election on taxpayers and beneficiaries of public spending than on bondholders, governments are more likely to increase public debt than to raise taxes or reduce spending. The crisis of the tax state lies in this structural need for debt, which pushes governments to borrow even in times of economic growth. The existence of public debt is not new, however, and it can even be argued that it is almost as old as the birth of states (Stasavage 2003). Like taxation, the development of public debt has often gone hand in hand with the resolution of conflicts and the work of reconstruction that follows: in the aftermath of the First World War, the governments of the warring countries were all faced with the need to borrow. It then became clear that the power of the state to spend public money depended not only on its ability to raise taxes but also on its legitimacy to contract debts from private investors (Barreyre and Delalande 2020). The value of comparative work based on fiscal sociology is that it shows that this crisis of the tax state started to occur at the same time in different countries, even though the sources and methods of taxation were constructed in very different ways. Sven Steinmo’s pioneering work on Sweden, the United Kingdom and the United States showed that differences in the structures of state institutions and modes of electoral organization can largely explain the variations observed in the tax systems on either side of the Atlantic (Steinmo 1993). However, in these three countries, the social compromise that was established during the three decades following the Second World War came to an end with the economic crisis of the 1973 recession, which led to a re-politicization of the issue of taxation. The terms of this debate varied, however, depending on the long history of compromises on taxation in each country, and an account of these debates can sometimes challenge received wisdom. For example, for most of the 20th century, the United States relied on a system of direct taxation, whereas France never succeeded in reducing the burden of taxation on consumer goods and social security contributions (Morgan and Prasad 2009). Furthermore, the tax rate on capital was much higher in the United States than in Europe, where labour and consumption were taxed more heavily: “over the period 1932–1980, nearly half a century, the top federal income tax rate in the United States averaged 81 percent. It is important to emphasize that no continental European country has ever imposed such tax rates” (Piketty 2014: 507). The crisis of legitimacy of the tax state cannot be explained solely as the result of a particular economic cycle or situation. The application of Schumpeter’s concepts to the situation in Eastern European countries in the 1990s, with their abrupt transition to a market economy, shows the importance of the political dimension of the crisis of the tax state (Ganev 2011: 246). The importation into these formerly socialist countries of the sort of flat tax that Milton Friedman had envisaged in the 1960s cannot be understood without taking into account the strategies employed by the former elites to secure a new place for themselves. The success of such a transfer owed much to the international circulation of experts and ideas. For these countries that had recently converted into market economies, the widespread adoption of the flat tax should not be seen as the simple transposition of a tax mechanism but as a general reform of the state “including bureaucratic, legislative and ideological elements” (Thorndike 2007: 201).
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The crisis of legitimacy of the tax state once again came to the fore in the wake of the Greek government’s confrontation with European institutions (Varoufakis 2017). It then became clear that the question of public debt is no longer just one dimension among others of state financing, but explicitly contradicts the principle of national sovereignty. Collective resources no longer depend only on taxpayers but also on the trust of bondholders. The crisis of the tax state can then turn into a crisis of democratic legitimacy: the constraints placed on public budgets due to these high levels of indebtedness no longer depend solely on the sovereignty of the people but are subject to the decisions of creditors who act without any process of democratic deliberation (Streeck 2014). The internationalization of fiscal policies Since fiscal sociology adopted comparatism from the outset as its preferred method of investigation, many studies have sought to understand the ways in which tax mechanisms can be imported from one country to another. Although the power to levy taxes has long been presented as a national prerogative, the internationalization of tax policies is not a recent phenomenon: every tax system is the product of transfers from other countries and of intellectual controversies that have unfolded at the international level (Nehring and Schui 2007). Already in the 18th century, Frederick II of Prussia sought the help of French tax collectors to help him set up a system of indirect taxes on consumer items (Schui 2013). A century later, the relationships that developed between imperial metropolises and their colonies also facilitated an internationalization of tax policies, with some local adaptations. In the case of the United Kingdom, British administrators used taxation as a tool for transforming the economic and social structures of conquered territories, as evidenced by the novel implementation of an income tax in New Zealand as a means of limiting the power of large landowners (Daunton 2001). International intellectuals and experts can also contribute to fostering transfers from one country to another, as we can observe from the relative contemporaneity of reforms introducing a progressive income tax: within a few years, the United Kingdom in 1909, the United States in 1913 and France in 1914 adopted this form of redistribution, which was debated internationally by many experts influenced by Seligman’s 1894 book Progressive Taxation in Theory and Practice (Woker 2018). In the contemporary context of an ever greater internationalization of trade and interpenetration of national economies, more and more researchers are reconsidering the questions raised by Schumpeter by going beyond the framework of a national tax system. The success of Thomas Piketty’s book Capital in the Twenty-First Century (2014) and his call to establish a wealth tax based on a global register of wealth are forcing a reconsideration of the role of states in implementing reforms capable of providing tax justice. Schumpeter, writing a century earlier, had in fact envisaged the possibility of a wealth tax, which he considered to be not only compatible with a liberal economy, but even perfectly in line with its principles (Schumpeter 1991 [1918]). In European countries, however, the current tendency is towards the removal of wealth taxes: Italy in 2001, Portugal in 2003, Sweden in 2004, Austria in 2008 and France in 2017. Attempts to coordinate tax systems internationally are still in their infancy, and predictions of an inevitable downward harmonization are still far from being realized, as competition between firms is based not only on costs but also on the institutional context (Campbell 2021).
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Concerns about climate change may provide another strong argument for thinking about taxation from an international perspective. Indeed, in a world where goods and capital can move instantaneously from one continent to another, ecological taxation, in order to be effective, must necessarily be the subject of concerted action between states. But this concerted action can only happen if it is supported by national public opinion, and the levels of acceptance of ecological taxation still vary greatly from one country to another: support for binding measures for citizens and companies depends not only on their perception of the urgency of reducing greenhouse gases, but also on the confidence that each population has in its government to implement such an objective (Fairbrother et al. 2019).
Taxation as a social relationship between the taxpayer and the state Fiscal sociology has taken great interest in the social relations that develop between taxpayers and public authorities. The aim of this research is to understand the conditions in which taxpayers agree to give up part of their income in order to participate in the financing of public goods. Depending on the historical period in question, this relationship has been either more or less conflictual, and has sometimes given rise to collective mobilizations against taxation, which are privileged moments for understanding the organization of a society, the place occupied by public authorities and the trust placed in them by taxpayers. In calmer periods, the question of consent to taxation still remains crucial, even though the modes of resistance to taxation may take other, more discreet forms such as fraud or “fiscal flight”. Mobilizations against taxation From the perspective of fiscal sociology, which considers that taxes symbolize the social contract, tax revolts provide a privileged point of observation for understanding the conditions in which the tax state was constituted as the historical result of struggles and reforms (Delalande and Huret 2013). Indeed, movements of rebellion against taxation are as old as the constitution of states (Burg 2003) and have punctuated the history of many countries, sometimes leading to real revolutions: 1215 for England (Daunton 2001), 1774 for the United States (Beito 1989) and 1789 for France (Delalande and Spire 2010). However, resistance to taxation in these three countries should not be seen as an immutable component of each national history. The initiators of anti-tax mobilizations have always adapted their demands and the forms of their protests to the particularity of each period and to the reality of contemporary power relations. We can also note similarities between these different national histories. During the Great Depression of the 1920s and 1930s, France and the United States experienced very similar anti-tax protest movements. On both sides of the Atlantic, a cluster of associations emerged to defend taxpayers, in both cases calling for a tax strike in order to challenge the obligation to declare one’s income (Delalande 2012: 82). Far from belonging to a bygone era, tax revolts constitute a privileged object for studying contemporary forms of resistance to taxation. The particularity of fiscal sociology consists in breaking with the generic vision of an interchangeable taxpayer and instead closely examining the resources, dispositions and practices of those who mobilize (Tilly 2003). For example, the movement against Proposition 13 that emerged in California
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at the end of the 1970s could then be analysed as a rebellion by small property owners aimed at defending a system of informal privileges, that is, advantageous provisions that were not written into the law (Martin 2008): the starting point of the movement was opposition to a change in the methods for calculating property taxes and a demand to restore a customary form of welfare state. Whereas this mobilization in the United States was organized on a residential basis (through “community organizations”), the mobilization that emerged at the same time in France, centred around craftsmen and tradesmen, developed on the basis of membership of a profession (Spire 2013). A comparison of these two movements brings to light the place occupied by public authorities on both sides of the Atlantic. In the United States, the tax revolt was largely fuelled by opposition between the local state (in this case, California) and the centralized (federal) state bureaucracy, with the Constitution serving as a source of legitimacy (Martin 2010). In France, the rejection of taxation took the form of opposition to the inquisitorial power of the tax administration (Morgan and Prasad 2009), in the name of respect for privacy and defence of the “small” against the “big”. Starting from the classic question “who mobilizes?”, fiscal sociology can also show to what extent struggles centred around taxation contribute to making, or breaking, alliances between groups (Prasad 2018; Martin 2019). By setting aside the idea that taxpayers mobilize solely because of their individual interests, we can seriously address a conundrum that has appeared in many Western countries in the 20th century: how do the richest people manage to enlist the rest of society in their fight against high tax rates? Based on a retrospective analysis of five protest movements against the taxation of the richest people in the United States, Isaac Martin (2013) offers several explanations. First, “policy threats” play a dominant role: those who own property or some capital perceive any increase in taxes on the richest as a harbinger of measures that could be extended to affect them in the future if they too become sufficiently wealthy. Furthermore, when these populations experience financial difficulties linked to the economic situation, it is easier for them to turn against the political power in place, which is then held responsible for the level of taxation, than to attack abstract entities such as the economic situation, the change in prices or increased competition. Another factor that can amplify a mobilization in favour of the rich is the appeal to tradition. For example, the idea of a cap on the tax rate was conceived by taxpayers’ associations in the 1920s and then taken up by the anti-tax movements of 1936 and again in 1975. The success of anti-taxation movements also lies in their capacity to ally themselves with other causes and to imagine popular forms of mobilization. Thus, in the 1950s, the proposal to abolish income tax, cleverly renamed the “Liberty Amendment”, gave rise to rallies and lively parties where participants sang a rousing protest song (“You and I cannot relax/We must repeal the income tax”). Finally, Isaac Martin (2013) places great importance on the charisma of anti-tax activists. One might add that, in the United States, the success of these movements can also be explained by the very strong hostility to progressive taxation, which has long been a unifying idea for all components of conservative parties (Huret 2014). Since the 2008 financial crisis and the subsequent rapid rise in inequalities in income and wealth (Piketty 2014), mobilizations around taxation have taken on a different meaning, linked to social justice and redistribution. In Southern European countries faced with plans for the restructuring of public finances, the issue of taxation has thus become the centre of gravity of social movements (Narotzky 2016). In France, anger regarding an increase in fuel taxes was at the origin of the “gilets jaunes” (yellow vests) movement, which in November 2018 brought together 300,000 people to demand more tax justice
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and political democracy. These mobilizations, directed against political elites, have called for a fairer redistribution of public money and have shown that tax-related demands are not necessarily synonymous with challenging the provision of public services or social welfare systems (Spire 2018). Whereas anti-tax movements have often targeted the administrations and agents directly involved in collecting taxes, recent mobilizations have been targeted more at governments and the way they allocate (without redistributing) public money. Rather than challenging a particular tax, they are broader calls for tax justice. Consent to taxation The analysis of the relationship between taxpayers and the state is not limited to the study of mobilizations against taxes. For most of the time, resistance to taxation remains subterranean, and in the absence of open conflict over fiscal policy, it is important to understand what motivates taxpayers to fulfil their obligations. Many economists have approached the question of consent to taxation as the result of an individual assessment of the costs and benefits of complying with obligations. Breaking with this utilitarian logic, works in the field of fiscal sociology approach consent to taxation from the point of view of a social contract rather than an individual calculation, referring to the pioneering work of Margaret Levi, who takes an institutionalist perspective (Levi 1988). Modern states are not capable of forcing all taxpayers to pay their dues, but must instead seek to convince them that taxation is fair, that it is allocated equitably and that it is also paid by other taxpayers (Slemrod 1992). For a tax system to endure and prosper, it must be based on “institutional procedures and social norms, which sustain cooperative solutions to the problems of collective action, and provide some assurance that fellow taxpayers and the government may be trusted” (Daunton 2001: 10–11). Trust in institutions rests on the assumption that they are predictable and stable over time, and trust in other members of society rests on the assumption that the latter cannot be suspected of fraud. In this perspective, which views consent to taxation as an act that is indicative of the social contract, the place accorded to racial minorities can play a decisive role, as shown by the political and legal history of both Brazil and South Africa (Lieberman 2003). The emphasis that fiscal sociology places on the collective dimension of consent to taxation raises the question of trust in political elites and their ability to defend the public interest when it comes to spending taxpayers’ money.
Effects on social groups and inequalities From the perspective of fiscal sociology, taxation must also be analysed in terms of the effects that tax policy has on the balance between groups and between inequalities (Campbell 1993; Martin and Prasad 2014). The history of tax systems can thus be read not only as a succession of devices entrenching gender, class and racial inequalities, but also as the evolution of the means deployed to mitigate these same inequalities through both incentives and disincentives. Inequalities related to gender and family structure The legal framework of tax systems has long been explicitly gender-biased. In many countries, it has effectively reinforced sexist relations of domination that were already
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entrenched in society. In Britain, for example, the 1799 Act for Taxing Income attributed all the income of married couples to the husband, and until 1978 the tax authorities refused to return tax refunds to women, accepting correspondence only with their husbands (McCaffery 2009: 216–217). Such longstanding laws helped to shape social norms that continue to this day and have had a lasting impact throughout the former British Empire, including in Canada, New Zealand, Australia, Malaysia and Singapore. Around the world, joint taxation for couples has long contributed to the assignment of women to domestic work. In the United States, this policy was implemented in 1948 as a return to stricter gender norms, breaking with the previous period when women had worked to help the war effort (McCaffery 1997: 76–78). During the 1980s, an increasing number of European countries opted for married women to report their income independently of their husbands (Rubery and Rafferty 2013), but in France, Portugal and Poland, provisions remain in force for married couples to report their earnings jointly. In most OECD countries, families consisting of a married couple living with their legally recognized children receive the best tax advantages (Maldonado and Nieuwenhuis 2015), whereas single parents, most often women, and unmarried couples are treated less well. There are, however, considerable variations between countries: on the one hand, “family-friendly” tax policies usually encourage women to stay home to care for children, and on the other hand, “neutral” tax policies, or those that are indifferent to family structures, effectively promote individual autonomy. Even though France has extensive infrastructure for providing childcare for infants from birth to the age of three, as a whole it still seems to conform to the “male breadwinner model” also found in Germany, as opposed to the dominant model in the Scandinavian countries (Kangas and Palme 2005). However, this binary opposition is not sufficient to explain the different family models found in each country: the influence of fiscal policy on the structure and size of families can only be understood when it is viewed in relation to other public policies connected to the labour market and especially to the provision of child care (Dingeldey 2001). Class inequalities Addressing the issue of fiscal inequalities from the perspective of social class involves breaking with the use of a whole lexical field that tends to erase social differences: “taxpayers”, “the fight against fraud” and “fiscal civic-mindedness” are all generic terms that can lead one to believe that taxes transcend social divisions and differences in wealth. Even if the poor are not directly affected by the most visible taxes, such as income tax, their purchasing power can be significantly affected by indirect taxation. This tax burden can have consequences for criminal behaviour or everyday hardship and contributes, along with other factors, to the reproduction of poverty (Newman and O’Brien 2011). At the other end of the social scale, differences in the taxation of millionaires depending on the fiscal policies of individual states of the United States have little effect on the mobility of these top income earners, who are, for reasons related to their economic activity, less mobile than other taxpayers (Young et al. 2016). Tax policies can therefore have varying impacts on different categories of taxpayers; they can generate inequalities that do not necessarily coincide with those arising from an individual’s position in the social space or in the labour market. For example, an increase in property tax may penalize those who own their main residence, which potentially
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includes low-skilled manual and blue-collar workers, while leaving unaffected richer people who continue to rent their homes. There is therefore a specificity to the social inequalities generated by tax policies. On the basis of an analysis of the rise in market regulation through taxation after the Second World War, Monica Prasad (2006) has shown that each fiscal policy must be judged according to the inequalities it creates through its particular modes of taxation and redistribution: thus, the most generous welfare states in terms of redistribution are also those which, in the 20th century, set up tax systems based mainly on proportional taxes on consumption, which are particularly unfair to the working and middle classes. By comparison, the welfare states that are much less redistributive are also those that have set up tax systems that are much more progressive and therefore, in appearance, more unfavourable to the dominant classes, but in reality much less protective of the most vulnerable. Racial inequality Since racial discrimination is illegal in Western democracies, there are no explicit differences in treatment by race, but some authors point out that seemingly universal tax provisions can lead to more unfavourable situations for minorities. In the United States, for example, marriage penalizes couples where the two spouses have the same level of salary, and since this situation is more frequent in black households, Dorothy Brown interprets it in terms of racial inequality: “black taxpayers are more likely to receive a marriage tax, whereas white tax payers are more likely to receive a marriage bonus” (Brown and Fellow 1996: 45). Similarly, in states marked by a history of segregation, variations in the allocation of public budgets to schools can be interpreted as a privilege afforded to white citizens as opposed to people of colour, where the former are seen as taxpayers and the latter as populations supported by the state (Henricks and Seamster 2017). The same authors add that mobilizations against property tax have resulted in a downward trend for this type of tax and an increase in consumption taxes, where the former are more paid by whites, who are more likely to own property, and the latter fall more heavily on people of colour (174). In the much more recent period, comparisons of tax policies across states suggest that increases in the proportion of racial minorities within a state are likely to result in a more regressive tax system and an increased tax burden on low-income households (O’Brien 2017). These inequalities, which stem from implicit mechanisms rather than explicit legal provisions, are far less visible and far less often provoke outrage compared with acts of violence perpetrated by law enforcement, yet they contribute, in their own way, to the reproduction of racial inequalities. Nevertheless, acts of violence carried out by police during stop and search operations have been interpreted in relation to fiscal considerations, notably as a consequence of drastic tax cuts (Prasad 2018: 2): Sandra Bland’s and Michael Brown’s deaths occurred in Texas and Missouri, respectively, two states that have seen their tax rates plummet, leading state police to change their focus to petty offenses by ordinary citizens – including traffic offenses – which can be profitable owing to the fines that are collected, but which can also lead to violent confrontations with black members of the public. In many areas, fiscal sociology has renewed the study of inequality by highlighting the implicit and explicit effects of taxation on people’s behaviour.
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Conclusion Fiscal sociology is more than the application of sociological reflection to the subject of taxation or public finance, and now constitutes a well-established and institutionalized programme of research, with its own foundational authors, hypotheses, principles of understanding and aims. Its main originality lies in its use of taxation as a tool for making visible the principles and divisions that structure society as a whole, with particular emphasis on a long historical perspective. In a context where the crisis of Covid-19 has upset the balance of public finances in most Western countries, future debates on the need to resort to taxation or indebtedness could usefully be illuminated by approaches inspired by fiscal sociology. After more than a century during which states have been radically transformed, the longevity of the concepts developed by Schumpeter suggests that fiscal sociology will continue to develop and has a bright future.
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474 Alexis Spire Slemrod, J., 1992. Why People Pay Taxes. Tax Compliance and Enforcement. Ann Arbor: University of Michigan Press. Spire, A., 2013. The spread of tax resistance: The antitax movement in France in the 1970s, Journal of Policy History, 25(3), pp. 444–460. Spire, A., 2018. Résistances à l’Impôt, Attachement à l’Etat. Enquête sur les Contribuables Français. Paris: Le Seuil. Stasavage, D., 2003. Public Debt and the Birth of the Democratic State: France and Great Britain, 1688–1789. Cambridge: Cambridge University Press. Steinmo, S., 1993. Taxation and Democracy: Swedish, British and American Approaches to Financing the Modern States. New Haven, CT: Yale University Press. Streeck, W., 2014. The politics of public debt: Neoliberalism, capitalist development and the restructuring of the state. German Economic Review, 15(1), pp. 143–165. Thorndike, J. J., 2007. The flat tax: Fiscal revolution or policy diffusion? In H. Nehring, F. Schui (eds)., Global Debates about Taxation. Palgrave Macmillan, London, 201–218. Tilly, C., 1990. Coercion, Capital and European States. Cambridge, Mass: Basil Blackwell. Tilly C., 2003, The Politics of Collective Violence. Cambridge: Cambridge University Press. Varoufakis Y., 2017. Adults in the Room: My Battle With Europe’s Deep Establishment. London: Bodley Head. Woker, M., 2018. Edwin Seligman, initiator of global progressive public finance. Journal of Global History, 13(3), pp. 352–373. Young, C., Varner, C., Lurie, I. Z., Prisinzano, R., 2016. Millionaire migration and taxation of the elite: Evidence from administrative data. American Sociological Review, 81(3), pp. 421–446.
25 Sociology of financial markets, monetary policy, and central banking Frédéric Lebaron
While the study of financial markets, monetary policies and central banks is largely dominated by studies in economics and finance, there has been a significant development, especially in the last 20 years, of research and analysis in other areas of the social sciences: law, history, sociology, political science, anthropology, etc. The very asymmetrical situation of the disciplines studying the world of finance is undoubtedly the result first of all of the technical nature of this sector of activity: it has become a very strongly autonomous space, characterized by the proliferation of complex instruments and by the monopoly of practice held by specialized professionals’ jurisdiction in the sense of Abbott (1988). The latter are above all trained in financial disciplines and carry out their professional activity within institutions that are themselves specialized: banks, funds of all kinds, consulting firms, central banks, financial administration, independent agencies, etc. This is precisely the first characteristic of the long-term evolution of what is too quickly referred to indiscriminately as “finance”: in reality, it is a differentiated social space, which opposes its own logic to “outside” views, whether they are those of citizens or specialists in other disciplines. The study of this space presupposes a minimum of familiarity with a particular vocabulary and syntax and, more broadly, with specific issues. What, then, can be the contribution of a sociological perspective that takes as its object, more specifically, the interaction/relationships between financial markets, monetary policy and central banking? This chapter will try to answer this question in this, by presenting an analytical framework and various studies that contribute to sociological knowledge on these objects today. Linking the three elements (financial markets/monetary policy/central banks) leads to a focus on a set of problems that are important not only for economic sociology, but more broadly for the analysis of contemporary economies, especially since the global financial crisis of 2007–2008. This has given rise to numerous economic (for example: Krugman 2008; Stiglitz 2010; Boyer 2011; Bernanke 2015), historical (Tooze 2018), sociological (Lebaron 2010; Fligstein 2021) or political science (Gabor 2011; Hassenteufel and Saurugger (eds) 2021) work. This crisis is indeed a turning point, as central banks are now, for all observers, visibly at the centre of both the management of currencies and the public regulation of financial systems. The contribution of a sociological perspective is measured not only by its capacity to shed light on each of the three terms, but also by its ability to propose a relevant analysis of their interrelations and of the social “worlds” concerned.
DOI: 10.4324/9780367817152-29
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To do this, it is first necessary (§1) to understand how the world of actors in charge of managing money and the financial sector is structured, and how it relates to the so-called “real” economy, based on a long-term historical sociology of the monetary and financial space within capitalism. The emergence of central banks intervening daily in the financial markets and conducting, by setting their “key” interest rates, “monetary policies” that are relatively independent of the rest of public action and are aimed at price stability, constitutes a specific institutional framework and a relatively recent historical configuration. It is characteristic today of most of the countries in the world, although with fairly strong variations: varying degrees of independence in various forms, the use or not of instruments alternative to interest rates, the “federal” specificity of certain banks such as the European Central Bank (ECB) or the central banks of the franc zone, etc. On the ECB and its anchoring in the history of European integration, the work of Kenneth Dyson provides in-depth insights, e.g. Dyson 2014; on central banks in West and Central Africa, the contribution of Nububko et al. (2016) provides a recent example. We will then show in the second part (§2) that this sector is defined by a set of interdependency relationships (Elias 1991), which have become particularly visible since the global financial crisis of 2007–2008: the action of central banks, in particular as “lenders of last resort” for the entire financial system (banks and the State) during crises, interacts with all the external dynamics of the economy. These involve heterogeneous public and private actors at different scales, who are themselves closely linked to largely financialized and interdependent productive worlds. Once this particular setting has been established, which the crisis of 2007–2008 has both made more visible and accentuated some of its features, we will raise the question of the specificity of a sociological approach to this subject (§3), by insisting not only on the concepts of the discipline, but also on the approaches and methods of empirical investigation that are specific to it. This will be an opportunity to present in more detail some of the practical and symbolic mechanisms of social interdependence specific to the financial order, by showing how they are illustrated by more and more numerous and precise empirical studies. Finally, we will discuss (§4) how a sociological approach conceived in this way can attempt to respond to future challenges, for example in the interpretation and modelling of socio-historical processes, forecasting, or even the categories of public policy in the field of central banking.
The space of finance and central banks: a socio-historical dynamic The institution of money is known to the most remote societies and is closely linked to both political and economic power (Testart 2001; Ingham 2004), placed in a permanent tension between the two. The particular configuration we observe today is the result of a long process abundantly documented by monetary and financial history (Théret ed. 2007; Dyson, Marcussen (eds) 2009; Feiertag, Margairaz (eds) 2010…) and inserted into the global economic history of capitalism (Wallerstein 2004; Bihr 2018; François, Lemercier 2021). In the most advanced regions of the world economy, an autonomous space of finance linked to the state as well as to private actors has progressively emerged. In this universe, which is itself expanding, the central bank, which only took on this name after a long
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evolution, occupies a specific position, at the centre of multiple links with all the other economic actors, whether they are themselves public (government, agencies and public enterprises) or private (households, financial or non-financial enterprises). During the period of the emergence of capitalism – which can be defined at least provisionally as an economy largely dominated primarily by private actors and “rationally” oriented towards profit and accumulation – finance is a progressive extension of state activity, in the form of what in France is called “public finance”. At the same time, it developed as a private activity backed by trade, in particular international trade, of which it is one of the vectors and which in turn stimulates the capacity for innovation, in particular in the banking world. Its dynamic has therefore been twofold since the beginning: state and private, monetary (linked to a national political space) and financial (linked to the global expansion of trade). This duality, or even this double duality, is still constitutive of the object “finance” today, at once an extension/derivative of money that rests on the collective trust of which the state is the guarantor, and a partly autonomous reality, the source of its own logic of accumulation by private actors (Orléan 2014). States have a monopoly on monetary issuance in a defined territory and must at the same time maintain confidence in the (internal and external) value of the money they issue. For a very long time, this was reflected in the more or less subtle manipulation of gold reserves and the gold composition of coins, an issue that took on a global dimension with the quest for gold in the colonies from the 15th to the 16th centuries. Gold discoveries stimulated activity and led to a general upward trend in prices (Simiand 1932, 1934). At the same time, states developed increasingly important financing needs over time, as they concentrated multiple resources. They were confronted with potentially contradictory constraints: not only the concern to promote the growth of national wealth, within the borders of the state, the development of international trade, but also the need to maintain an often expensive state activity (court, wars, etc.) that generates a structural public debt (Lutfalla 2019), whose creditors are the beneficiaries of commercial and then industrial accumulation. The States also faced the issue of preserving a certain equilibrium of prices and, in the background, between the socio-economic groups dependent on prices (Simiand 1932), among which the exchange rate of the currency with other national currencies. Social groups and nations are indeed in potential conflict over the appropriation of wealth produced or redistributed, class struggle and imperialism being only a particular case. The genesis of the modern state is thus inseparable from that of monetary and financial operations, which constitute the very matrix of the space of finance, closely inserted into particular social structures, obeying its own logic. The constraints of public debt management interact closely with the issues of monetary issuance and the surveillance, which takes various forms, of the price level within national spaces. Gradually, actors who were originally relatively indistinct began to differentiate while remaining closely interdependent: on one hand, the central bank, which emerged at the end of the 17th and 18th centuries as a state bank, became the actor, located at the intersection of the public and private sectors, in charge of monetary issuance and responsible for maintaining the value of money, first through the management of gold reserves, then by imposing limits on monetary creation in the national space; on the other hand, banks and other private actors with savings, accumulated in trade, industry or finance, are the creditors of the state and, of course, of the private economy. They are in charge of financing the economy, in particular operations within the arena essential to European capitalist development that is international trade (Bihr 2018); and finally the Treasury is
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the actor in charge of issuing the state’s debt, according to its needs. The functions and structures of these three interdependent poles have differentiated, giving rise to three large and distinct groups of financial actors: central bankers, private bankers and financiers and public financiers (in the Treasury and the Budget). This differentiation takes place in a non-linear manner and is part of legal frameworks that vary according to the period and the country, depending in particular on historical experience. Hyperinflationary phenomena are particularly striking: in these “pathological” periods, the value of money collapses rapidly and continuously, making it difficult to save for accumulation and brutally modifying the distribution of wealth and income. In France, after the Second World War, the government, supported by the body of senior civil servants from the Inspection Générale des Finances who ran the Ministry of Finance, concentrated tight control over the three components, in particular the central bank (the Banque de France, which had become public) and the Treasury: private banks were then placed under strong dependence on the first two poles, and the financial markets remained underdeveloped until the 1960s (Lemoine 2016). This close control gradually broke down over time and, in 1993, the Banque de France became “independent”, emancipating itself from the supervision of the Treasury, before the creation of the ECB at the level of the Euro zone (1999). In the new configuration that emerged in the 1980s, the financial markets acquired a much more important place in the financing of the economy, alongside the banks: financial liberalization, resulting from a series of legislative changes and innovations, radically modified the equilibrium in most economic sectors to the benefit of financing by the market and the global players that dominated it. Despite the rise of financial funds, banks thus retain an important role, if only because of their close link to the central bank, and as essential components of the payments system and the financing of certain private economic actors (notably households and small and medium-sized enterprises). Financial globalization, largely the result of political decisions taken in the United States and Europe in the 1970s and 1980s (Chesnais 2004; Krippner 2012), is reflected, particularly in North America and Europe, in the very strong growth in the activity of the various segments of private finance: the money market, the foreign exchange market, the bond market, the equity market, the derivatives market, etc. It also gave rise to an extraordinary increase in the complexity of finance, which tends to extend ever further beyond its initial sphere of influence, as all sorts of objects become tradable assets. The space of finance, energized both by the challenges of managing public debt and by the internal quest for innovation, is also becoming a very autonomous universe. It is both interdependent and compartmentalized, marked by the arrival of new players and by the explosion of complex instruments that are more or less highly regulated. This expanding space tends to colonize many sectors of activity, through multiple channels (Boussard 2018). The lengthening of the chains of interdependence within the financial sphere is such that each sector, or even sub-sector, of financial market activity can be studied relatively autonomously. The financial expansion since the 1980s has also been reflected in a marked upward trend in asset prices, which contrasts sharply with low inflation (rise in the consumer price index) and relative wage stagnation, for example in the United States (Stiglitz 2010). The counterpart of this movement is a certain instability that characterizes financial markets, where so-called “speculative bubbles” form, temporary and artificial price increases that eventually burst, calling into question the entire system, especially since all markets are now highly interconnected.
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Prices, far from being the result of mechanical adjustments that constantly bring them back to equilibrium and thus to the optimum, are the product of institutional arrangements and power relations, including symbolic ones. These determine them, which explains their instability and the persistence of imbalances. The heart of the functioning of the economy is in fact the social process of price formation, in which the central bank is now one of the key players: attentive to the stability of consumer prices and to the limitation of wage variations, which partly determine it, it must also be concerned with possible dynamics that lead to instability on the asset markets, and, as it has always been in the international context, with exchange rate developments. Despite the increased instability associated with financialization, the main task of central banks since the 1990s has been to ensure consumer price stability in this context of sharply rising asset prices: this has been the main purpose of what is known as “monetary policy” since the emergence of “cyclical policies” in the 1930s and especially after the Second World War: these are public policies explicitly aimed at maintaining price stability and implementing their own instruments to this end, within a framework more or less dominated by the financial markets. Confronted with the problems of financial instability, they have to constantly improve financial regulation, particularly in its macro-prudential form (Thiemann et al. 2020): macro-prudential regulation is a recent extension of their mission towards monitoring systemic risks. The steady increase in public debt in many countries appears, in particular, to be a threat to the future stability of the entire financial system, insofar as it increases the risk of a government defaulting, which in turn exposes all of the interdependent agents that make up the financial sphere to risk. This issue is particularly accentuated in the context of European monetary integration. Clearly, the representation of the financial field as a system of multiple interdependencies with tendencies towards instability, caused by the fact that prices result from complex socio-political processes, has therefore been reinforced over time and through the experience of financial crises. The awareness of “systemic risks”, which became very strong in 2007–2008, has not, however, led to radical changes in the dominant scientific conception of both markets and central banks: it remains centred on the powerful model of the efficient and self-regulating market, where the independent central bank intervenes to maintain the equilibrium of consumer prices. It is to this renewal that a sociological approach could contribute.
Monetary and financial dynamics since the 2007 crisis According to many observers, the period that began in 2007 constitutes an inflection, or even a break, in the dynamics that emerged from the financial liberalization of the 1980s, which accompanied the accelerated movement towards central bank independence. The securitization of mortgage loans in the United States is the process underlying the formation of a real estate speculative bubble: when it burst, it led to a series of bankruptcies of financial institutions, until the paralysis of the interbank market following the collapse of Lehman Brothers. The systemic crisis that materialized then had not really been anticipated by the monetary authorities (Fligstein 2021), and neither more broadly by mainstream economists, especially when compared to marginal experts (Pénet 2019). Monetary policy, faced with the crisis, was first confronted with the need to intervene in the short term to maintain the functioning of the interbank market, by lending massively to banks and, more broadly, to allow financial actors to regain confidence.
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At the same time, governments intervened in specific ways (nationalizations, recapitalizations, etc.) to avoid the potential collapse of their financial system.1 But the scale of the crisis, its globality, the risks it revealed, was at the origin of a lasting inflection: the balance sheet of central banks increased very strongly (to the point of integrating as collateral a large number of more or less doubtful debts), and key interest rates were durably maintained at very low levels in order to facilitate the distribution of credit within the economy. The financial crisis thus led to a shift to so-called “unconventional” policies, which became the norm worldwide from 2008 onwards, whereas they had previously been seen as a peculiarity specific to Japan. The developments of the so-called “subprime” crisis can be seen as a test of relevance for an economic sociology of financialization. The movement towards central bank independence, which is spectacular in Europe with EMU and the creation of the ECB, especially seen from France where the government and the Treasury had long kept the upper hand on monetary policy is an important facet of the financialization process. This is a process of collective belief, in the Durkheimian sense, carried out by professional actors: economists, central bankers, managers and professionals of private finance, senior officials of ministries and international organizations, and last but not least certain central political actors. However, as early as 2007, this financialization process seemed to be directly challenged. This was especially obvious in September 2008. The crisis of belief was the most striking aspect of what we were witnessing. Nicolas Sarkozy, who in 2005–2007 pushed for the dismantlement of the French welfare state, had become in a few weeks a virulent critic of financialization and the excesses of capitalism. His speeches drew on two pillars of left-wing economic discourse: regulation and economic stimulus. Alan Greenspan and Jean-Claude Trichet, who spearheaded the Great Moderation of the 2000s, witnessed the downfall of the neoliberal creed they had helped to create. This helped to reinforce the hypothesis, which I had in mind since 1993–1994 when I started my work on the monetary policy council of the Banque de France, that central banks are at the nexus of all these issues and that they need to be studied from all these perspectives: their links with fiscal policies and more broadly with economic (including structural) policies, their imbrication in a system of liberalized financial markets and, finally, their deep interconnections with the international academic field, first and foremost in economics, dominated by the United States. This crisis reveals, in a strong, almost photographic sense, the deepening interdependencies in the global financial sector that have developed since the 1970s. An event that is at least partly contingent (the development of securitization, which at first sight reduces risks but ended up fostering the distribution of credit to insolvent households) led to the paralysis of the money market and to a credit crunch on a global scale, which then developed into a deep recession, with cross-country variations. The Chinese case is very specific, as the crisis accelerated its growth. In this sequence, a wide range of policymakers were at the forefront: first central bankers, who dealt with the most urgent issues (liquidity), then political leaders, esp. finance ministers, who were faced with tough choices (nationalization, recapitalization, deposit guarantees, etc.) in the face of looming bank bankruptcies, and finally certain global political actors involved in the creation of new mechanism – bank rescue plans, stimulus plans within the G20 framework, followed by various regulatory mechanisms meant to boost the economy. To a certain extent, 2008–2009 did indeed start a new era. The global financial crisis displayed well-known patterns of previous financial and banking crises and of cyclical
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recessions, both of which are often linked. But the “global” dimension is relatively new. The interdependence between central banks increased during this period and their role became even more decisive. Following François Simiand, we can think that economic history is a succession of imbalances, in which the monetary-financial sphere plays a driving role, “orchestrating” as it does different social groups. In that sense, imbalances are not unique to the period that began in 2008. It does, however, feature new characteristics, which we can theorize with the Elias-inspired notion of interdependency. Interdependency refers first to the fact, which I’ve already mentioned, that countries are completely interconnected via the globalized financial markets. A problem in Greece can undermine optimism in the global markets and trigger chain reactions. But this is only but one dimension of the wide range of interdependencies that now characterize our economic and financial system. The most central interdependency is between governments and large private banks – and more broadly financial actors – under the “patronage” of central banks, and it manifests itself in successive liquidity and solvency shocks affecting both governments and large global companies. The relative balance between these three interdependent components (governments, private financial actors and central banks) was undermined in 2008 and continues to fuel instability today. Public debt is made possible by expansionary monetary policies, a process that is frequently interpreted as a return to the Keynesian state. But these non-conventional measures result in continuing inflation of asset prices (including real estate), in the ever-growing “power of finance” and in increased downward pressure on both wages and public spending. In that sense, the neoliberal paradigm is still very much alive, albeit in an unstable version, as financial stability is now heavily dependent on central banks. This transforms the current system into an ideological monster, since public debt, which helps to prevent private finance from collapsing, is used to justify the limitation of social spending and the continued existence of acute income inequalities. At the same time, new objectives have emerged from 2020 onwards in the context of the acute pandemic. Faced with the recessionary and potentially deflationary consequences of the pandemic and the public responses to it, central bankers were particularly reactive and interventionist. Very early on, they recognized the risk of a massive loss of confidence, which would lead to a catastrophic financial amplification of the recessionary dynamic brought about by the sudden stops in activity due to lockdowns. In the context of the euro zone, such a dynamic could take the form of a surge in speculation affecting the sovereign debt securities of the most troubled countries and, consequently, a new crisis of the single currency. Very quickly, the activation of quantitative easing (QE) measures already in place was imposed by central banks/central banks activated…, primarily the Federal Reserve Bank, with massive purchase programs in which government debt securities now have a very important weight. In an indirect way, this is the return of what economic history has vulgarly described as the use of “money printing”: in the context of crisis or war, central banks massively finance the treasuries of governments. Careful not to take the risk of increasing mistrust a little more, central banks seem to be trapped in unconventional policies. For all that, the monetary and financial doctrine of the world’s main central banks has not changed radically as one might think: their extreme interventionism is aimed at ensuring monetary and financial stability. In the euro zone, they seek to respect an inflation path below, but close to, 2%, which defines
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their mandate. The fiscal measures of the states, which they support, always obey the “three Ts” (Temporary-Targeted-Timely) rules that emerged during the 2007–2008 crisis. In their forward-looking narrative, as soon as the recovery is clearly underway, a new sequence of responses to the crisis may emerge and monetary policies may gradually return to a “normalcy” that is currently out of reach, as are “normal” fiscal policies. If inflation accelerates, they will not fail to intervene to “cool down” the overheating machine, according to the classic metaphor. The issue will become very topical in 2022, with the war in Ukraine and the predicted rise in energy and food commodity prices. Will the ECB, for example, help limit the extent of fiscal tightening by asking “surplus” states to compensate for the spending cuts of the most fragile, as it did under President Mario Draghi? Or will the movement be so powerful that it will force the ECB to continue to intervene massively on the monetary front to avoid an even more acute crisis in the euro zone? How can the resurgence of the inflationary threat affect the monetary debate, especially within the euro zone? Once again, tensions have arisen within the Governing Council, resulting in the further marginalization of the monetary hawks who prioritize the fight against inflation. As in other regions of the world, the proponents of unconventional policies seem to have temporarily triumphed over their orthodox opponents, who are still worried about the resurgence of the hyperinflation of the past. The resurgence of the debate on the inflationary threat from 2021 onwards shows, however, that we must be wary of drawing any definitive conclusions on this matter. The continuation and acceleration of QE policies contribute at the same time to reinforcing the unequal dynamics linked to financialization: more than ever, QE policies feed financial speculation without having a clear knock-on effect on the level of employee remuneration, whose relative value continues to fall in comparison with the prices of financial and real estate assets. While they make it possible to avoid deflationary processes, they do not stimulate virtuous socio-economic dynamics, and the shock of energy prices in 2022 places them in a new situation.
What contribution can economic sociology make? One of the first challenges of economic sociology is its contribution to an analysis of socio-historical processes likely to enrich and improve existing interpretative frameworks and, in particular, to go beyond a conception based on the still dominant idea of a self-regulating, transparent, linearly expanding and, above all, fundamentally efficient market, to which an independent and conservative central bank is attached. From this point of view, the particular importance given here to multilevel interdependencies and power relations between actors implies adopting both a structural and historical view ( Joly, Lebaron 2022) of economic and financial processes. This is already the case in international political economy or in many historical studies, and to a certain extent in economic science (Boyer 2011). This approach implies in addition for sociologists, by relying on their own investigative approaches, to determine in each case with precision the particular configuration of the relevant actors, their relational structures, their practices and discourses. Economic sociology, in particular the sociology of financial markets, has developed various conceptual and methodological tools to think about individual and collective action to analyse the power relationships between them, and to integrate into the
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analysis the role of ideas, instruments and interests in financial processes and public policies have been thoroughly investigated. These concepts and tools allow us to think differently about the issues facing central banks and monetary policies today. A first element, common to many sociological and historical studies, is the importance given to concrete actors in the (private and public) world of finance, provided that they are resituated in their various contexts or environments of action. By concrete actors, we mean not only individuals, with their past and their trajectory, but also firms and more broadly organizations that participate in the ordinary functioning of this universe. Individual actors are characterized by dispositions, resources and ways of acting, thinking and feeling, beliefs and interests, which are continuously confronted within institutions, which are themselves placed in relations of competition, strategic alliance or confrontation that are constantly evolving. Each professional group involved in financial activities has its own characteristics and, within each group, “individual styles” are also specified. The empirical study of the universe of financial professionals thus provides a set of key elements (Boussard 2018). In particular, the actors of monetary policy and financial regulation (for the ECB, see Bowles, Dufour 2021) are situated at the intersection of three major social universes: the academic world (Mudge, Vauchez 2018), the financial markets and the State in the broad sense. It is by anchoring them in the empirical exploration of these universes that we can understand the way they act and represent themselves in the world. Research on central bank actors has had a role in the realization that individuals and their social properties matter to the functioning of the economy: depending on the characteristics of board members, monetary policy orientations vary, as seen in the case of the ECB (Lebaron, Dogan 2016). Anchoring the sociology of finance in a biographical, qualitative approach allows us in particular to reintroduce a form of subjectivity of the actors who populate the financial world. An ethnographic approach leads us even further in the understanding of the motives and forms of action (Ho 2009). A second essential component of the sociological approach is its relational postulate, or “methodological relationism”, which can be applied in many ways and at different scales. Studies mobilizing network analysis are the most obvious, and arguably the most practiced, “relational” approaches in economic sociology (Lazega 1994): its tools apply particularly well to the networks of financial and banking actors that determine the systemic functioning and governance of contemporary capitalism (Uzzi 1999; Dudouet et al. 2015). In the case of central banks, several studies have also addressed their dynamics through networks of participations in organizations related to the transnational central bank universe (Marcussen 2006). Another, more encompassing relational perspective is associated with the notion of field initially promoted by Bourdieu (2022) and adapted by neoinstitutionalist sociologists such as Fligstein and McAdam (2012). An often overlooked aspect of the notion of field is its insertion into a broader theorization of social space: it allows us to deploy the hypothesis that individuals, whatever their behaviours and interactions, and the institutions within which they act, are inserted into systems of objective relations defined on the basis of their unequal endowments in capital of all kinds, not only financial or economic. These relations largely determine their practices or their decisions. Therefore, the insistence on internal power relations within the field does not imply losing sight of the interdependencies between fields and sub-fields but on the contrary associates them with power relations and asymmetrical endowments in various types of capital.
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In the light of this research, the field of finance appears to be a highly differentiated space but also one that is strongly hierarchical between interdependent poles, where unequal professional groups evolve (Lagneau-Ymonet, Riva 2011): they are bearers of multiple orientations, specific interests and particular capital. This field is characterized by the tension between a public pole, with central bankers and public financial administrations, endowed with a form of scientific and state legitimacy, and a private pole, itself highly segmented and hierarchical, maintaining complex relations with the rest of the economy. This last pole is characterized by the growing weight of asset managers at the expense of “traditional” bankers, which has led some authors (Montagne 2016; Benquet, Bourgeron 2021) to speak of a “second financialization” based on the rise of third-party management and new financial vehicles. The contemporary dynamics of finance are inseparable from the evolution of these power relations on a global scale; the trend towards the parallel assertion of the public sector through QE and that of asset managers is the direct or indirect consequence of the obvious failures of private finance, which have become sources of gigantic opportunities for profit linked to the expansionary monetary policies pursued since 2008. The close relationship between central banks and the dominant players in private finance is thus constantly being reconfigured. A third component of contemporary economic sociology concerns the place occupied by representations, beliefs, ideas, instruments and discourses in the most ordinary functioning of the economy. Whatever the approach, it makes room for the concrete activities that make up the world of finance, including its public component, by linking them to various cognitive processes and devices, including at the micro-sociological level. Attention to the cognitive-discursive dimension of social activity is present both in analyses centred on the performativity of financial theories, attentive to the sociotechnical devices that make it possible (MacKenzie 2006; Callon, Muniesa 2009), and in approaches that give a more important role to the material and symbolic interests of the actors underlying the financial ideologies and doctrines, including neo-institutionalist accounts (Carruthers et al. 2001). In all cases, financial actors are neither profitmaximizing automatons nor mere bearers of abstract doctrinal beliefs, but rather concrete social agents situated in multidimensional environments that are constantly changing, mobilizing various resources and cognitive supports, which are expressed on a day-to-day basis in both their practices and their discourses. Studies show in particular the importance of the linguistic and social properties of central bankers’ communication and discourses (Holmes 2013; Guilbert, Lebaron 2017). The crisis of the dominant financial belief, which was acutely expressed in 2007– 2009, has not yet led to a revolution in the conceptions at work among public or private actors, even if the idea of an efficient market has remained strongly contested. The paradox of the current period is undoubtedly that the maintenance of the established cognitive order in the financial sector is based above all on a radical break in the monetary doctrine of central banks, which has seen the triumph of non-conventional policies in exact opposition to the traditional orthodoxy centred on the sole monitoring of prices and control of the money supply. This break has led central banks to be defined more than ever as the day-to-day guarantors of the stability of the entire system, and the result is that their decisions (for example, future interest rate hikes) are more than ever likely to affect all financial and economic actors and their (im)balances. More than ever, it is therefore the interdependence between central banks and financial markets that is at the heart of the issues.
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Scientific perspectives on the sociology of financial markets, monetary policies and central banking If sociology produces rich empirical descriptions of the past and the present, based on heuristic concepts and multiple approaches, it could also mobilize modelling strategies, which are still underdeveloped but will probably become more important in the future. The relevance of a scientific discipline is also measured by its capacity to represent in a clear and simple way the functioning of a complex universe (modelling) and to infer reasonable forecasts (forecasting): the power of market finance rests in part on its at least apparent capacity to tell the future, largely in a performative way and, by definition, optimistic and simply readable for the actors. The same is true of the models used by central banks, which do not merely predict but also make a certain future happen, including through their narrative (Guilbert, Lebaron 2017). The failure of mainstream financial models to predict crises (Walter 2013) is the counterpart of this performative power in ordinary times and reflects on more classical macroeconomic forecasting tools (Pilmis 2019). In contrast, the “prophets” are those actors who anticipate the future reversal, even with very low initial probability (Pénet 2019). However, the limits of the standard model are now partially integrated, for example in research on the macro-prudential regulation of the financial system: to avoid crises, prevention tools give public actors at least the feeling that they are controlling systemic risks (Thiemann et al. 2020). As long as a critical situation (bank failure, government default, etc.) does not arise, finance is considered to be “under control”, and private actors can engage in limitless accumulation, facilitated by their neutralization in various forms, of legal regulations. The interdependencies of the financial system are asymmetrical and linked to multiple and continuous monetary and financial flows: borrowing and lending and, more broadly, exchanges of all kinds determine the dynamics of these interdependencies. This is particularly clear in periods of acute crisis: the potential failure of one actor affects many others, linked to it by commercial or financial relations, and public action has always tried to prevent and limit these domino effects. Economists, from Quesnay in 18th-century France to the post-Keynesians today (Berr et al. 2018), have represented the flows (and stocks) of the economy in the form of “circuits” in which money and credit play a decisive role, endogenous to the overall economic dynamic. One of the limits of these representations is that they tend to erase somewhat the actors, their heterogeneity and their multiple relations of power, in favour of relatively homogeneous processes, relations that are by definition “fluid” and devoid of tensions (apart from the overall relationship between wage earners and capital owners). A potentially fruitful perspective should thus add to the necessary study of monetary and financial flows between actors a more precise formalization of the nature of their relations of reciprocal dependence, and in particular of the social power relations that condition the dynamics of the flows themselves. Methods such as network analysis and geometric data analysis can provide more precise multidimensional descriptions of the social spaces concerned and prerequisites for modelling interdependencies. The ability to predict the dynamics of a system as complex as the contemporary financial world thus depends first of all on the ability to accurately represent the actors, their interdependencies and their power relations, including symbolic ones, in a dynamic perspective. New modelling tools, which make it possible to take into account all of the actors and their decisions within an economy, are thus undoubtedly called upon to be
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more strongly mobilized in a sociological perspective, by integrating in particular the public/private duality at the heart of the analysis. Agent-based models (ABM), already used for post-Keynesian macroeconomic modelling (Seppecher 2018), are an example of formalization tools that could also allow, for example, the insertion of social relations into the functioning of a complex system of actors at different scales. Moreover, non-linear dynamic models, long since introduced in finance in opposition to the standard model (Walter 2013), could also in the future be enriched by closer exchanges with sociological analyses of the fields of finance and economy. The model could thus gain in realism and empirical relevance, in particular by shedding light on the different issues at stake in the asymmetrical interdependence relations characteristic of these fields. This would perhaps make it possible to better model the dynamics of relative prices and their evolution, based on a more precise knowledge of all the interdependencies characterizing the global economic system. A multidimensional dynamic model of the world economy would then be a basis for forecasting. One of the difficulties of forecasting is the fact that the issues at stake change over time and with the dynamics of public policies, which partly condition financial processes, prices and, in turn, public policies themselves. Thus, new trends have emerged within central banking, on which social scientists can provide readily available insights: the processes of putting on the agenda and constructing public problems (Zittoun 2014) are now a key element in interpreting the evolution of central banking and condition future processes. While the discourse that central banks have a role to play in addressing climate change made notable advances during the pandemic crisis, one wonders what this inflection means for the future of central banking. In a recent exchange, two members of the ECB’s Executive Board, Isabel Schnabel and Frank Elderson (2021), discuss what the central bank could do about climate change, both through its monetary policy (as part of its support for the objectives of the European Union, as long as it does not jeopardize the objective of price stability), and as supervisor of the major European banks (the unification of the “green capital” market being the main watchword in this area). The link with the pandemic is clear, however: the health crisis opens a window of opportunity for energy policy and seems to facilitate the acceleration of what is presented as a necessary and structural awareness. To date, however, the concrete translations of the central banks’ commitment to actively participate in the energy transition still seem limited, even if some studies point to the already notable effects of certain measures. The reference to the participation of citizens in institutions serving the people (Dietsch, Claveau, Fontan 2018) is also beginning to penetrate the centralized and vertical space of monetary policy. Councils composed of a few individuals continue today to steer the monetary and financial future of billions of citizens, while a few central banks largely determine the course of global monetary and financial processes. This operates in the relative absence of democratic control, apart from the fact that central bankers are appointed by elected political actors draped in popular legitimacy. This emerging issue could intensify as the fair representation of citizens in the leadership of monetary institutions is put on the agenda, with potential consequences for monetary policy and financial regulation decisions. The arrival of Christine Lagarde in 2019 as president of the ECB, a few years after Janet Yellen’s nomination at the Fed, illustrates a recent acceleration in the representation of women at the helm of major central banks, even if the phenomenon remains marginal on a global scale (Lebaron, Dogan 2016). In the ECB’s governing council,
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two female members of the executive board do not make up for the absence of a female governor of a national central bank in 2020. Globally, women represent less than 10% of all governors, and their access to the boards is often through the back door of internal careers and specialized legal-institutional skills, frequently combined with a strong international capital: mastery of languages, ease in international arenas, careers in international organizations, etc. One can obviously ask to what extent these three dynamics of “putting on the agenda” will translate into changes in monetary policies and affect the deep processes associated with financialization, alongside the technological changes linked to the use of crypto-currencies and digitization, which are more and more often discussed, or the traditional variations of parities on the currency market in a context of instability. On these various levels, sociologists can also, through their empirical work, contribute to the debates and formulate proposals for rational evolutions: these could go in the direction of a democratic and common good-oriented monetary policy, especially in the context of global socio-environmental change (Dietsch, Claveau, Fontan 2018). Whether or not forecasting relies on formalized models and statistical tools, it is in any case confronted with the complexity of the power relations that structure the world of finance and interact intensely with those that are specific to the global economic and political fields: the rise of new national actors, the declining trend of Western hegemony and in particular that of the United States, the increasingly intense geopolitical and geo-economic tensions or conflicts around climate, energy or food sovereignty, and, finally, the general crisis of globalization.
Note 1 Sarah Kolopp and Caroline Vincensini are currently studying this issue inside the ANR Desorbercy project (with P.Zittoun, P.Hassenteufel, F.Lebaron, P.Pénet, R.Cos, U.Lepont).
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26 Sociology of consumption, leisure, and lifestyle What is a theory of consumption a theory of? Jörg Rössel, Patrick Schenk and Sebastian Weingartner Introduction This chapter seeks to provide an overview of the major social scientific strands of theorizing about consumption. We distinguish (1) the individualist tradition prevalent in social-psychological and economic approaches to consumption, but also in the more analytical realms of sociology, (2) the socio-cultural approach to consumption, strongly influenced by philosophical and sociological accounts of modern, contemporary society, and finally (3) practice theories, which have become the most widespread theoretical approach in the sociological analysis of consumption. We go beyond merely presenting the three different strands of theorizing and provide a systematic comparison of their analytical potential. For each theoretical approach, we discuss its treatment of three central aspects of consumption (acquisition, use, and disposal) and its performance as a scientific theory (e.g., function, clarity, testability). Thus, this is not a simple horse race between the different perspectives, but an attempt to disentangle the strength and weaknesses of each theory. To illustrate the approaches, we mainly use the example of sustainable consumption. Not only does sustainability concern all aspects of consumption, but it is also a timely and central research topic in the sociology of consumption. Before presenting the three strands of social scientific theorizing on consumption, we first develop a rough notion of what a theory is or should be. Additionally, we present a broad definition of consumption, displaying the full set of possible explananda for consumption research. In the final chapter, we summarize our discussion of the three approaches in light of the varying subsets of research objects covered and the criteria for the evaluation of their scientific potential.
What is a theory? In this chapter, we cannot fully discuss all the ramifications of what a theory is. This is a vast topic in the philosophy of (social) science (Godfrey-Smith 2003). Thus, in our chapter, we develop a very simple concept of “theory”. Very basically, it consists of general statements going beyond concrete empirical assertions such as “The French Revolution started in 1789” or “On average each American reads three books a year”, covering more general ideas about revolutions or reading behavior ( Joas/Knöbl 2009; Risjord 2014: 38–39). However, theories usually consist of more than one such general statement. They are a network or system of such general propositions. The different statements in a theory are argumentatively related; in a strict sense, they should be logically related. The main criterion to distinguish a scientific theory from, e.g.,
DOI: 10.4324/9780367817152-30
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conspiracy theories or religious statements is falsifiability: from a scientific theory we are able to deduce assertions about the empirical world that can be tested by scientific methods. Thus, a scientific theory is one that could be wrong when confronted with the empirical world (King et al. 1994: 19; Joas/Knöbl 2009; Risjord 2014). Theories that cannot be wrong are by definition not informative at all and cannot be considered scientific. Moreover, it is much easier to derive testable hypotheses from theories formed of logically related and clearly formulated assertions based on precisely defined concepts (Hedström 2005: 3–4). If you are not exactly sure what a term or concept in a theory means, it is difficult to derive clear empirical implications from such a theory. Ultimately, the main function of theories is the causal explanation of observable phenomena, answering questions such as: what are the causes for the extinction of the dinosaurs? Why do metal objects expand when heated? This concept of theories has its origin in the natural sciences (Risjord 2014: 38–39). However, the social sciences deal with different types of phenomena and therefore theories in the social sciences diverge in their functions and their type of explanations from theories in the natural sciences. In contrast to dinosaurs and metal objects as the topic of the natural sciences, the social sciences deal with the meaningful behavior of conscious agents. Human subjects do not only associate meaning with their own actions, but they form their own first-order explanations of their meaningful behavior, e.g., “I bought a fair trade product because this may help to change the global inequalities of wealth”. Therefore, in our explanation of human behavior, we have to take the actors’ meanings and interpretation of their own behavior into account (Little 1991; Risjord 2014: 42–48). Still, as in the natural sciences, explanations should be generalizable and testable based on empirical data covering other cases. A typical form of such generalizable explanations taking the meaningful behavior of actors into account is so-called mechanistic explanations focusing on causal mechanisms linking certain causes with certain effects. Explanations focusing on causal mechanisms trace the series of events linking cause and effect based on the intentional, meaningful behavior of individuals (Little 1991: 15–16; Hedström 2005: 26). A successful causal explanation should minimize the black box between cause and effect. Apart from providing causal explanations, theories in the social sciences have several more functions (King et al. 1994; Hedström 2005: 12–14; Lohse/Greve 2107: 559–560). One function is to provide concepts and theoretical generalizations for descriptions of social phenomena. In some fields of social sciences, so-called thick descriptions, which embed social phenomena in their meaningful social context, are also seen as explanations (Risjord 2014: 46–48). This idea of thick description indeed fulfills the criteria for providing an understandable account of certain social facts; however, it fails with regard to generalization and testability (Little 1991; Watts 2014). Beyond description of wellknown areas of social behavior, theories might also help to explore new or unknown fields of social behavior. In some cases, description and exploration might also focus on the overall macrotrends of societies (e.g., Bauman 2001; Beck 2010). In order to uncover such major trends of contemporary societies, established theories might help to provide a theoretical frame of reference and a consistent vocabulary. This brief account of theories in social science provides us with some clear criteria with which to evaluate the three strands of theorizing about consumption. First of all, theories should be written in clear and precise terms and formulations and, furthermore, in order to be scientific theories should be falsifiable. Apart from these criteria, we will discuss the three theoretical approaches with a focus on the functions they are
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able to perform. Most importantly, do they provide explanations or merely terms and concepts with which to establish descriptions of current societal trends?
What is consumption? In this chapter, we define the concept of consumption and identify the aspects of consumption that should be explained by theories of consumption. A very narrow definition of consumption focuses only on the decision to buy or not to buy certain goods or services (Warde 2015: 118). However, this definition would only cover part of what is usually considered the sociology of consumption (Warde 2015). Broader definitions include the acquisition, use, and disposal of goods and services (Wiswede 2000). If, by contrast the starting point is the process of consumption, conceived as the appropriation and use of goods and services, attention is paid less to exchange and more to the social organization of activities through which items are incorporated, deployed and disposed of. (Warde 2015: 118) Yet, not all acquisition and use of goods and services can be subsumed under the label of consumption. A definition of consumption has to refer to the meaning of the intended behavior. In contrast to, e.g., investment or production, in consumption goods and services are used for ones’ own direct needs and not for production of new goods and services, which can be exchanged or sold on markets. Thus, our definition of consumption is this: consumption is defined as the acquisition, use, and disposal of goods and services for ones’ own needs. It should be understood as a process consisting of several aspects, at least the acquisition, use, and disposal of goods and services. Beginning with acquisition, the sociology of consumption has to focus on the development of needs, desires, and intentions for goods and services. Furthermore, acquisition in terms of physically obtaining goods and services may take place in different ways: subsistence production, market purchase, sharing, or receiving gifts (to mention just some major alternatives). For instance, if we are interested in sustainable consumption, we may research the frequency of buying products, buying environmentally friendly or fair trade products, cultivating vegetables in one’s own garden, or visiting specialized organic stores. The use of consumer goods and services is a second, polymorphic aspect of consumption. This includes not only a product’s intended use, but also, of course, non-intended ways of consuming goods and services, e.g., when using a guitar as candleholder. Furthermore, using a product or service involves different forms of storage and care, be it repairing your lacerated jacket or exchanging oil in your car. Use, then, encompasses very different activities, ranging from simple instrumental activities (e.g., using de-icing salt to keep the pavement free from snow) to fun and enjoyment (e.g., while listening to your favorite music) to signaling social status (e.g., hanging abstract Expressionist paintings on the walls). Moreover, all these forms of consumption can be performed in quite different modes. A very important dimension of such modes of consumption is the degree of activity. One can listen to music more or less passively, but also with a high level of intellectual or bodily involvement, and with an even higher level of activity one can make music oneself. Not only the degree of activity might differ, but also the degree to which the use of a consumer product or service may be relevant to one’s
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identity. Owning a bible can be quite different for the identity of devout Christians compared to persons just keeping it because of family traditions. Beyond identity, the use of consumer goods always involves dealing with materiality and having appropriate skills, e.g., being able to play guitar. Finally, the disposal of consumer goods and services has become an increasingly important issue with regard to environmental problems. In contrast to simply discarding things, different alternatives for a more sustainable consumption of goods have to be considered. Things may be recycled, offered on second hand markets, given away to charities, etc. From a sociological perspective, we wish to emphasize two additional aspects of consumption that are important in each of the three phases (acquisition, use, disposal). First, gathering of information is necessary for consumption from the first stages of forming a desire, buying a product and using it, to its disposal. Second, social inequality in terms of social class, gender, or ethnicity is an omnipresent aspect of consumption. The appropriation of goods usually depends on available economic, cultural, and social resources. In sum, theories of consumption need to cover a considerable set of explananda related to the acquisition, use, and disposal of consumer goods and services. In the following review, we will highlight only those aspects of consumption that each strand of theorizing usually deals with; we assume that not all aspects are covered comprehensively by each theoretical perspective on consumption.
Major theories of consumption Individualist theories: consumption as decision In this section, we focus on theories that explain patterns of consumption as the result of individual decision-making. The theories we discuss under the label of decision theory originate mainly from economics, psychology, and sociology, are widely used in consumer research, and have an individualist approach. This means that they assume that social phenomena – be it consumption patterns or trends – can be explained by referring to individual choices of certain types of consumption behavior. All these theories are usually based on an idea of decision-making assuming two filtering processes: the first filtering process is related to the available opportunities: which alternatives are feasible for a person? For instance, Lisa has to choose a means of transport to get from her house to her place of work, which is a trip of 12 kilometers. She has a certain opportunity set of feasible alternatives available. She may have a car and a bicycle in her garage, and the next bus station is a 30-minute walk away. All these means of transport have different implications regarding time and monetary costs. Thus, persons decide within this opportunity set of feasible alternatives based on a second filtering process entailing an individual’s preferences (desires, motives). Lisa may take the bicycle, because for her as a sporty person this is a convenient way to include exercises in her daily routine and to get to work rather quickly and without great monetary expense. Typical examples of such theories are rational choice theory (RCT), prevalent in economics and sociology, the theory of planned behavior (TPB), which is widely used in social psychology, and dual-process theories originating from psychology. In general, RCT rests on three propositions (Opp 1999). First, the theory assumes that behavior is motivated by preferences for specific goals. Second, it is assumed that individuals face certain constraints when they pursue these goals. These constraints might
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decrease or increase the possibilities for the realization of desired goals. Therefore, these two assumptions are consistent with the two filters mentioned above, although in RCT both filters enter the decision-making process at the same time, determining the utility of each alternative. Third, the theory assumes that individuals choose between different alternatives according to a decision rule. Most often, RCTs propose that individuals choose those actions that best satisfy their goals, thus maximizing their utility, taking into account the constraints (Opp 1999). Therefore, RCT predicts that persons choose a sustainable product only if the utility derived from this product is higher than the utility derived from a non-sustainable substitute. RCT therefore underscores that human action is simultaneously determined by motivations and constraints. Certain individuals might hold motivating beliefs about desirable goals of consuming sustainably. Yet if the constraints do not contain feasible courses of action to realize these goals, they do not translate into sustainable consumption patterns (cf. Diekmann/Preisendörfer 2003). Methodologically, this implies that the influence of motivations can only be assessed if one controls for constraints. TTPB explains behavior by a behavioral intention, which is a function of the attitude toward the behavior, the subjective norm, and the perceived behavioral control (Ajzen 2005). The attitude toward the behavior represents its overall evaluation, based on the behavior’s anticipated positive and negative outcomes. The subjective norm refers to the perceived social pressure to execute or refrain from some behaviors. Perceived behavioral control is defined as the assessment that the actor could execute a behavior if s/ he so wanted to. For example, the more favorable a person’s evaluation of sustainable products, the stronger the belief that others expect the person to buy sustainable products, and the stronger the person’s belief that he or she actually can buy sustainable products, the stronger the intention and consequently the more likely the consumption of sustainable goods. According to previous research, it is primarily the attitude and the perceived behavioral control that influence such consumption patterns. The subjective norm is only likely to influence behavior under certain conditions, for example, if the behavior is publicly visible (Farah/Newman 2010; Greaves et al. 2013). Therefore, compared to RCT, TPB takes the two filters into account in a somewhat different way: motives and desires of a person enter the attitude toward the behavior via its’ perceived expected benefits, whereas the constraints and opportunities for a certain behavior enter the model via the perceived behavioral control. The subjective norm simultaneously functions as an external social constraint on behavior and a goal of behavior if the consumer derives a personal benefit by conforming to the expectations of significant others. RCT and TPB theories assume that a decision is preceded by a rational calculation of the pros and cons and in the end a course of action is chosen. However, the subjective decision for the “best” course of action may not always conform to objective standards of logic, probability, and rationality, since human thinking often involves biases and in many situations persons use simple heuristics to make smart and quick decisions (Gigerenzer et al. 2001). More generally, in psychology and social-psychology, so-called dual-process theories have explicitly focused on the mode in which human beings take their decisions (Evans 2008). They assume that human decisions may conform either more to a kind of conscious, rational calculation of different alternatives with their costs and benefits (similar to RCT or TPB), or more to a kind of automatic choice involving rather spontaneous or routinized behavior. Within dual process theories, it is often assumed that the mode of decision-making depends on motivation and opportunity. Thus, for very important decisions, e.g., when buying a car that should be as
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eco-friendly as possible, individuals are motivated to think rationally and consciously about the different alternatives. However, in many everyday decisions, e.g., when visiting the same coffee shop every morning, individuals are hardly motivated to deliberate all available alternatives and instead automatically choose their usual brew. Apart from motivation, a conscious and rational process of decision-making depends on the opportunities to do so, i.e., having enough time and being in a clear mental state. In the car buying example, the process of decision-making may take some weeks or even months, whereas in the coffee shop example the choice takes place in a few seconds. Common dual process models are the MODE model in social psychology (Fazio 1990) and the Model of Frame Selection in sociology (Kroneberg 2014). After presenting the models of individual decision-making more generally, we will now discuss the central motives and constraints relevant for explaining sustainable consumption. In the preceding paragraphs, we pointed out that both motives and constraints guiding consumption are rather heterogeneous. Thus, in the following discussion, we will follow the two-filter model we introduced as a kind of basic theoretical framework covering all the different decision-making models. The most important motives for behaving in a sustainable way are usually positive attitudes and normative obligations toward sustainability, in the case of ecological food especially health motives (Sha et al. 2007; Bray et al. 2011; Sunderer/Rössel 2011; Rana/ Paul 2020). Furthermore, many forms of goal-directed consumption behavior aim at the construction and confirmation of the personal self (Belk 2013). This is also relevant for sustainable consumption: Schenk, Rössel, and Scholz (2018) find that reducing meat consumption is strongly driven by an identity as a vegetarian. Another very important idea in sociology and consumer studies is that consumption is often driven by the desire for distinction, to show one’s uniqueness or social standing by choosing products signaling a certain identity (Han et al. 2010; Berger/Shiv 2011). However, Berger (2017) was not able to show that wearing “green” products can be explained by a distinction motive. In contrast, Schenk et al. (2021) show that having a distinctive lifestyle is closely correlated to fair trade consumption. A final important discussion in consumer research is the distinction between more utilitarian consumption directed toward reaching clearly defined objective goals (freeing the pavement from ice and snow with de-icing salt) and more hedonistic consumption directed toward pleasurable experiences. For a long time, hedonistic consumption was seen in opposition to sustainable consumption, which was perceived as dominated by self-restraint and moral discipline, therefore having a rather austere nature. However, recent studies increasingly emphasize the emergence of alternative forms of hedonism reconciling sustainability and pleasurable experience (Caruana et al. 2020). Thus, this short overview shows that decision theories can take into account quite different motives that help explain sustainable consumption. Regarding constraints and opportunities Aschemann-Witzel and Zielke (2017, cf. Bray et al. 2011) show that the higher price of organic products is one of the most important barriers to consumption, despite the fact that sustainable consumers are less price-sensitive than others and willing to pay a premium of up to 30%. Besides price, Bray et al. (2011) also mention the availability, the lower quality, and the greater effort required to acquire sustainable products as further constraints of sustainable consumption. A further important barrier is established routines that are followed in a quite automatic way, as discussed in the dual-process models. Pulling away from these routines needs prioritization of sustainable consumption goals and the development of new plans and habits of consumption (Carrington et al. 2014).
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The focus on constraints and opportunities immediately leads to another topic, that of social inequality along the lines of class, gender, and ethnic differentiation. This important sociological issue can be connected in a rather straightforward way to theories of decision-making, since the unequal distribution of resources in society is closely connected to the inequality of constraints and opportunities in situations of choice. However, with regard to sustainable consumption, results have hitherto been rather mixed and have not shown a strong relevance of social inequality for sustainable consumption. In principle, the individualist theories presented here are able to explain every aspect of the consumption process as long as it is conceivable as a result of individual choice. They can refer to the decision about what to buy (an eco-friendly or a conventional product), how to use a product (driving a car only when necessary or even for shorter trips), whether to share a product or not, how to recycle or dispose of a certain good (recycling versus ordinary waste), and even decisions on the degree of activity involved in using a product (sometimes using an e-bike with the power unit switched off ). Therefore, each aspect of the process of consumption can principally be explained as the result of an individual choice. However, the majority of the studies in this theoretical tradition focus on the acquisition of (sustainable) goods and services and, more recently, on the sustainable disposal and recycling of goods while neglecting the use, storage, and maintenance of products. The advantages of this theoretical tradition are its conceptual precision, its empirically well-established explanatory power and finally the fact that its explanations are based on precise and meaningful mechanisms. Understanding and explaining consumption as the result of a process of decision-making is something that is meaningfully intelligible to scientists and lay persons alike. Yet the causes these theories address are often quite close to the explanans and therefore seem somewhat trivial. For example, it does not appear very enlightening that a person chooses the product she likes (i.e., has a positive attitude toward it). While this is certainly true, the merit of such approaches also lies in their potential to identify complex motivational underpinnings by empirically assessing the relative importance of various motivations and constraints. Socio-cultural theories: consumption as culture In this section, we discuss a family of theories that regards consumption as a historically contingent phenomenon. From this perspective, then, consumption needs to be explained by the cultural conditions of modern, contemporary societies. The explanatory relevance of this approach becomes evident if we imagine what consumption in other historical epochs looked like. For example, in a European feudal society in the 18th century, life was guided to a very large extent by regulations tied to social standing. It was, for instance, prohibited for simple rural peasants to wear garments made out of foreign cloth or to eat higher quality meats such as venison or fish. In advanced capitalist societies, consumption looks markedly different. Today, consumers must make informed choices between a myriad of products in supermarkets, online shops, or specialized stores. We can further characterize the socio-cultural approach using two criteria. First, its primary theoretical function is to provide a concise description of the essential characteristics of modern societies, their development, and their consequences – in short, an analysis of pivotal societal trends (Schimank 2007). Hence, this approach encompasses not only theories about consumption but about social life in contemporary societies
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more generally (Bauman 2007). For example, when these theories speak of “responsibilization”, they mean that individuals in contemporary societies are held personally responsible for their choices not only when it comes to consumption (MacKendrick 2010) but also in other domains (i.e., education or work) or even for their happiness in general (Binkley 2007). Yet, as all of these theories conclude, consumption plays a vital role in modern life (Bauman 2007). Second, although their primary function is descriptive, these theories have clear implications for the explanation of current consumption patterns. In contrast to individualistic theories of consumer choice, they imply a “top-down” perspective, consistent with methodological holism, in which consumption is situated within and thereby explained by overall societal trends. Therefore, they primarily refer to concepts on the macro- and meso-level, such as culture (Giddens 1991; Bauman 2001; Beck 2010), discourse (Foucault 1979; MacKendrick 2010), and collective actors such as the state, companies, or social movements (Rumpala 2011). Taking into account personal health when choosing a product, for example, is not just an expression of personal values or attitudes (Ajzen 2005), but a manifestation of wider socio-cultural processes, such as, as some might argue, the rise of neoliberalism, for instance (see below; MacKendrick 2010). In the following, we briefly discuss four examples of such theories: reflexive modernity, liquid modernity, singularization, and neoliberal governmentality. According to the theory of reflexive modernity (Giddens 1991; Beck 2010), the second half of the 20th century experienced an unprecedented level of individualization. The bonds of tradition and social class have lost their grip. The reasons are three-fold. First, increasing levels of education and wealth as well as the expansion of the welfare state have widened the opportunities to shape one’s own individual biography. Second, due to the dissemination of the principle of scientific doubt, traditions have lost their unquestioned authority (Giddens 1991). Third, modernity has created new global risks (e.g., nuclear war, climate change), which fosters uncertainty but also sharpens a feeling of social responsibility (Beck 2010). As a consequence, individuals have become more reflexive and knowledgeable. They are capable of self-monitoring their behavior and they have an understanding of the social conditions under which they live (Lee 2006). These structural and cultural processes of reflexive modernization have changed the parameters of modern consumption. They are, for instance, major reasons for the rise of sustainable consumption. Reflexive modernization has increased the awareness of the manifold links between everyday consumption and global problems, such as poverty in the Global South or environmental destruction, and opened-up new possibilities to take direct individual action by making responsible consumer choices (Lee 2006; Koos 2012). In his theory of liquid modernity, Bauman (2007) adds to this argument by stressing how consumer culture and modern capitalism have replaced stable needs with the ongoing creation of insatiable and fleeting desires and wishes. The transient nature of desires and wishes, coupled with the loss of social bonds due to individualization, induces feelings of anxiety. Consumers counter this anxiety by buying new products, promising some stability for their identity and life projects. However, this is a promise which can’t be fulfilled in the ephemeral social world of liquid modernity (Bauman 2007). The result is an endless cycle of new desires and wishes, anxiety, and consumption. As Bauman puts it, “there is a nearly ‘perfect fit’ between the characteristics of commodities the consumer market offers […] and the kind of anxieties and expectations which prompt individuals to live their lives as a string of shopping expeditions” (Bauman 2001: 24).
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For Bauman, then, unsustainable consumption patterns, such as overconsumption and waste accumulation, are endemic to liquid modernity. The ephemeral nature of wishes and desires forces consumers to discard and replace products, valuing newness over stability and durability (Bauman 2007). The third, more recently developed socio-cultural approach to consumption argues that social life in contemporary societies follows a logic of singularization. According to Reckwitz (2020), in the age of singularization, people, events, and objects that are unique (incommensurable, non-standardized, non-interchangeable) have become highly valued while people, events, and objects that are general (commensurable, standardized, interchangeable) have diminished in worth. Mass tourism, industrial food products, or diligent workers are no longer desirable. Traveling to unique places, consuming authentic foods, and being a creative self-entrepreneur have taken their place. Reckwitz explains the rise of this logic of the unique by a combination of social-structural, cultural, and economic changes. First, in the second half of the 20th century, an authenticity-revolution unfolded, fueled by educational expansion, which strengthened Romantic ideals and values of self-fulfillment, beauty, and individuality. Second, the transformation of capitalism from industrial production to the creative economy and, third, new technologies of digitalization have facilitated the production of singular goods and services. In contrast to theories of reflexive or liquid modernity, which stress the declining relevance of social class for modern life (Giddens 1991; Bauman 2007; Beck 2010), this approach sees consumption as class-based. The carriers of a singularized lifestyle are predominantly located in the new middle class, defined by high levels of education. A singularized lifestyle entails the estheticization and ethicization of all aspects of social life (Weingartner, Schenk, and Rössel 2020). Sustainable consumption is therefore a recurring component. As Reckwitz argues, consumers with singularized lifestyles have a differentiated understanding of esthetic and ethical product qualities, leading to the appreciation of the unique and authentic nature of sustainable travel destinations, fair trade coffee, organic fruit, and the like. Survey research confirms that sustainable consumption practices are simultaneously guided by esthetic and ethical orientations (Weingartner, Schenk, and Rössel 2020; Schenk, Rössel, and Weingartner 2021) and that lifestyles based on a combination of esthetic and ethical consumption practices are strongly related to social class (Kennedy, Baumann, and Johnston 2018). A final, widely discussed socio-cultural approach argues that modern consumption is shaped by practices of neoliberal governmentality (Foucault 1979). These theories seek to describe the ways in which individuals are disciplined by various authorities in order to conform to the demands of neoliberalism (Binkley 2007). Neoliberalism holds that the market is the most efficient institution for social coordination. It has supposedly led to deregulation, privatization, and competition, weakening the power of nation-states as agents for social change (MacKendrick 2010). Neoliberal governmentality entails a particular type of subjectification, meaning the constitution of individuals with aspirations, capacities, and moralities deemed necessary under neoliberalism (Binkley 2007). According to Rumpala (2011), the logic of neoliberal governmentality is also at work in sustainable consumption. In order to achieve sustainability goals, governance agencies, non-profit organizations, capitalist enterprises, and social movements treat the population as individual consumers which are expected to process information on sustainabilityrelated aspects in order to make rational decisions and exercise self-control. A case in point is the Nutri-Score system, visualizing the nutritional content on the packaging
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of food items, enabling and urging the consumer to make a healthy choice. Consequently, the responsibility for sustainable consumption is transferred to the individual. In line with this view, MacKendrick (2010) found in a quantitative content analysis of Canadian newspaper articles from the mid-1980s to the mid-2000s on “body burdens” (the internal contamination of organisms by environmental pollution) a shift from frames advocating collective action to counter the sources of contaminations to frames of precautionary consumption, promoting responsible consumer choices as a market-based solution. In principle, socio-cultural theories can and have been applied to all aspects of consumption. Yet, as we have seen in this overview, research has traditionally focused on the formation of needs (how and why have needs and desires changed historically), the capabilities of and demands on the consumer (such as knowledgeability or rational cost-benefit calculation), and the social consequences of consumption (how consumerism impacts the environment or civic life). Moreover, these theories are primarily interested in overall historical trends on the macro-level instead of variation between individuals on the micro-level. It is here that a major strength of the socio-cultural approaches lies. They provide concepts which describe and explore the cultural conditions of modern consumption, helping us to explain in a systematic fashion how motivations and opportunities for individual consumer choices have evolved. Theories of governmentality, for example, link the origin of labeling schemes, which have considerably improved the opportunities for sustainable consumption, to wider processes of neoliberalization (Rumpala 2011). This approach therefore provides general accounts of how and why the social conditions for consumption have changed in the longue durée, which is severely lacking in other approaches to consumption. However, this strength can also be a weakness. By trying to identify the essential characteristics of contemporary society, socio-cultural theories provide one-sided descriptions, ignoring other structural changes and postulating more social coherence and homogeneity than is actually there (Schimank 2007). Take the example of neoliberalism. Contrary to the thesis of the individualization of consumer responsibility, Welch et al.’s (2021) analysis of the food waste discourse in the UK shows that retailers actually promote distributed responsibility among all stakeholders. Likewise, Thompson and Kumar (2021) analyzed the “actually existing neoliberalism” in the Slow Food movement and found that these actors draw on local traditions of leftist politics, stressing collective autonomy and empowerment from market forces. According to these studies, then, various phenomena of sustainable consumption aren’t just the expression of one overarching social logic called neoliberalism. This illustrates how socio-cultural approaches run the risk of overgeneralizing and overestimating the causal significance of particular structural trends across various social domains and markets. To tackle this problem, socio-cultural theories need to be empirically tested. In principle, they imply falsifiable propositions. The main problem, however, is that such theories usually paint a picture of contemporary society with broad brush strokes and employ concepts that are unclear and imprecise. A lack of precision and analytical clarity is a major obstacle to falsification. Yet this is not so much a shortcoming of the approach itself as the way theories are put to work. We therefore strongly encourage empirical research to take up the main ideas of socio-cultural approaches, provide precise operational definitions of key concepts, and test these theories with various methods, as some studies have already done (MacKendrick 2010; Koos 2012; Thompson and Kumar 2021; Welch, Swaffield, and Evans 2021).
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Finally, the micro-foundations of socio-cultural approaches are arguably quite underdeveloped. To be fair, explaining variation on the micro-level is not the primary goal of these approaches. Nevertheless, the lack of an explicit theory of action gives rise to two issues. First, important aspects of consumption concerning the acquisition and use of products remain undertheorized. How exactly do processes of individualization, increased reflexivity, and feelings of anxiety work together to actually motivate individual purchasing decisions, for example? Second, it limits the possibilities of providing causal-mechanisms based on the meaningful behavior of intentional agents, therefore leaving the black box between structural causes and individual behavior larger than might be preferable. Between society and individual: consumption as practice The most recent approach to theorizing contemporary consumption is rooted in theories of social practices (SPTs). Although SPT is neither a unified theory nor a coherent and systemized family of theories in the strict sense, the least common denominator of SPT lies in its attempt to overcome the traditional sociological dualism between structure and agency (Giddens 1984; Bourdieu 1990). Hence, it rejects the primacy of social and institutional structures, as advocated in methodological holism, in favor of a more active role of individual agents. But it also rejects the primacy of individual (human) action as the sole foundation of the social, as advocated in methodological individualism, in favor of explicitly embedding individuals in social, material, and cultural contexts. Although this is a quite strong renunciation of almost all established accounts of social theory, understanding and explaining human behavior and its relation to social and cultural contexts is still central to SPT. However, especially in contrast to RCT with its focus on deliberative/intentional action, SPT emphasizes that action is primarily habitual and routinized and is, ultimately, an “appropriate” performance of given social practices (Bourdieu 2000: 138ff; Warde 2017: 197). This is why SPT is, for the main part, interested in rather mundane everyday practices (cooking, eating, doing sports, commuting, etc.) and therefore in understanding the lifeworlds of the individuals. In short, in SPT, human behavior derives directly, albeit interpretatively and not fully automatically, from preexisting social practices. But what are these social practices (or simply: practices) anyway? A practice represents a type of routinized behavior consisting of a bundle of various elements, including bodily activities, mental activities, things, understandings, states of emotion, and motivations, which are all organized in a particular way (Reckwitz 2002; Warde 2014). More specifically, practices are composite entities consisting of three main elements, each with several sub-elements (cf. Sahakian/ Wilhite 2014: 28ff ): (1) human bodies (including the brain and adjacent cognitive/ mental processes); (2) the material world (including all sorts of things, technology, and infrastructure); and (3) the social world (including social structures, institutions, norms, and values). In order to be competent “practitioners”, then, individuals must learn all these elements, that is, all the bodily movements, mental processes, handling of materials, and understanding of the social. Hence, knowledge and its transmission is crucial in SPT. Importantly, however, knowledge in SPT is not only declarative and explicit (“knowing that”), but mainly tacit, implicit, and embodied (“knowing how”; Reckwitz 2002: 253f; Ignatow 2007). Knowing how to ski, to take an example of a leisure practice with a heavy environmental impact (Sato et al. 2013; Hudek et al. 2020), includes not only declarative knowledge about where to find appropriate ski slopes and what
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equipment is needed, but also tacit and embodied knowledge about how the equipment is handled, how to behave while queuing at the ski lift, what food to appreciate at the ski lodge, and how to move the body to get down the mountain smoothly (and many other things). As soon as this kind of “practical knowledge” is shared among a certain group of individuals, one can speak of a practice. The consequence of such thinking in terms of SPT is that the smallest units of analysis for sociological inquiry are not individuals (as in individualist approaches), but the practices themselves, as composite entities. Thus, the individual appears in SPT as a mere “carrier” of practices (Reckwitz 2002: 256f ), which in turn seem to exist more or less independently of concretely assignable actors. In the realm of consumption research, SPT is the dominant and most vivid theoretical approach today (Warde 2014, 2017; Corsini et al. 2019; Evans 2020). The key shift that distinguishes SPT approaches from other consumption theories is the assumption that goods/services are not consumed for their own sake or because individual consumers have corresponding motives, but because goods/services are constituent elements of practices. For most practices, some form of consumption is required in order to perform the practice in an appropriate way. Consumption is thus built into and shaped by social practices (Warde 2005; Røpke 2009; Evans 2019). Taking the above example again, contemporary skiing practices predefine the consumption of material equipment (skis, poles, boots, helmet, etc.), means of transportation (trains, cars, ski lifts, etc.), accommodation (hotels, holiday homes, etc.), and natural resources (snow, mountains, etc.). Hence, SPT approaches to consumption diverge from individualist theories in several ways. First, consumption behavior cannot be explained by individual preferences or attitudes. Instead, practices generate needs, desires, and wants to the extent that individuals are socialized into them (Warde 2005). Second, consumption cannot be understood in terms of deliberate decisions of sovereign consumers (Warde 2017: 205ff ). Instead, SPT emphasizes that individual acts of consumption are constrained and partly predefined by situational circumstances (esp. material infrastructures or social pressures), habituation and learning careers (esp. preceding acts of consumption and socialization), and the embodiment of specific competences (esp. ways of handling objects and moving the body). Third, consumption itself is conceptualized in a specific way. As suggested by Warde in several publications (for a comprehensive overview see Warde 2017; also see Evans 2019), consumption of goods and services is a process composed of three separate steps. Besides acquisition , SPT primarily emphasizes the appropriation of goods and services, which refers to the (possibly creative) ways people integrate goods and services into their daily lives and, ultimately, their selves (see “use” in Section ”What is consumption?”). Additionally, SPT conceives the appreciation of goods and services as a separate aspect of consumption. This implies the evaluation of acts of consumption in terms of “moral, social and aesthetic judgments” (Warde 2017: 44). Compared to the one presented in the Section “What is consumption?”, this SPT-related definition of consumption does not say much about the disposal of goods and services. This criticism was also made by Evans (2019), who suggests additionally incorporating “devaluation” (vs. appreciation), “divestment” (vs. appropriation), and “disposal” (vs. acquisition) into SPT approaches to consumption. Hence, SPT, at least currently, does not cover all aspects of consumption equally well. This limitation is highly relevant for the study of sustainable consumption, which is one of the major themes of SPT approaches to consumption (e.g., Shove et al. 2012; Hargreaves 2011; Sahakian/Wilhite 2014; for an overview, see Corsini et al. 2019). Marginalizing
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aspects of divestment and disposal excludes important avenues for more sustainable developments. The example of sustainable consumption also helps illustrate the performance of SPT for consumption research according to the criteria presented in the Section “What is a theory?”. Generally, SPT is often regarded as the best approach for analyzing sustainable consumption, because of its inherent emphasis on the ordinary and inconspicuous activities of everyday life (Hargreaves 2011; Sahakian/Wilhite 2014; Kennedy et al. 2015; Warde 2017: 181ff ). As opposed to economics or social psychology with their alleged focus on individual motivations, SPT takes into account practices as a whole, i.e., established behavioral routines including learned knowledge, material infrastructure, and social pressures. Hence, behavioral change toward more sustainability cannot be reached by “personal education or ethical conversion”, but rather by “reforming the social organisation and infrastructures of particular practices” (Warde 2017: 197). In short, SPT literature argues that sustainable behavior is generated by sustainable practices. However, this argumentation poses some problems. First, there is the serious danger of tautology. If behavior is explained by practices and if practices include “routinized type[s] of behaviour” (Reckwitz 2002: 249), then explanans and explanandum are no longer clearly separable. Related to this, to effectively explain human behavior through practices, it would also be necessary to additionally explain which of the countless practices an individual performs (or “carries”) in a given situation in the first place. Without specifying the process of “selection” of a practice (whether conscious or unconscious), the explanation remains incomplete. Second, even when assuming that changing practices are the sole driver of behavioral change, it is not clear how practices (per se) are to be changed (especially by policy makers). The problem here is that practices are viewed as composite entities and that their elements are not clearly analytically differentiable. Neither the elements themselves, nor their functional interplay are clearly defined. What exactly is meant by “bodily activities”, “mental activities”, “knowledge”, and “things” and how do they causally relate to each other in order to bring about some kind of behavior? Third, SPT’s rejection of other theories capable to inform pro-environmental behavior change often suffers from a “straw man fallacy”. In particular, individualist theories like RCT or TPB are blamed for their all too narrow focus on the cognitive aspect of behavior and on deliberate decisions of independent individual actors (e.g., Hargreaves 2011: 81; Sahakian/Wilhite 2014: 27f; Corsini et al. 2019: 3f ). Although it is important that SPT emphasizes the material and routinized aspects of behavior, these allegations are simply not correct. Both, RCT and TPB are perfectly able to account for material constraints (via opportunity structures or control beliefs), social pressures (via social preferences or normative beliefs), and unconscious or automatic kinds of behavior (via dual process models). Consequently, most proponents of methodological individualism clearly recognize that individual behavior is embedded in (i.e., influenced by as well as influencing) contextual factors (Udehn 2001). In sum, it surely needs to be acknowledged that SPT provides a fresh look on consumption and related processes. In particular, emphasizing the relevance of habitual (e.g., learning careers), material (e.g., infrastructures), social (e.g., normative pressure) and cultural (e.g., the associations between practices) conditions helps to establish a more comprehensive perspective. However, SPT has a blind spot when it comes to the divestment and disposal of goods and services. Moreover, our critical discussion of SPT
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has shown that their explanations of consumption behavior are incomplete, potentially tautological, imprecise, and not clearly separable from theoretical alternatives (for other criticisms of SPT in consumption research see Warde 2014 or Evans 2020). This makes it difficult to derive unique empirically testable hypotheses and therefore to potentially falsify SPT.
Comparison and conclusion The sociology of consumption has become a thriving field for sociological theorizing. In this chapter, we have presented three dominant strands of sociological thinking about consumption and evaluated their strengths and weaknesses in terms of their ability to explain various aspects of consumption and their potential as a scientific theory (see Table 26. 1 for an overview). Each of these approaches understands consumption in a specific way and employs particular concepts. Theories of practice are presently the most widely discussed approach in the sociology of consumption. They understand consumption as a vital moment of nearly all social practices and stress the analytical importance of routinization and materiality. Individualist theories are not only used in (analytical) sociology, but especially in social-psychology, economics, and consumer research. They understand consumption as a product of decision-making, determined by motivations and constraints. Socio-cultural theories have a long history in sociology and philosophy. They describe consumption as a central moment of social life in contemporary societies that needs to be understood against the backdrop of overarching cultural trends. When we look at the various explananda of consumption, we find complementary roles of these approaches, focusing on different aspects of consumption. Socio-cultural theories provide formidable accounts of how needs have changed historically, which is fundamental for acquisition. Individualist theories have studied in detail the act of purchasing, which again pertains to acquisition. Theories of practice are particularly well suited to theorize the mode of consumption when it comes to the actual use of products, that is, the particular ways in which goods are appropriated. There are also some blindspots. Individualist theories neglect the formation of needs and the use of products. Socio-cultural theories undertheorize the actual act of purchasing in the acquisition phase. Practice theories have largely neglected the disposal of consumer goods. Having said this, there are no theory-inherent or logical barriers to apply all theories to all aspects of consumption. Therefore, the presented pattern rather represents a map of uncharted territories to be tackled in the future. In light of the performance as a scientific theory, we do find clear distinctions between the three approaches. Individualist theories primarily serve the function of explaining consumption behavior by explicit, abstract, and general mechanisms. They therefore allow the deduction of testable predictions. Yet, explanatory concepts such as intentions, motivations, and constraints often lack causal distance, resulting in potentially trivial explanations. In contrast, socio-cultural theories and practice theories have the primary goal of providing descriptions of societal and cultural developments. They help in exploring new social areas, lesser known social territories, and the specific conditions of historical epochs. Both approaches fall short, however, when it comes to falsification. Concepts in socio-cultural approaches are often too wide and imprecise to be falsified and the concept of practices is in serious danger of tautological reasoning. Moreover, although the explanatory factors of socio-cultural theories have large causal distance from the explanandum, they lack the causal depth of mechanism-based explanations.
504 Jörg Rössel et al. Table 26. 1 Overview of the three approaches to consumption Individualist approaches
Socio-cultural approaches Practice theories
Consumption as…
Decision
Culture
Moment of practice
Prime analytical concepts
Motivations, constraints
Practice, routine, materiality
Examples
TPB, RCT, dual process theories
Prime aspects
Acquisition (purchase)
Primary functions Scientific strengths
Explanation Precision, testability, generalizability
Cultural trends, discourse, collective actors Reflexive modernization, liquid modernization, singularization, neoliberal governmentality Acquisition (formation of needs) Description Description of overall societal trends
Scientific shortcomings
Lack of causal distance
Lack of precision, testability, and causal mechanism
Practice theory
Use (modes of consumption) Description Thick description of (lesser known) practices Tautology, lack of testability and generalizability
Finally, thick descriptions in practice theories are hardly generalizable. These latter points represent severe issues for socio-cultural approaches and practice theories, questioning their potential as scientific theories. At the end of this chapter, we therefore have to conclude that theories of consumption are not only theories of different aspects of consumption, but also different ways of theorizing. This might be one reason for the level and intensity of theoretical debate in the sociology of consumption. Interestingly, however, all of the theories we have discussed have not originated in the sociology of consumption itself, but represent general theories of social behavior and society. Theoretical and empirical work in the sociology of consumption may therefore also have implications beyond this particular field, contributing to general sociological theory.
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27 Economic growth, sociological traditions, and the restoration of social ecology in economic sociology Edward M. Crenshaw
Economic growth and sociological traditions Economic change played a pivotal role in the emergence of the social sciences, and this focus has been inextricably tied to capitalism. Although formal economic theories, such as classical (Adam Smith, Ricardo) and neoclassical (Marshall) economics, are well known, it has always been the case that fundamental economic transformations go well beyond endowments of land, labor, capital as well as supply and demand. Indeed, these formal economic theories beg the question of how these factors of production and consumption shape and are shaped by other social and physical contexts. The central paradox animating the social science of development is why some nations progress quite rapidly, whereas others apparently languish, even when they appear to have ample natural and human resources. And while the etiology of economic growth has not been a central concern in sociology for decades, this chapter restores that disciplinary focus on the causes (rather than the consequences) of capitalist development. Despite much of the work on economic growth being interdisciplinary, economists continue to dominate the topic. Beyond land, labor, and capital, and in addition to neo-classical formulations, economists have empirically linked economic growth to such variables as inequality (Kuznets 1955), human capital (Schultz 1961), geography (Sachs and Warner 1997), health (Bloom and Canning 2000), political and social institutions (North 1990), and many more, but the complexity of the topic will only deepen as other disciplines involve themselves in investigating economic change. Interdisciplinary interest in economic growth has often been channeled by a handful of topics such as the influences of democracy, social and political institutions, and human capital. The impact of democracy on economic change has been a perennial favorite, but as Sirowy and Inkeles (1990) concluded years ago, this relationship has never been an obvious one. A recent study concluded that democracy does indeed promote growth, but the relationship is quite small (Acemoglu et al. 2019). Given that “democracies” exhibit many different and often countervailing orientations toward their economies, this is a believable set of findings. Democracies may or may not defend property rights, they may or may not engage in confiscatory taxation – the list of policies is long, and all have been pursued by democracies at one time or another. As the “new institutional economics” maintains, it is not whether you have a democracy, but what your democratic leadership pursues as economic policy, suggesting that “democracy” has to be unpacked and its elements (e.g., institutions and policies) analyzed before its overall impact on development can be known.
DOI: 10.4324/9780367817152-31
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The study of how institutions influence economic change has become a new frontier in social science. Starting with Veblen, Commons, and Mitchell, and greatly expanded by North, the institutional approach (i.e., “the new institutional economics”) argues that institutions, which run from structural dimensions such as formal legal systems to very intersubjective dynamics such as social capital or trust, act as intermediaries between an economy’s potential and its ultimate degree of success. These institutions regulate numerous areas of social life to impact economic growth, such as the reduction of transaction costs (e.g., contract law), constraining and focusing the role of the state (e.g., private property rights), and the maintenance of order in the public realm (e.g., political and civil rights and responsibilities). In short, some institutions set and enforce the rules of the economic game, others facilitate transactions, and still others maintain civil stability, and this far more than the nominal system we call “democracy” is what governs investment behavior and other forms of risk-taking. The literature establishing the importance of institutions is large, generally confirming their overall importance to economic performance (Hillman 2013). Human capital, or the skills, knowledge, and experience individuals or (in aggregate) populations bring to bear on economic production/consumption has also long been the subject of theorizing (e.g., Schultz 1961). Human capital theory posits that modern economies provide the demand for skilled or educated workers, thereby boosting labor productivity and aggregate economic performance. Skilled and educated workers are easier to train, are more likely to become entrepreneurs, and tend to accelerate technological diffusion, all allowing some countries to leap-frog ahead. An educated labor force also generates more demanding consumer markets, driving the quality of goods and services upward (Robison and Crenshaw 2002). Despite critics of human capital theory pointing out the many irrationalities in economic organization, numerous studies leave little doubt that human capital matters for development. Nonetheless, the assumptions made by mainstream economics, which is aptly summed up by the term homo economicus, have elicited strong reactions from other social science disciplines. Sociology has produced a rich corpus of theoretical and empirical work to call these economic assumptions into question. In general, this work can be grouped into three distinctive traditions in economic sociology, two from Europe and one from America (Swedberg 1991; Smelser and Swedberg 2005). These traditions roughly reflect the approaches of Weber and to a lesser degree Marx (the German tradition), Durkheim (the French tradition), and the functionalist approach of Parsons and Smelser (America).
The continental (German) school of economic sociology Concerns about economic growth were “super-charged” by the Cold War. As Smelser and Swedberg (2005) note, revival of interest in “’economic growth” and “development” in sociology corresponded with the shift away from functionalism and toward conflict models (i.e., Marxian and Weberian), perhaps rising in answer to the zeitgeist of the 1960s but later responding to a resurgent conservatism and its neo-liberal economic agenda. Therefore, some of the ideological wars between Western orthodoxy and Marxist-Leninism happened in the form of disciplinary changes in the Western academy. While economic orthodoxy reflected perspectives such as those laid out by Keynes (1936), Rostow (1960), and Kerr et al. (1964) (aka “modernization theory”), sociology increasingly took a contrarian approach to the study of development. Gradually, much
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of the discipline stopped being concerned about industrialization and instead focused on capitalism and the social consequences of market economics. While there had been an early sociology of development rooted in structural-functionalism, this approach (along with the whole of functionalism) was eclipsed by the introduction of Marx and Weber into the theoretical canon, essentially folding the continental school into American sociology. At a very basic level, the “sociology of development” became less about economic growth and more about international stratification and politics. Two theoretical orientations sprang from this merger: dependency/world-systems theory and a neoWeberian (and sometimes neo-Marxian) historicist approach to economic history. The German school is the most epistemologically varied, primarily because its twin pillars are Marx and Weber. Marx is typically thought of as a positivist given his historical materialism and rejection of ideational approaches (e.g., Hegel), whereas Weber’s sociology is heavily informed by idealism, to the point that some argue his magnum opus, The Protestant Ethic and the Spirit of Capitalism (1905/1958), was meant to stand Marx on his head. Weber’s objections to the mainstream economics of his day have become standard in economic sociology, to wit: Stylized means-ends rationality, devoid as it is of social context and meaning, is of little real value in understanding economic realities. Of course, economics has evolved over the last several decades, adding concepts like “bounded rationality,” “consumer behavior” and the like, but none of these “patches” really answer Weber’s central point that strictly economic action is often illusory – at best, it is actually economic social action. Weber proposed an economic sociology divided into analytical domains: economic phenomena (what we typically think of as economic actions in the strictest sense), economically conditioned phenomena (where economics is the causal agent of something that isn’t economic), and economically relevant phenomena (where economic social action is caused by non-economic variables) (Swedberg 1998). Of course, any given class analysis would fall into the second domain, while Weber’s own Protestant Ethic is an exemplar of work in the latter category. Weber also thought that one of the major contexts of economic life is power, and more specifically legitimation-authority regimes, which mainstream economics tends to ignore. Societies dominated by traditional or charismatic elites usually do not possess the latticework of rational-legal laws and bureaucracies that would make their states compatible with idealized capitalist markets. As an example of this kind of theorizing, Clark Kerr and his colleagues (1964), in one of the seminal works of modernization theory – Industrialism and Industrial Man – discuss how five ideal types of national political elites differentially influence the course of industrial policy, labor relations, and the subsequent pace of economic growth. While one of these ideal types is now essentially defunct (colonial administrators), the other four (middle-class elites, revolutionary elites, nationalist elites, and dynastic elites) still exist in various countries around the world, demonstrating how this broader view can inform economic analysis. Of course, there are many studies of development using both comparative-historicist and cross-national methodology, a good number of them explicitly involving Weberian hypotheses (e.g., Collins 1997). And while many of Weber’s ideas seem incommensurate with those of Marx, there are many sociological studies that use Weberian historicism in combination with an essentially Marxian understanding of the world, such as Wallerstein’s (1974) history of the formation of the world economy or Sassen’s (1994) comparative approach to world cities and the global economy. The most internally coherent body of research to come out of this tradition has been the dependency/world-systems approach. While dependency and world-systems
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are distinct bodies of theory, they are relatively compatible with one another, and all variants share the notion that, whether through intentional coercion (colonialism) and/or the inexorable logic of global capitalism (neo-colonialism), certain countries have been “underdeveloped” (Galtung 1971; Wallerstein 1974). This approach views the developed/developing dichotomy used in international social science as something that has been imposed on countries via global capitalism rather than any natural state of affairs. One way to view world-systems theory is as a class-analysis writ large: Developed capitalist countries (or “core” nations) represent the bourgeoisie, middle-income nations (or “semi-periphery”) represent the petite bourgeoisie, and of course, low-income countries (or “periphery”) take on the role of the proletariat. These theories assume that capitalism requires unequal exchange, uneven development, individual/ group/national inequalities, and core-periphery hierarchies. Far from being naturally occurring or emergent, these theorists assume that capitalism generates them to maximize extraction of surplus value. This perspective therefore proposes a global stratification system which systematically “underdevelops” LDCs, thereby locking them into exploitative structural relationships with capitalist hegemons. Three mechanisms proposed by dependency theory stand out as explanations for this global stratification system: land ownership concentration (owing to colonialism), export economies that lock in economic distortions, and foreign investments that access cheap labor but siphon off profits to be repatriated to the metropole. Through the 1980s and early 1990s, an outpouring of empirical research linked these mechanisms to various developmental problems such as lagging economic growth (e.g., Bornschier and Chase-Dunn 1985), inequality (e.g., Evans and Timberlake 1980), and political unrest and authoritarianism (e.g., Boswell and Dixon 1990). Such research has become less visible over the last two decades for several reasons, although there continue to be scholars working in this tradition. This might be expected given that many of the primary insights have already been established, but there are other reasons as well. First, Firebaugh’s (1992, 1996) critique of the dependent-development literature, which questioned the empirical foundation of much of the published research in this area, brought new scrutiny to these findings. Second, world-systems theory posits a global stratification system with severely restricted upward mobility, but we have seen countries improve their position in only a few decades (e.g., Southern Europe, East Asia). Indeed, when we consider how U.S. manufacturing employment has declined in lock-step with Chinese trade surpluses, it looks suspiciously like the reverse of world-systems theory. Third, very real progress in income and welfare has taken place over the last several decades. World GDP per capita has risen worldwide from an average of about $600 in the year 1,500 to over $6,000 in 2000 (Van den Berg and Lewer 2006). While this growth has been uneven (as it normally is), that is not the same thing as “immiseration.” The fact is, social progress has been extremely rapid by historical standards, with infant mortality in developing countries declining from an average of 140 in 1950 to an average of 65 in 2000 (Marber 2004), and the percentage of the world’s population living in extreme poverty has been halved since 1990 (from 1.9 billion people in 1990 to 734 million people in 2020 – World Bank 2020). Lastly, all this must be juxtaposed against the utter collapse of the Soviet Bloc and the end of so-called “2nd World” command economies. In sum, any development theory predicting stagnation, immobility, and impoverishment comes up hard against many current trends in the world economy.
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The French or Durkheimian tradition Durkheim was one of the founders of positivism and sociology, but he was unusual among positivists in that his theoretical interests were not structural or materialist but instead mostly intersubjective, such as his concept of the “collective conscious,” or his study of the sociological drivers of suicide (normally attributed to the psychology of individuals). As Swedberg (1991) points out, this orientation meant that Durkheim wasn’t much interested in economic growth per se, but he was vitally engaged with the industrial transformation of the West and how it was challenging established social orders. Durkheim’s career was dedicated to building a unique discipline called sociology, and much of his work reflected this agenda. Taking Spencer to task in The Division of Labor in Society (1893), Durkheim rejected the liberal credo of simple exchange or contract as the bedrock of all societies, instead noting that all exchange presupposes an intersubjective or cultural set of understandings (e.g., norms, values) that facilitate all forms of social behavior. While Spencer was not actually guilty of advocating crude utilitarian logic (advocating instead “rational utilitarianism,” whereby the rules of contract evolve as they are selected for or against by changing moral/ethic precepts – see Weinstein 1990), Durkheim’s stance led him to reject any social science based on the rationality of the individual, and so his attitude toward economics was quite critical. The reason for his rejection of methodological individualism was simple; Durkheim was convinced that all societies needed a unifying culture, a social order, to make social life coherent. Of course, others were also concerned that societies were losing something essential in the onslaught of industrial urbanization sweeping Europe and North America in the late 1800s. Of these scholars, Tönnies (1963 [1887]) is best remembered for his juxtaposition of Gemeinschaft with Gesellschaft, or close-knit, kin-based, rural communities versus larger urban-based societies dominated by individualism and capitalist utilitarianism. Tönnies viewed Gesellschaft as an ominous development that undercut natural communities by compelling strangers to participate in unsentimental exchanges that have not been tempered by a just normative order. Durkheim conceded that “mechanical solidarity” (i.e., gemeinschaft) was under threat, but optimistically pointed out that a new mutualism was being generated by complex, concise divisions of labor, something he termed “organic solidarity (moral order based on necessary interdependency). To Durkheim, this new form of cohesion produces a “thinner” but viable moral order (or “collective conscious”) that provides the kind of pre-contractual cultural understandings that underpins utilitarian behavior. And that might well have been the end of Durkheimian economic sociology except for Robert Putnam, a political scientist who kicked off a new literature on social order. By recasting the notion of social solidarities as “social capital” (cf. Bourdieu [1986]), Putnam reinvigorated investigations of social cohesion and cooperative exchange, pointing out that social capital is expressed in at least two forms: (1) a structural form made up of smaller-scale durable networks (ala Bourdieu), and (2) a more diffused social-psychology involving trust of others along with normative expectations of reciprocity, exchange and cooperative behavior (2000: 20). Neither is the “true” indicator of social capital; as Durkheim noted, the construction of actual mutualist networks is difficult without an underlying lattice of shared norms and beliefs. The empirical literature operationalizes social capital as involvement in voluntary associations (e.g., civic groups) or as generalized trust (i.e., how willing a respondent is to trust fellow citizens or neighbors) (e.g., Whiteley 2000). Moreover, Putnam
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(2000: 22–24) acknowledges the important distinction between bridging and bonding social capital. Bonding social capital is what Durkheim would call a mechanical solidarity – the solidarity that can automatically (or mechanically) emerge from similarity. Bridging capital is an organic solidarity (or, in human ecology, symbiotic ties) based on mutual need and utility, typically relying on weak rather than strong ties. A voluminous empirical literature now exists on social capital/trust. Whether measured as structural networks or generalized trust, both have individual/micro- and structural/macro-level antecedents, although strong consensus on determinants has yet to emerge. At the individual-level, the most likely determinants are income, education, unemployment, and religious involvement (e.g., Delhey and Newton 2003). Other variables that are sometimes found to influence social capital are gender and age. Contextual or macro-level determinants have been more controversial. In addition to lower levels of development, both inequality and ethnic diversity are thought to damage national-level (aggregated) social capital/trust, with the lion’s share of attention being paid to the influence of ethnic and racial pluralism/ immigration on social capital and generalized trust (e.g., Koopmans and Veit 2014). Regardless of causal structure, the outpouring of articles and books on this topic strongly suggests that Durkheim has been rediscovered, even if this is rarely acknowledged (or realized). High levels of trust and/or civic engagement have been positively associated with entrepreneurship (Kwon and Arenius 2010), democratization (Paxton 2002), general (self-perceived), health (Kumar et al. 2012), lower crime rates (Sampson et al. 1997), and of course economic growth (e.g., Whiteley 2000). The overall conclusion is that social capital is perhaps our most accessible proxy for social solidarity.
The American tradition (Parsons/Smelser and Swedberg) If the French tradition in economic sociology was forgotten, the American tradition was stillborn. As Swedberg (1991) notes, this theoretical tradition begins fairly late during American sociology’s functionalist hegemony. Economy and Society, Parsons and Smelser’s 1956 tome that served as the cornerstone of this approach, constituted an application of Parsons’ general systems theory to the subfield of economics. Like the European traditions discussed above, this approach also distanced itself from classical and neoclassical economics by rejecting both homo economicus as well as methodological individual. As is well recognized, the eclipse of functionalism was very much the eclipse of Parsons’ own view of society, primary because, as Zafirovski (2006) reports, many found his theory “too abstract and artificial.” More specifically, many scholars noted the lack of a clear engine of change in Parsonsian functionalism, and his nominal rejection of homo economicus went too far, leading Wrong (1961) to accuse him and others of employing an “oversocialized concept of man.” The core of this tradition is the subsumption of economics into Parsons’ broader sociological theory, which focuses heavily on typological structures and less on processes of actual change. As has happened with theories past and present, attempts to weld positivism/structuralism onto idealism/historicism generally end up in a muddle because the impetus of change is nearly always plural, contingent, and conjunctural. As Parsons and Smelser (1956: 455) noted, “There is no one source of a process of institutional change. Throughout the book, we have emphasized the relevance of a plurality of variables at every level.” In short, Parsons had set out on a quest to create a sociological theory of everything, a perfectly abstract, universalist, and scalable theory that incorporated the
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complex interdependencies shared by biology, psychology, social psychology, and social structure. In doing this, Parsons’ theory provides a plethora of intricate structures and functional prerequisites but a real lack of propositional theory, probably owing to the scheme’s conceptual complexity. In truth, Parsons provides us with an analytical framework rather than a true theory in the conventional sense (much like the Ecological Complex suggested by Duncan, 1959). Parsons and Smelser’s purpose in formulating an economic sociology therefore seems primarily disciplinary rather than scientific. They sought to show that the economic institution is part and parcel of the larger social structure, and the only proper understanding of economics must be holistic. They do this by applying Parsons’ now-famous A.G.I.L. “paradigm” to demonstrate how economics exhibits the same set of functional prerequisites as any other part of society, namely, (A) Adaptation, (G) Goal Attainment, (I) Integration, and (L) Latency. At the macro-level, major social institutions are created to address these social necessities: Adaptation is fundamentally accomplished via the economy, which adjusts human communities to the exigencies of the social and physical worlds. Goal attainment is addressed by the polity, which seeks direction in communal adaptation. Integration is generally accomplished by religion, whether it is civic or theistic, via the sharing of norms, values, and beliefs. Latency is accomplished through the family and education, institutions given to the reproduction of society. Each of these major institutions also has subsystems one can also categorize along the A.G.I.L. framework, leading more than one scholar to compare Parsons’ schema to Russian nesting dolls (e.g., Tittenbrun 2014). Given this penchant for elaborate theoretical superstructure, Parsons was eventually forced to fall back on early functionalism to provide some engine behind differentiation (Parsons 1964). So, does a decade and a half of criticism prior to being kicked to the curb constitute an “American tradition?” Although one could point to the seismic shift of the late 1960s as the cause of this framework’s decline, it is difficult to separate this from the more relevant conceptual flaws of the scheme itself. Ironically, a true American tradition in economic sociology already existed, and like Parsons’ framework, it was rooted in evolutionary functionalism.
Current contenders for a new American tradition Beginning in the early 1980s, sociologists’ attention swung back to economic topics. Granovetter (1985, 2005) established one of the first and most influential strands of this “new economic sociology” via four core principles: (1) denser social networks can enforce norms more effectively, thereby discouraging free-riders and inculcating trust/cooperation; (2) weak ties between networks are important for information flow; (3) actors with ties to multiple networks (i.e., “structural holes”) offer those actors many economic opportunities; and (4) economic interactions are embedded in these social networks, suggesting that economic analysis must be informed by the sociological. As it has unfolded, this new approach proliferated into diverse variants, which have been categorized as network-oriented (e.g., Granovetter), institutional / organizational (e.g., DiMaggio and Powell 1983), cultural, and or “performative” (e.g., Zelizer 2010). Many competent reviews of this diverse literature exist (e.g., Smelser and Swedberg 2005; Zafirovski 2016), but the importance of these studies here lies in their degree of internal coherence as a possible replacement for an “American tradition” in economic sociology.
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While attempts to bring conceptual unity to this body of work are ongoing (e.g., “relational economic sociology”), the true foundations of this new scholarship are both theoretical and epistemological, and of course, Parsons and Smelser laid the foundations for both. What theoretical unity exists among these approaches lies in the rejection of homo economicus and its radical assumptions of independent agency and rational utility. This rejection is fundamental to nearly all the non-economic social sciences, and it leads inevitably to an epistemological shift toward idealism/phenomenology in the effort to reform economics. Some studies have used quite a lot of idealism (the cultural approaches), while others take the Durkheimian middle ground (Granovetter’s focus on norms and trust within tight networks), but in all the beliefs and behaviors of agents matter. And therein lies the problem. Because the rejection of formal economic models is common to all economic traditions in sociology, that alone doesn’t make the “new economic sociology” a candidate for “traditionhood.” Moreover, the varied use of idealism in these new approaches makes them theoretically incommensurable, and their collective debt to Weber, Durkheim, and Simmel seems so obvious that many would account them offshoots of the European schools and therefore not really eligible to be considered replacements for Parsons and Smelser (despite the fact that most of these scholars are Americans). This begs the question of relevance; why does it matter whether a cluster of new perspectives in economic sociology qualify as a “new tradition?” Does American sociology actually need its very own tradition in this subfield? Probably not, but it could be useful in providing focus and clarity, and since a replacement for Parsons and Smelser’s work is readily available, and since it provides scalability in the form of powerful macro and meso-level theorizing, there is no scientifically valid reason for neglecting the perspective. I refer here to human ecology (i.e., social ecology), and when blended with its kindred perspectives yields a perspective with a scope and coherence that rivals the European traditions. While scholars who have patience only for Marx and Weber may view this choice as retrograde, discarding human ecology was never scientifically legitimate. It has never been soundly falsified, which typically comes in the form of academic research or, more rarely, history/reality itself. Sociology has fallen into the bad habit of allowing fashion or political leanings to substitute for valid scientific falsification, resulting in long-neglected theories being revived and recycled under new names (see Gans 1992), and ultimately a social science that isn’t cumulative. Before discussing these perspectives, with the exception of Marx both European traditions are less well-adapted to explaining macro-economic phenomena, whereas the ecological perspectives discussed below can be adapted to explain the acts of agents only with some difficulty. As Parsons demonstrated, however, attempting to formulate a theoretical “Swiss army knife” is usually ill-advised. Attempts to operationalize and test comprehensive, interactive frameworks are liable to lead to conceptual confusion; Parsons’ A.G.I.L. schema is a cautionary tale of what happens when the parsimony principle is ignored.
The once-original evolutionary functionalism and future American tradition in economic sociology When placed chronologically, original functionalism came first, human ecology second, and Lenski’s ecological-evolutionary theory third, but for the sake of linking them into a coherent whole I place human ecology last, primarily because its long history of
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dealing with meso-level outcomes (e.g., cities, communities, neighborhoods). So, in the beginning…God was reported to have said, “Be fruitful, and multiply,” an injunction reflected in the view of ancient and medieval scholars that large, growing populations are the hallmark of successful societies (Cicero, Machiavelli). Not by coincidence, many of the first social scientists also shared this pronatalist perspective. For example, Adam Smith (1937) asserted that market size expands and complexifies divisions of labor (i.e., differentiation), and Spencer (1852/1972) made population size the engine of his theory of social change. Despite this, Malthusian theory is by far the most familiar social theory positing population effects on economic growth (Malthus 1798). Malthus’ famous axiom that agricultural productivity fails to keep up with the geometric progression of population has been influential in forging a rather dour view of population’s impact on economic change, some even arguing for a catastrophic relationship between the two (e.g., Ehrlich and Ehrlich 1968). Of course, the unprecedented increase in global population over the last several decades has only deepened this dour assessment, although the promised economic and environmental collapses have never materialized. Following Mathus’ lead, Coale and Hoover (1958) were among the first modern social scientists to examine and improve upon Malthus’ theory. They did so by focusing on family economics and aggregate capital formation. In their view, rapid population growth pushed families to consume savings, thereby depleting national savings rates and reducing investment rates. The new orthodoxy soon became that high youth dependency forces countries to spend scarce capital on sectors that have high returns only in the long run (e.g., education, infrastructure). Once powerful computational and data resources allowed it, social scientists began the search for a strong inverse relationship between population growth and economic development, but research results were oddly inconsistent. While some researchers found the expected Malthusian pattern (Bloom and Freeman 1988; Kelley and Schmidt 1995), others found no relationship or even a positive one (Easterlin 1967; Firebaugh 1983). As with many apparent conundrums, however, the answer turned out to be remarkably simple. Population growth is an aggregate of various changes among age cohorts, and the two segments most salient for economic change are (1) growth in the population of children/youth (fertility) and (2) growth in the adult labor force. Many theories assume that growth in the labor force will be positively associated with economic expansion, whereas fertility might be considered an investment in the future given that consumption devoted to rearing children (e.g., education) may have fewer immediate economic multipliers (Crenshaw et al. 1997). Among developed countries, a third form of population growth is also likely to be important: change in the elderly population should also matter for short-term economic growth because retirement becomes commonplace as life expectancy improves, involving total withdrawal from direct roles in productivity but increased (often public) spending on services such as medicine. Viewed in the stark light of the “dismal science,” such economic activities are a necessary part of maintaining the labor force (i.e., human capital and health), but they constitute a kind of “overhead” that drags on growth. Today we understand that neo-Malthusian perspectives have been overdrawn; the evidence suggests a more complex and balanced pattern between population and economic change. Those economists who have been interested in the effects of population on economic growth have focused on this short-term labor force effect (e.g., Kelley and
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Schmidt 1995), but there is a longer-term, intergenerational (or cumulative) impact of population growth on economic change. Sociology began with models that make this intergenerational connection (i.e., Comte, Spencer, and Durkheim). Populated environments tend to be competitive, and humans have a limited number of tactical choices in responding to competition: mutualism, specialization, migration, and direct conflict. Mutualism is often impossible when actors are constrained to filling precisely the same “niche,” a dynamic we will return to shortly. Both migration and conflict are very risky strategies for resolving competition because they involve many unknowns, whereas specialization poses fewer risks because it converts direct competition into mutualism (i.e., interdependency) and this can be done gradually. According to Spencer (1972 [1852]), specialization/differentiation is the primary form of social evolution, but it is not the cause of change. The central engine of this evolution is population size and density, according to Spencer and Durkheim. The two theorists thought differentiation sprang from demographics, but for different reasons. Spencer, being a Lamarckian evolutionist, linked economic change and differentiation to human problem-solving (i.e., innovation), whereas Durkheim was more Darwinian, attributing specialization to competition avoidance. As economic actors find themselves struggling for scarce resources in large, high-density communities, they tend to specialize to avoid direct competition and to innovate when competition is unavoidable. Specialization and technological innovation are therefore adaptations to population pressures, dynamics that give rise to emergent properties that encourage economic and social evolution. These arguments suggest that population dynamics have profound, long-run influences on social evolution. Many contemporary theorists have reinvented this theory, usually with variations on the same mechanisms, but all are consistent with early functionalism (Lenski 1966; Boserup 1965; Simon 1981). Variations in climates, diseases, geographies, and social environments culminate in differences in population size and density, and these differences constitute a rough but definitive measure of the economic “starting line.” Many societies were “proto-modern” at the beginning of the Industrial Age, meaning that historic population pressures had already forced their evolution in terms of advanced agrarianism, institutional/bureaucratic/state development, and other social and spatial attributes (e.g., true cities prior to industrialism) (Crenshaw 1995; Crenshaw and Robison 2010). Indeed, every country that has successfully embraced a high degree of industrial production (i.e., all developed societies) has likewise had this heritage of advanced agrarianism, a stage of development wrought either by long historical evolution or by colonialism (i.e., the United States).
Lenski’s ecological-evolutionary theory Theories relying on technology (rather than demography) as their central causal agent are common, and this is the case for both Lenski’s (2005) ecological-evolutionary theory and Hawley’s (1950) human ecology. The core idea of Lenski’s theory is that a society’s “techno-economic heritage” governs nearly all of its other characteristics, such as population size/density and stratification. Lenski and Nolan (1984) point to the adoption of plow agriculture, or advanced agrarianism, as critical to an accelerated transition to “modernity.” True agriculture provides a society with a high level of surplus that is converted into larger and denser populations, the formation of true bureaucratic states,
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growing complexity in their division of labor, monetary economies, written languages, and many other attributes. The focal idea here is that a society’s carrying capacity is determined by its primary productive technology, and that carrying capacity in turn generates necessary social structures (differentiation) in response. Reminiscent of both Spencer’s compounding schema and (particularly) Goldschmidt’s (1959) categorization of economy types, Lenski (1966) divides existing societies into (1) hunting-gathering, (2) horticulture, (3) agriculture, and (4) industrial. Later, when he turns to economic development (Lenski and Nolan 1984; Nolan and Lenski 1985), he refines this typology to include old agrarian (i.e., those that evolved internally) and new agrarian societies (i.e., those that had agriculture imposed on them during colonialism). As a society progresses through these economic types, it grows larger and more organizationally complex, and with each step in sustenance base a society begins to generate those social and spatial qualities associated with successful industrialization (i.e., cities, monetary economies). The real proof of these models is human history itself. With very few exceptions, the world’s history is punctuated by high civilizations that had one thing in common: All were created by well-settled groups of people living at relatively high densities. Whether we are talking about Egypt, or Rome, China, or the Mayans, social complexity (aka “civilization”) is invariably created by large groups of people. Although it is likely that the macro-sociological theories of development will continue to focus on “neoliberal capitalism,” “class structure,” political and social institutions, and the like, it is likely that these are epiphenomena of a more fundamental dimension – a long history of demographic and social success that is reflected by a nation’s demographic inheritance. This heritage should be the bedrock dimension that underpins our understanding of a globalizing modernity.
Hawley’s human ecology As useful as macro-sociological models may be in analyzing why some large groups of people “advance” more quickly than others, another perspective that can more easily scale down to sub-national social groupings (e.g., cities, firms) would be a useful addition in completing this ecological replacement for the defunct American tradition in economic sociology. I speak here of the most abstract (and therefore generalizable) of all human ecological models: Amos Hawley’s human ecology (Hawley 1950, 1968). Like Lenski (and Marx), human ecology is materialistic (more specifically, economically deterministic). Social organization is viewed as an adaptation to an environmental resource base, and different types of resources require different organizational responses. More specifically, all human organizations, whether they are small communities, firms, institutions, large cities, or whole nations, must draw resources from the broader environment. In the natural world, this resource base is the sun for terrestrial ecosystems and volcanic energy (“black smokers”) under the oceans. In the human ecosystem, the resource base is either the physical world itself or the social world. With very few exceptions, the simpler the society the more directly it depends on the natural world, but as social complexity grows resource procurement shifts to indirect dependence on the physical environment via social connections (i.e., diffusion, trade). According to Hawley (1950), every population must have a foundational set of economic activities, or key functions, that link that population to resources in the broader environment. In essence, such key economic activities convert external resources into
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sustenance or income, just as foundational species in natural ecosystems convert energy into biomass. In large, complex societies, there is typically a system of cities, each specializing in one or a few key functions; some are connected to the physical world via agriculture, while others are more linked to the social environment (manufacturing and advanced service cities). Hawley also borrows four other principles from natural ecology: differentiation, dominance, interdependency, and isomorphism. The more productive the key function(s), the greater the surplus available for differentiation (i.e., specialization – the same competition-reducing process found in original functionalism). Key functions, as vital links in the survival of communities, are said to be dominant. As their productivity increases so does the size and complexity of their communities, but if the key function begins to falter then a downward spiral occurs. Great examples of this principle can be found in the Northeastern and Midwestern United States, where many intermediate-sized manufacturing cities (e.g., Dayton, Buffalo) have slowly lost population because their manufacturing key functions no longer exist and their functional replacements (e.g., medicine, tourism) are insufficient to support the system as originally constituted. Integral to specialization is interdependency, whereby organizations and individuals become mutually dependent on one another because specialization requires focus only on the specialty and the outsourcing of most everything else, which leads eventually to millions of workers anonymously cooperating via institutionalized networks. Finally, isomorphism (Greek for “same shape”) suggests that individuals, organizations, and whole countries will begin to resemble one another if confronted by very similar environmental constraints. This assumption comes from the biological view that “niches” shape animals, and so similar niches create very similar animals. One of the better examples of this natural process is the Ichthyosaurus, which was a marine reptile of the Jurassic sea. Although not perfectly isomorphic, the resemblance between the Ichthyosaurus of 150 million years ago and the modern bottlenose dolphin is striking, suggesting that Earth’s oceans will repeatedly mold a swift, medium-sized fish-eater and, whenever that niche becomes vacant, another animal will be shaped to take its place, even across taxa (i.e., fish, reptile, mammal). Isomorphism is just as common in social life: the film sequel, fads, and fashions of all kinds, bureaucratic and corporate organizational configurations, and modern institutions of all kinds. In short, isomorphic pressure ensures that whenever environments reward behaviors, goods, or services, those rewarded things will proliferate. How can this family of theories be combined to promote useful socio-economic analysis? While population ecology provides a wealth of studies demonstrating how biological/ecosystem logic can shed a unique light on sociological questions (e.g., Hannan and Freeman 1977), one good application in development studies would be research on resource-dependent states/societies. These are also called “rentier states” because their central governments support themselves through external “rents,” typically some kind of resource extraction, rather than through taxation. Such societies are said to suffer from a “resource curse” in that they promote unbalanced economies and authoritarian regimes. The keys to understanding their formation lie in (1) the nature of the key function/industry, and (2) the society’s initial state of social complexity. Taking petroleum as the commodity most associated with rentier states, the nature of the business follows from the utter dependence of the global economy on oil (Scarrow and Crenshaw 2015) as well as the geographic embeddedness of crude reserves. Companies (and countries) must develop the oil fields where they exist, and those reserves often lie in countries that have not experienced the social evolution that long-term population
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pressures encourage. Importantly, such countries often exhibit partial or deeply flawed economic institutions (e.g., private property/land ownership), forcing companies to negotiate with ersatz owners of the resource – typically the central government. This compatibility with market forces is the crucial variable. For instance, when resources are privately held, the “rent” flows directly to the resource owner and the government must content itself with taxing these payments. Private rents accrued through petroleum will likely be spent in the domestic economy, thereby providing ample multiplier effects. Rents that flow directly to government, on the other hand, often empower the central state while blocking the population from enjoying the full benefits of the key function. In addition to allowing government to virtually ignore its citizenry, states often spend these rents on additional non-productive bureaucracies and, even more consequentially, on the importation of materials and the creation of larger militaries. Thus, an ecological interpretation of rentier societies might be considered analogous to the introduction of an invasive species into an ecosystem. Imported key functions either mesh well with a society’s existing social structures or they don’t. When they do, they lead to differentiation (i.e., economic growth) and balanced interdependence (a virtuous upward spiral of economic activity). When they don’t, they can lead to pathological change in the form of authoritarianism, corruption, and disarticulated economies.
Conclusion I conclude by noting that these traditions in economic sociology are neither mutually exclusive nor exhaustive. As currently constituted, none of these traditions try to explain the totality of economic life, which can be viewed as a good thing given the parsimony principle. Indeed, their partial compatibility with one another can be illustrated by an example. The Durkheimian (French) tradition focuses on social psychology, and particularly on how trust and social networks (i.e., social capital) influence economic social action. Ecological factors than may in turn influence facets of social order are numerous, but how urban living shapes or distorts social order is a perennial question. Famously, the Chicago School’s Louis Wirth (1938) thought modern cities were rife with disorder, and that view survives in social disorganization theory (Bursik 1988), which links structural disorder to failures in normative order. On the other hand, the German tradition, and in particular Simmel (1978: 177–178), points to the need for trust among strangers in order to make cities work, and of course, even Durkheim suggested that “organic solidarity” will accompany the formation of industrial societies. A “new” ecological perspective might assert that, given how people actually build trust (in a tit-for-tat spiral of testing for trustworthiness), social complexity (i.e., high-density environments) gradually forces people to deal with “others” beyond the family group (the result of competitive specialization and interdependency). As they do, they gradually invest in their broader social environments and come to trust Mead’s “generalized other.” And so, like many things ecological, demography is at the core of this explanation. As social complexity begins to undermine the family as the master institution, “social trust” becomes necessary for survival, something Simmel would call “cosmopolitanism.” Seen in this light, we should not be surprised that Western Europe has a very high level of “generalized social trust.” Uniquely, northwestern European societies practiced
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Malthusian marriage and (particularly for England) “agrarian servitude,” (Crenshaw 1989), both of which reduced fertility and created interfamilial connections that probably encouraged trust in strangers (via smaller family size and cross-family relations). Thus, it is likely that that northern and western Europeans had been building interpersonal trust between strangers long before they began building industrial cities. How this demographically driven change in social psychology influenced the English Industrial Revolution has yet to be investigated, but the example does prove that combining these traditions in economic sociology could be quite valuable. To conclude, the American tradition in economic sociology need not be moribund. The ecological theories that could constitute this tradition are currently underutilized, but their dismissal has been premature. Social ecology is our discipline’s best hope of communicating with formal economics, and indeed of improving both disciplines. Moreover, because ecology is compatible with most sociobiological approaches, ecology could easily serve as the “unified field theory” of all the positivist social sciences.
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28 The economics and economic sociology of collective action on global warming David Knoke
The Covid-19 pandemic wrecked the global economy in 2020. Its annual growth rate shrank between -4.5 and -6.5%. An estimated 114 million jobs disappeared, 90 million people fell into extreme poverty, with 80 million more “undernourished compared to pre-pandemic levels” (Weiss et al. 2021). Untold numbers of restaurants, bars, personal service, and other small businesses shut down, many never to reopen. Although rapidly bioengineered vaccines enabled advanced economies to begin recovering, they were not available to most people in developing nations, where spreading mutant virus strains threatened further setbacks. The Covid-19 presented the global community with “multiple collective action challenges through such activities as discovery, surveillance, social distancing, effective quarantines, treatment regimens, vaccine development, anti-viral drug development, and obtaining herd immunity” (Sandler 2020). The impact of population health on world economic performance exemplifies the production and consumption of global public goods by the collective actions of nations, organizations, and people. Todd Sandler’s concept of “aggregator technology” emphasized the total supply of benefits available for consumption globally. Weak-link aggregators often undersupply global public goods. Thus, China’s failure to alert the world initially to the emergence of a deadly new coronavirus in Wuhan greatly hastened its global transmission through air travel. In contrast, a “best-shot aggregator” – the Trump Administration’s Operation Warp Speed which lavishly funded competing pharmaceutical firms – created multiple effective vaccines in just 65 days from inception to trials, “an all-time record” (Wright 2021: 36). An upside to the pandemic was the important lessons it taught about working together to reach collective goals. One hopes the international community will be better prepared when the next deadly virus strikes. Collective action theory and research investigate the social and psychological factors that influence people, organizations, and nations to join or avoid collective activities and to succeed or fail in efforts to change sociopolitical conditions. This essay focuses on economic collective actions that, falling between market and government mechanisms, attempt to “achieve shared goals and interests in goods and services or public policies” (Knoke 2006: 72). After reviewing diverse conceptualizations of collective action, this chapter examines four theories that attempt to explain when it occurs and why it often falls short of reaching optimal outcomes. It concludes with applications of these theories to understanding collective (in)action on global warming, an existential threat to the planet and humanity.
DOI: 10.4324/9780367817152-32
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Collective action Among any group of people with common or shared interests, the problem of collective action is “whether individuals will be willing and able to coordinate their actions into a single joint action” (Oliver 1993: 276). Several academic disciplines study aspects of collective action (cooperation, collaboration), including anthropology, economics, political science, public administration, and sociology. Differing forms of collective activities may be arrayed along a spectrum of structures and processes reflecting their degree of institutionalization. At the least institutionalized level are spontaneous collective behaviors erupting without planning and lacking leaders to guide and coordinate actions. Classic instances of the “madness of crowds” (Mackay 1841) involve milling, chanting, singing, brawling, panics, stampedes, mobs, riots, looting – where “people carrying out same or similar actions at the same time. The behavior is transient or continually changing (not in equilibrium). Some type of dependence exists among actions – actors aren’t acting independently” (Coleman 1990: 198). Instances of economic collective behaviors include bank runs (portrayed dramatically in Frank Capra’s 1946 classic Christmas fantasy, “It’s a Wonderful Life”) and investment bubbles (e.g., Dutch tulip mania of 1636–1637, the South Sea Company bubble of 1711–1720, and the US housing bubble of 2005–2008). More institutionalized collective actions often involve formal organizations, such as labor unions and social movement organizations, the activists and leaders of which schedule events and coordinate member participation. Collective actions include rallies, vigils, parades, marches, teach-ins, sit-ins, strikes, boycotts, and violent collective actions, such as the insurgency by Trump supporters breaching the US Capitol on January 6, 2021. Finally, at the most-institutionalized end of the spectrum are collective decisions where “a collectivity must make a choice between two (or more) alternatives, though different members may have different preferences” (Coleman 1973: 31). A core analytic problem is how to explain why “a collective decision ordinarily is disadvantageous to some of those who participate in it, yet they consent to it” (Coleman 1966: 625). Political scientists study the formal rules and actual decision-making processes of governments, including legislatures, regulatory agencies, courts, and executive agencies. Economic collective actors encompass private-sector strategic alliances, trade associations, business groups, lobbying coalitions, and cartels that seek to influence the outcomes of collective decisions to their economic advantage. At the international level, nations act collectively by bargaining and negotiating treaties, creating intergovernmental organizations to implement deals, and quasi-judicial procedures to settle disputes. In the absence of a world government, enforcing penalties against violators is sometimes problematic, resulting in sanctions, boycotts, and fortunately rare instances of military force.
Theories of economic collective action The theories of economic collection action constructed in the latter-half of the 20th century concentrated on the production of public goods. Public goods are products or services benefiting the members of a society and typically provisioned through public taxes. Parks, highways, national defense, flood control, and libraries are familiar examples of public goods. A public good is non-excludable – providers cannot prevent others from using it – and non-rivalrous – one person enjoying a public good does not
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subtract from others’ enjoyment. Private-sector interest organizations, such as business associations and labor unions, often seek to influence the provision of public goods by lobbying public officials to enact legislative or regulatory policies benefiting their members. Core theoretical questions are: When does collective action occur? Why does it so often result in a suboptimal provision of public goods? How could conditions be modified to produce outcomes that are more beneficial? This section summarizes key elements of four intertwined theories explaining aspects of economic collective action and public goods. Free-Riding. The foundational book was Mancur Olson’s The Logic of Collective Action (1965). Olson argued that rational actors, each seeking to maximize their subjective expected utilities, would not contribute sufficient resources to any collective effort to produce only purely public goods. People and firms would take a “free ride” by paying little or nothing, but enjoying any resulting public goods from which, by definition, they could not be excluded. Although a subset of wealthy actors might willingly contribute some resources, the total amount provided would likely remain suboptimal. Olson asserted that organizations would be compelled to offer “selective incentives,” the costs of which are more than covered by members’ dues. Such enticements include “magazine subscriptions, group insurance, social gatherings, certification and training programs, and similar benefits from which nonmembers could be effectively excluded” (Knoke 2006: 74). The free-rider hypothesis explains the formation of lobbying groups as a by-product of interest associations that monopolize private goods markets. In reviewing 50 years of theoretical and empirical analysis of Logic, Todd Sandler (2015) remarked that three market failure situations – inadequate provision of public goods, externality costs and benefits, and over use of common-pool resources (CPR) – “mean that collective action involves strategic rational choices, better known as game theory” (2015: 196). That is, actors’ decisions are interdependent on one another, generating sequences of actions that both anticipate and react to others’ moves. Sandler concluded that Olson’s eight provocative propositions held up well over time, generating more rigorous formulations and adaptations to many important real-world situations. Tragedy of the Commons. In medieval England, the commons were CPR – pastures, ranges, forests, lakes, rivers, ground waters – to which local community members allegedly had unrestricted access for hunting, fishing, sheep and cattle grazing, logging, and other resource-extractive activities. In a widely reprinted essay, “The Tragedy of the Commons” (1968), biologist Garrett Hardin posed a thought experiment in which hyper-rational herdsmen maximize their personal utilities by increasing the size of their herds without limit, resulting in an irrational collective overgrazing that erodes the land’s carrying capacity. “Freedom in a commons brings ruin to all” (1968: 1244). In contrast to pure public goods, the rivalrous nature of CPR means that each user’s gain subtracts from the resources remaining for others. An obverse form of the commons tragedy is a cesspool, the unrestricted dumping of wastes into water, air, and land, which pollutes the environment and kindles global warming. Hardin argued that collective action policies could avoid commons disasters by using “mutual coercion, mutually agreed upon” (1968: 1247). His concern was not solely on environmental degradation from unrestricted access to CPR, but also on the alleged overpopulation problem: “Freedom to breed will bring ruin to all” (1968: 1248). Hardin framed the solutions to commons tragedies as a binary choice between private property and centralized authority, overlooking possibilities for voluntary self-organized interest groups creating norms and institutions to sustain CPR. (Hardin incorrectly asserted the historical English
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commons were open to all. Usage rights were governed by rules, until the commons vanished with privatization through enclosures [Cox 1985]). Researchers investigated numerous CPR management efforts to avert ecological collapse (Feeny et al. 1990; Frischmann et al. 2019). For example, the planet’s oceanic fish stocks are collectively governed by a couple of dozen regional fisheries management organizations, which nevertheless failed to prevent 90% of global fish stocks from becoming fully- or over-exploited (Hollway 2015: 4). In contrast, using a two-stage game, Saudi Arabia and Jordan developed a buffer zone strategy for locating pumping stations to draw nonrenewable groundwater from their shared transnational Disi Aquifer, which “will likely avoid an impending tragedy of the commons for at least 60 years” (Müller et al. 2017: 5451). Key theoretical issues are under what conditions will a CPR tragedy ensue and whether institutional alternatives to either private ownership or centralized governmental control could produce more effective, long-term CPR sustainability. Prisoners’ Dilemma Game. This two-person noncooperative game about trust and betrayal, which can be viewed as a simplified version of the commons tragedy (Faysse 2005), has captivated social scientists since the 1950s. In simplest form, two criminals are arrested for theft, isolated in separate cells, and grilled by law enforcement. If neither confesses, each is sentenced to a year in prison on a lesser charge. If both confess, each receives a two-year prison term. However, if one thief rats out the other, the fink goes free and the sucker gets 10 years in the slammer. With no means of communicating, what should two rational criminals decide? The optimal strategy is mutual cooperation with neither one confessing (“Cooperate”). Unable to know the other’s intentions, a rational prisoner tries to maximize personal benefits, resulting in each one betraying the other (“Always Defect”). The game purports to demonstrate that individuals acting solely in self-interest will produce a suboptimal collective outcome. In two prisoners’ dilemma tournaments organized by Robert Axelrod (1980a, 1980b, 1984), featuring computer algorithms of iterated games played repeatedly, the best-performing strategy was not Always Defect. Instead, a simple altruistic strategy (“Tit-for-Tat”) outperformed the alternatives: Cooperate on the first iteration, then reciprocate whatever the opponent does on the next move. Hence, the optimal strategy involves the player’s interdependence with the opponent’s reactions to cooperation or defection. Axelrod interpreted the outcome as the evolution of altruistic behaviors from competitive selfish behaviors through a Darwinian natural selection process. Institutional Analysis and Development Framework. Elinor Ostrom expressed her inductive approach to CPR management in a maxim: “A resource arrangement that works in practice can work in theory” (Fennell 2011: 9). Based on years of laboratory experiments and field research with numerous interdisciplinary collaborators, she identified the conditions under which self-organized groups using CPR management practices could, in the absence of government regulation, rationally avoid the tragedy of the commons (Ostrom 1990, 2010a). Her institutional analysis and development (IAD) framework recognized that, as in iterated prisoners’ dilemma, players’ choices are interdependent, but unlike that game, direct communication of intentions among participants is feasible (Ostrom 2011). Repeated interactions enable participants to create effective monitoring systems to detect and discipline free riders, avoiding the Olsonian problem, and thus efficiently sustaining fragile ecosystems. CPR users are more likely to create effective self-managing institutions when (1) discount rates are low (most users have tenure and expect to use the resource for a long time); (2) homogeneous interests
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exist (shared technologies, skills, and cultural views); (3) the costs of communication are low; and (4) the costs of reaching binding and enforceable agreements are relatively low (Ostrom 2008). Because size is negatively associated with these factors, large groups have more difficulty governing CPR, as Olson’s free-riding theory predicted. However, where “mechanisms exist for reaching binding agreements on methods of government and management resource use, even quite large groups are able to arrive at effective rules to limit the use of their resource” (Ostrom 2008: 4). Ostrom and her collaborators empirically confirmed CPR propositions using data from laboratory experiments and field observations of diverse institutions. Across a variety of dilemma games, experimental results strongly supported the hypothesis that, although high levels of initial cooperation occur, they are consistently less than optimal (Ostrom et al. 1994). A long-term study of the evolution of rules governing farmermanaged irrigation systems in Nepal built a database of 231 systems (Ostrom 2014b). These self-organized institutions, many of which had been created centuries earlier, on average outperformed the large-scale agency-managed irrigation systems created by Nepal’s central government in the 1950s. The physical conditions of their canals were better, more crops were harvested per year, and farmers followed the rules more faithfully. Another IAD field project was a longitudinal comparative study of conservation efforts in 350 forests in 12 countries (Hayes and Ostrom 2005). Simply designating a forest as a legal “protected area” does not ensure its successful preservation. “Instead, forest conservation depends on a web of factors, including, but not limited to, local recognition of the validity of the protected area policy, biophysical features, financial and human resource support, and mechanisms for conflict resolution” (2005: 617). Crucial to sustaining abundant vegetation density is the collective participation of local resource users in rulemaking, monitoring, and enforcement activities. Empirical research to validate the IAD framework involves primarily of laboratory experiments and fieldworks. Elinor and Vincent Ostrom (2014) argued the necessity for both methods to work in tandem: “Laboratory research will still need to be complemented by sound field studies to meet the criteria of external validity” (Ostrom and Ostrom 2014: 152). After all, two college sophomores divvying up $10 in a one-shot “ultimatum game” does not readily generalize to 53 days of unpaid labor that Philippine rice farmers annually devote to repairing irrigation canals!
Collective action on global warming During the last week of June, 2021, a Pacific Northwest heatwave shattered alltime high temperatures: 121 degrees Fahrenheit in Lytton, British Columbia (which was destroyed by wildfire the following day); 116 in Portland, Oregon; and 108 in Seattle, Washington. Across the region, medical authorities reported a surge of hundreds of excess sudden deaths. Cited by scientists as “virtually impossible” without human-made climate change (Gramling 2021), the heatwave was a foretaste of increasingly dire events to come if global warming were to continue unabated. The Earth’s atmosphere is a pure public good, exhibiting both nonexcludability and nonrivalry. No one can be prevented from breathing it, and my inhaling doesn’t subtract from you filling your lungs. Unfortunately, since the start of the Industrial Revolution around 1750, humans rapidly turned the atmosphere into a public bad by relentlessly burning fossil fuels. The chief greenhouse gas (GHG) is carbon dioxide (CO2) which increased from 275 parts per million to 410 ppm in 2019. “Carbon dioxide levels today
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are higher than at any point in at least the past 800,000 years” (Lindsey 2020). Other GHGs include methane, nitrous oxide, and ozone. Mean global temperature increased since the beginning of the Industrial Revolution by more than 1 degree Celsius (1.8 degrees Fahrenheit). In August, 2021, Intergovernmental Panel on Climate Change, the United Nations body for assessing climate change science, issued its starkest warning yet. Human-induced climate change is already affecting many weather and climate extremes in every region across the globe. Evidence of observed changes in extremes such as heatwaves, heavy precipitation, droughts, and tropical cyclones, and, in particular, their attribution to human influence, has strengthened. (IPCC 2021: SPM-10) Global surface temperature will continue to increase until at least the mid-century under all emissions scenarios considered. Global warming of 1.5°C and 2°C will be exceeded during the 21st century unless deep reductions in CO2 and other greenhouse gas emissions occur in the coming decades. (2021: SPM-17) Television and newspaper stories give graphical evidence of climate changes well underway. Wildfires and hurricanes already cost tens of billions of dollars annually in property and infrastructure damage, raising insurance premiums beyond unsustainable levels. Financial markets and businesses suffer from disruptions and volatility in resources, labor force quality, supply chains, and transportation. The transition from fossil fuels to renewable energy will shake up stock markets even as it opens new employment and investment opportunities. “Global warming” and “climate change” are interchangeable terms, but a distinction is important. Global warming refers narrowly to human-induced (anthropogenic) temperature increases, whereas climate change involves both human and natural causes (e.g., varying solar intensity, volcanic eruptions, Earth’s orbital perturbation). Most economic analyses try to explain global warming as a result of individuals and firms making utility-maximizing, rational choice decisions to burn fossil fuels. William Nordhaus (2019) called it “the ultimate challenge for economics” because private markets cannot provide an efficient allocation of resources to produce the desired result. As a public bad, global warming necessitates collective action by all large countries with industrial economies. “However, under current international law, there is no legal mechanism by which disinterested majorities of countries can require other nations to share in the responsibility for managing global externalities” (2019: 1992). Efforts to transform the situation necessitate political collective actions. The four public good theories discussed above offer divergent explanations for accelerating global warming and the elusiveness of reaching compliance with collectively agreed solutions. Tragedy of the commons appears to be unambiguous on a planetary scale: “the global commons of the atmosphere cannot realistically be enclosed or effectively managed, and power asymmetries and concentrated benefits from fossil fuel use mean that irreversible thresholds will be crossed before the costs are fully realized” (Brown et al. 2019: 61). However, Theresa Scavenius argued that attempts to frame global warming as a commons tragedy misconstrues the problem because its rational methodological assumptions place blame on individuals for both causing the escalating catastrophe and
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for failing to combat it effectively. Rational agents are “unfit to be held responsible for climate change because the framework operates with no relevant level of moral agency for climate action” (Scavenius 2017: 239). Instead, she advocated a moral responsibility approach where actors have normatively significant choices, possess sufficient knowledge of the situation, and have control over their choices. Similarly, achieving a complete prohibition of GHG emissions will require “new knowledge, networks, and institutions that will enable a clean energy system to function smoothly and affordably, which is a prerequisite to phasing out fossil fuels” (Patt 2017: 3; see also Cashore and Bernstein 2018). Prisoners’ dilemma game also draws pessimistic conclusions about the ability of nations to reduce global warming because agreements are voluntary and compliance is difficult to verify. Under some conditions, the classic PD game might be modified to create public goods based on common interests. António Bento Caleiro et al. (2019) combined an international relations perspective with evolutionary game theory in which participants learned by playing a PD game repeatedly. Applying an agent-based model created by Uri Wilensky (2002), they found that when only half the agents are initially cooperative, and the reward for defection is moderately high, the outcome is always a disastrous defection of all agents. Next, the model is altered after many rounds of play by introducing a reduced premium for defection, a retaliation punishment, and a positive feedback/cooperation award. This learning environment changes the game from a noncooperative PD solution to a cooperative one. The results pointed to the need for urgent recognition that the sooner the defection-award decreases, the sooner the disastrous path of climate change, and its dire consequences will change towards a (more) benevolent situation. In order to achieve that, either the time horizon of politicians must increase, or, at least, these agents must not ignore what reality has been showing lately. (Caleiro et al. 2019: 31) Disincentives to defect may also be crucial for boosting compliance: “The need for punishments to sustain cooperation is one of the most basic insights to have emerged from the literature on repeated games” (Barrett and Stavins 2003: note 22). Other PD analysts drew similarly pessimistic conclusions about the value of the prisoners’ dilemma for understanding obstacles to collection action on global warming. Karl-Henrik Robèrt and Göran Broman (2017: 10) criticized the game as a flawed and obsolete paradigm which, like the tragedy of the commons, induces a destructive mind-set about global warming and other challenges that is “delusive and misleading for both business and policymaking.” Because the always-defect strategy promotes a widespread misconception that sustainability only pays off only when everyone contributes to that public good, it effectively delays an urgent transition to global temperature stabilization. They concluded that competent proactivity can directly benefit a nation, regardless of other nations’ lagging contributions toward the public good. In addition, the “self-benefit to businesses can be further increased through voluntary collaboration with other businesses to promote the common good, as well as through collaboration between proactive businesses and policy makers” (2017: 10). A policy requiring everyone to agree to pay the costs before action can be taken is doomed to thwart substantial progress toward sustainable ecological and social systems. They concluded that a tit-fortat PD strategy enables business leaders to “communicate, learn and explore the self-benefit
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of working together for the common good” (2017: 14). See Broman and Robèrt (2017) for a detailed explication of their Framework for Strategic Sustainable Development. Expanding on the game theoretical perspective, Stephen DeCanio and Anders Fremstad (2013) exhaustively examined 144 distinct games between two players and found 25 that are relevant to climate change negotiations. Real-world relevance depends on severity of the risks from global warming and government perceptions of those risks: Achieving universal abatement of greenhouse gas emissions may require side payments or enforcement mechanisms outside the game framework, but we show how the negotiations themselves may offer opportunities to select between Nash equilibria or alter the payoff rankings and strategic choices of the players. In particular, scientific information pointing to the severity of the risks of climate change suggests characterization of the negotiations as a Coordination Game rather than a Prisoner’s Dilemma. (2013: 177) They concluded that the prisoners’ dilemma game should not be considered the best way to characterize real-world negotiations. Making slight modifications of player preferences, such as transfers of low- and zero-carbon technologies from rich to poor nations, can transform a PD into a CG and dramatically raise prospects for reaching agreement on mutually beneficial solutions. Kaveh Madani (2013) concurred but noted that the key assumptions of their models may render them suspect as reliable guides for public policymakers. He offered some solution methods for improvement, in particular expanding the framework beyond two players. Free-riding is often cited as the major obstacle to implementing effective international climate treaties to reduce GHG s. Although all countries prefer the public good of a stable climate (petro-states aside), the benefits of emission curbs taken by one nation are mostly enjoyed by other nations. A country acting in its rational self-interest has incentive not to meet its treaty obligations but to free ride on others’ efforts. Because all nations – especially the very large polluters like the US, China, and India – perceive the same situation, suboptimal amounts of the public good are inevitably supplied. “The problem of free-riding is worsened by the fact that leaders of states think that cutting emissions will make energy more expensive, adversely affecting national economic competitiveness” (Keohane and Victor 2016: 570). Olson’s diagnosis appears to be an insurmountable obstacle to achieving optimal collective action on global warming. Two major treaties on global warming imposed weak commitments on more than 190 signatory nations. The 1992 United Nations Framework Convention on Climate Change (UNFCCC) called for stabilizing GHGs at a level that would prevent dangerous anthropogenic interference with the climate system. That level “should be achieved within a time-frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner” (UNFCCC 1992). The first major treaty resulting from the UNFCCC was the Kyoto Protocol, signed in 1997 and running from 2005 to 2020. It set binding targets on developed countries while exempting developing nations, including India and China. It lacked a meaningful mechanism to sanction noncompliant parties. Bipartisan opposition in the US Senate prevented its ratification. Canada withdrew and emissions by the remaining 36 countries committed to reductions were offset by much greater increases by the developing nations. The Protocol expired having
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failed to “provide the supporting mechanisms needed to restructure the relations among the world’ countries, to reverse the incentives to free-ride” (Barrett 2003: 2). Kyoto was “a club that no country cared to join” (Nordhaus 2019: 1992). The goal of the second major treaty, the 2016 Paris Agreement, was to keep the increase of global mean temperature well below 2 degrees Celsius above pre-industrial levels and to try to keep it below 1.5 degrees Celsius. “Each party shall prepare, communicate and maintain successive nationally determined contributions that it intends to achieve.” The Paris accord erased the distinction between developed and developing countries, but it implemented no effective mechanism for monitoring and sanctioning backsliders. At the United Nations’ 26th Climate Change Conference of the Parties (COP26), to take place at Glasgow, Scotland, in November 2021, nations are supposed to ratchet up their plans for transitioning to net-zero emissions by 2050. To overcome the propensity to free-ride that plagued voluntary agreements like Kyoto and Paris, William Nordhaus (2015) proposed that nations should form a “climate club,” a cooperative agreement, the policies of which are organized around raising the price of CO2 rather than focused on emission reductions, with large benefits to members that succeed and substantial penalties if they fail to meet their obligations. The climate club’s sanctions would benefit those who impose sanctions and harm those who are sanctioned. Free-riding is a red herring in creating effective global warming treaties, according to Michaël Aklin and Matto Mildenberger (2020). The empirical evidence that it is the main obstacle to effective collective action is weak and “extant patterns of climate policy making can be explained without invoking free-riding.” Instead, they argued, domestic politics are the primary determinants of a nation’s international behavior: “Governments implement climate policies regardless of what other countries do, and they do so whether a climate treaty dealing with free-riding has been in place or not” (2020: 4). National leaders strive to retain the support of their parties, donors, and electoral coalitions. Clashes between green and brown material interests and ideologies ultimately decide a nation’s decisions about its global warming policies. Among the domestic interests with potential power to influence national leaders and reshape public goods policies are the new wave of environmental activists in recent years (de Moor et al. 2020). Fridays for Future, Extinction Rebellion, Sunrise Movement, Ende Gelände, and other national and transnational social movements launched massive campaigns of protests, marches, sit-ins, strikes, occupations, and other grass-roots efforts to mobilize public attention and sympathy. Like all pure public-goods-seeking organizations, environmental movements face challenges of recruiting sufficient participants and resources, typically resolved by relying on combinations of personal social network connections and selective incentives (Knoke and Wright-Isak 1982). Through collective actions, these activists seek to mobilize pressure for passage of global warming legislation, such as the US Green New Deal and the UK Climate and Ecological Emergency Bill. Domestic politics also explains the abrupt US about-face on the Paris Agreement: As a candidate, Donald Trump many times tweeted that global warming was “a hoax.” As president, he gave formal notice of intention to withdraw the US, which took effect the day after he lost his re-election bid. President Joe Biden, on his first day in office, signed an executive order reversing Trump by rejoining the Paris Agreement. Ironically, an earlier GHG agreement demonstrated that nations could successfully create a cooperative strategy and avoid free-riding temptations. The goal of the 1987 Montreal Protocol on Substances that Deplete the Ozone Layer was to phase out production of chlorofluorocarbons (CFCs) and hydrochlorofluorocarbons (HCFCs), used
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as refrigerants and propellants, and to reduce their atmospheric concentrations (Epstein et al. 2014). As a result, the hole in the ozone layer over Antarctica, discovered in 1985, is beginning to heal and may be permanently closed by 2050. The UN Secretary-General Kofi Annan in 2004 hailed the protocol as perhaps the single most successful international agreement to date. Some analysts praised the Montreal Protocol as “an instructive case in point on how to overcome collective action problems, bring together heterogeneous actors to reach a common agreement, prevent free riding, and adjust to new scientific realities” (Albrecht and Parker 2019: 316). In her reconstruction of the protocol’s dynamics, Nadra Hashim (2009) contrasted Montreal with the top-down regulatory approach taken by Kyoto: The irony of the Montreal Protocol was its success was largely the result of the fact that big business joined a small community of environmental scientific experts in what would become a joint effort to regulate CFCs in a manner that compelled state action, rather than the other way around. (2009: 94) “Epistemic communities,” a state-sanctioned network of professionals with expertise and competence in a policy domain, are “flexible and can function both within the institutions of a particular state while also acting as transnational participants in a community that transcends national boundaries” (2009: 94; see also Haas 1992). The ozone depletion community helped define the nations’ self-interests and assisted in formulating public policy. Importantly, technological alternatives to CFCs were invented for the transition to safe refrigerants and propellants. To discourage defections from the Montreal Protocol, reluctant European signatories were given a “provisional free-ride” to continue exports of CFCs to less-developed countries (LDCs) that were already in the pipeline. Those side payments also served as incentives for the LDCs not to defect from the Protocol; in game theory terminology, purchasing cooperation prevented the bigger threat of free-riding. Hashim concluded that neither carrots nor sticks are the most valuable mechanism for promoting collective action: “Today, climate change scientists and economic experts agree that rather than increasing compliance through monetary incentives or punishment alone, the transfer of alternative energy technology may be the best way to go” (2009: 104). Institutional analysis and development framework may provide the best theoretical lens for viewing global warming policies (Grossman 2019). Dismayed at the stalled progress and distrust surrounding international negotiations over emission reductions, Elinor Ostrom challenged the assumption that solutions to global public bads must necessarily be global in scale. In a report to the World Bank (Ostrom 2014a), she argued that the conventional theory of collective action – that the conflict between individual rationality and group outcomes means substantial benefits are impossible to obtain – is a poor foundation for making public policies. First, many of its predictions lack empirical evidence (Poteete et al. 2010). Second, many smaller scale externalities from energy use by individuals and firms exist within the larger global externality. Ostrom advocated a polycentric governance approach involving self-organizing numerous subglobal efforts that create localized opportunities for communication, trust-building, policy experimentation, and learning (Ostrom 2010b, 2010c). Optimistically, a myriad of initiatives by diverse actors and institutions would compensate for
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collective action failures at the international and national levels. Key features of polycentric systems are: multiple governing authorities at different scales rather than a monocentric unit... Each unit within a polycentric system exercises considerable independence to make norms and rules within a specific domain (such as a family, a firm, a local government, a network of local governments, a state or province, a region, a national government, or an international regime). (Ostrom 2010c: 552) Drawing from her research on CPR dilemmas, Ostrom identified important variables likely to increase cooperation within and among polycentric entities: 1 reliable information is available about the immediate and long-term costs and benefits of actions; 2 the individuals involved see the common resource as important for their own achievements and have a long-term time horizon; 3 gaining a reputation for being a trustworthy reciprocator is important to those involved; 4 individuals can communicate with at least some of the others involved; 5 informal monitoring and sanctioning is feasible and considered appropriate; and 6 social capital and leadership exist, related to previous successes in solving joint problems (Ostrom 2014a: 104). A reputation for trustworthiness is a critical resource for solving numerous collective action problems in modern political economies, especially in democracies (Lubell 2007). When individual contributions cannot make large differences in outcomes and behaviors are costly to monitor, trust is indispensable for sustaining continued participation and collaboration. Ostrom’s modified collective action model expects that cooperation will occur as people and organizations develop trust and confidence through working with one another to create the public good of a stabilized climate. They grow more willing to engage in actions that add to their own short-term costs because they perceive greater longer term benefits to themselves and others, and they believe most others are also complying. A familiar example is investments by families and municipalities in the weatherization of private and public buildings – sealing cracks around doors and windows, installing insulation in walls and around water heaters – the up-front costs of which take years to recoup. A bottoms-up approach to combatting global warming presumes that mutual trust can be built over time through communicating and cooperating on a range of issues (Cole 2015: 115). Repeated face-to-face discussions develop and reinforce norms of reciprocity and build reputations for trustworthiness that will increase cooperation in future interactions. Participants in polycentric governance include both public and private sector actors. “Those private agents include GHG emitters, nongovernmental organizations, small groups of concerned citizens, even families who might decide, for example, to install solar systems at their homes and take other steps to minimize their carbon footprints” (2015: 116). Clear evidence is lacking that numerous initiatives dealing with multilevel local and global climate issues are merging into a truly polycentric
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governance system. For example, an analysis of current decarbonization efforts, aimed at disrupting carbon lock-in and removing fossil fuels from economies, argued that they are “not solutions to collective action problems in the same way” (Bernstein and Hoffmann 2018: 249). Many interventions have limited goals of decarbonizing specific markets or particular political jurisdictions rather than seeking to provide a shared global public good. These efforts include cities working together on carbon action plans, states developing linked emissions trading systems, regions creating carbon tax policies, corporations and nongovernmental organizations collaborating on smart grids, multinational supply chains measuring carbon footprints, and neighboring countries transferring clean technologies across national borders. For example, the Carbon Neutral Cities Alliance (2021) touted plans by urban 22 areas, ranging from Adelaide to Yokohama, aimed at achieving emissions neutrality in 10–20 years by “the most aggressive GHG reduction targets undertaken anywhere by any cities.” Such proliferating interlocked systems might not currently be guided by an overarching polycentric logic of collective action but may have the potential to evolve into a truly polycentric governance system. “In tandem, these approaches may be useful not only for studying decarbonization trajectories but also for developing and nurturing them – a more normative endeavour which Ostrom herself was keen to encourage” (Bernstein and Hoffmann 2018: 262). Over the past two decades, “the pattern that has gradually emerged at the international level is even more polycentric in nature, with multiple governing authorities operating on many different scales” ( Jordan et al. 2018: 360). However, the capacity of this loosely coupled system to move the world toward a stabilized global temperature remains in doubt: “the jury is still out on how capable it is of significantly accelerating decarbonization” (2018: 363). Polycentric theory hypothesizes that self-organized governance mechanisms invariably increase trust and monitor actors’ commitments to produce the public good of stabilized global climate. “Yet the rather sobering conclusion … is that very patchy evaluation and monitoring make it very difficult to assess the impacts of mitigation policies across countries over time” (2018: 371). Of course, trial-anderror is crucial for learning which policy innovations and governance interventions will ultimately succeed or fail. In summary, three of the four economic collective action theories of public goods – tragedy of the commons, prisoner’s dilemma, and free-riding – were each found wanting as credible explanations for the dithering international response to the global warming crisis. The fourth theory – a polycentric model drawn from the IAD framework – although promising and optimistic, is thus far inconclusive about whether current subglobal developments will ultimately converge on a viable solution. A tooslow maturation of polycentric projects runs the risk of crossing the point of no return, which was pegged as the year 2035 by climate scientists from the UK and the Netherlands (Aengenheyster et al. 2018). Unless the rise of GHGs is halted by then, “it will be extremely unlikely we can stop Earth’s temperature from rising by 2 degrees Celsius and kicking off a dangerous medley of global disasters” (Dove 2018). We collectively must quickly learn how to turn a public bad back into the public good it once was.
Conclusion Collective action occurs in every sector of modern economies, taking many forms and producing diverse outcomes. Space limitations allow only brief mentions of some stellar studies exemplifying their range. To return to the Covid-19 pandemic cited that the
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beginning of this chapter, the catastrophe stimulated new collaborations among local and national governments as they funneled multi-institutional grants and low-interest loans to struggling businesses (Wilson et al. 2020). Implications for future crises include “better decision-making and investment in a global information infrastructure system” able to provide “timely, valid communication and supported by sound planning, trained personnel, appropriate technology, and bolds leadership” (Comfort et al. 2020: 616). If we collectively learn nothing from Covid-19, we’ll have wasted a crisis. A novel theoretical approach to new market formation identified three key factors that hinder market infrastructure development: “perceived returns to contributions, degree of excludability of benefits, and degree of substitutability between contributions.” (Lee et al. 2018: 260). In addition to familiar free-riding problems, gridlock can arise when entrepreneurs cannot convince others to adopt to their technologies. Another critical collective action problem is that start-ups often perceive the returns to contributions are too low to sustain new enterprises. The start-up problem “is further compounded by coordination problems arising from low substitutability of resource contributions.” An empirical limitation is focusing on instances of successful market formation to the neglect of research on failed market formation. Selection on the dependent variable inevitably yields biased estimates of the factors affecting collective action outcomes. Global supply chain dynamics offer another field for modeling economic collective action. The sequential exchange nature of chains necessitates tight collaboration and coordination among numerous entities. Interviews with garment brand firms, retailers, labor unions, governments, and other stakeholders revealed new pathways to multifirm transnational industrial relations agreements (TIRAs) for securing living wages for workers (Ashwin et al. 2020). In an apparent instance of polycentricity, “firm coordination and firm-union engagement … were facilitated by trust and common group understandings built up within other union-inclusive initiatives, thus constituting spillover effects” (2020: 1015). Finally, attempts by gig workers, such as Uber drivers and food deliverers, to improve working conditions were persistently thwarted by the venture capitalists who own and manage the platform economy. The recent emergence of an alternative organizational form – the worker-owned gig platform – is “an extreme case of collective action where gig workers control an entirely different arrangement outside of investor-owned platforms that grants them access to working conditions and shared benefits they would otherwise not have” (Bunders 2021: 189). These organizations stand in a long historical line of community democratic cooperatives. The prognoses for these modern reincarnations of Robert Owens’ New Lanark and New Harmony utopian experiments remain unclear. Economic collective action offers an invaluable alternative to conventional explanations of economic activity as the aggregated outcome of choices by rational, utility-maximizing individuals. The creative destruction giving birth to new economic institutions is more often the result of struggles among adversarial actors seeking group advantages. The theoretical and empirical studies reviewed above are tools for extending our knowledge and understanding of those processes.
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540 David Knoke Mackay, C., 1841. Extraordinary Popular Delusions and the Madness of Crowds. London, UK: Richard Bentley. Madani, K., 2013. Modeling international climate change negotiations more responsibly: Can highly simplified game theory models provide reliable policy insights? Ecological Economics, 90, pp. 68–76. Müller, M. F., Müller-Itten, M. C., and Gorelick, S, M., 2017. How Jordan and Saudi Arabia are avoiding a tragedy of the commons over shared groundwater. Water Resources Research, 53, pp. 5451–5468. Nordhaus, W., 2015. Climate clubs: Overcoming free-riding in international climate policy. American Economic Review, 105, pp. 1339–1370. Nordhaus, W., 2019. Climate change: The ultimate challenge for economics. American Economic Review 109, pp. 1991–2014. Oliver, P. E., 1993. Formal models of collective action. Annual Review of Sociology, 19, pp. 271–300. Olson, M., 1965. The Logic of Collective Action: Public Goods and the Theory of Goods. Cambridge, MA: Harvard University Press. Ostrom, E., 1990. Governing the Commons: The Evolution of Institutions for Collective Action. New York: Cambridge University Press. Ostrom, E., 2000. Collective action and the evolution of social norms. Journal of Economic Perspectives, 14, (3), pp. 137–158. Ostrom, E., 2008. Tragedy of the commons. In S. N. Durlauf and L. E. Blume (eds.), The New Palgrave Dictionary of Economics, Living Edition, Cham, Switzerland: Springer. (Accessed May 21, 2021). Ostrom, E., 2010a. Analyzing collective action. Agricultural Economics, 41, pp. 155–166. Ostrom, E., 2010b. Beyond markets and states: Polycentric governance of complex economic systems. American Economic Review, 100, pp. 641–672. Ostrom, E., 2010c. Polycentric systems for coping with collective action and global environmental change. Global Environmental Change, 20, pp. 550–557. Ostrom, E., 2011. Background on the institutional analysis and development framework. Policy Studies Journal, pp. 39, 7–27. Ostrom, E., 2014a. A polycentric approach for coping with climate change. Annals of Economics and Finance, 15, pp. 97–134. Ostrom, E., 2014b. Do institutions for collective action evolve? Journal of Bioeconomics, 16, pp. 3–30. Ostrom, E., Gardner, R., and Walker, J., 1994. Rules, Games, and Common-Pool Resources. Ann Arbor, MI: University of Michigan Press. Ostrom, E. and Ostrom, V., 2014. Choice, Rules and Collective Action: The Ostroms on the Study of Institutions and Governance. Colchester, UK: ECPR Press. Patt, A., 2017. Beyond the tragedy of the commons: Reframing effective climate change governance. Energy Research & Social Science, 34, pp. 1–3. Poteete, A. R., Janssen, M. A., and Ostrom, E., 2010. Working Together. Princeton, NJ: Princeton University Press. Robèrt, K.-H., and Broman, G., 2017. Prisoners’ dilemma misleads business and policy making. Journal of Cleaner Production, 140, pp. 10–16. Sandler, T., 2015. Collective action: Fifty years later. Public Choice, 164, pp. 195–216. Sandler, T., 2020. Covid-19 and collective action. Berlin, Germany: De Gruyter. (Accessed July 2, 2021). Scavenius, T., 2017. The issue of no moral agency in climate change. Journal of Agricultural and Environmental Ethics, 30, pp. 225–240.
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29 Global economy, culture, and unequal ecological exchange in late modernity The role of fractal institutional processes in addressing imbalances Thomas J. Burns, Beth Schaefer Caniglia and Carrie M. Leslie Introduction While humans have faced environmental challenges throughout our history, many of the problems in the late modern era have become critically urgent and require solutions on a global level. Research from a variety of perspectives indicates that environmental problems have worsened on multiple scales (Burns and Caniglia 2017; Burns et al. 2018; Foster, Clark and York 2011; Harvey 2010; Hornborg 1998; McNeill 2000; Pomeranz 2000), particularly since the rise of U.S. hegemony post World War II (Abu-Lughod 1989). The current evolution of the modern economic world-system is particularly problematic for the environment. Some of these problematic trends include increasing accumulation and consumption of resources, particularly in the core countries and spheres (Amin 1974; Wallerstein 1974, 1980, 1989, 2011; Waqih et al. 2019); an increasing trend toward economies of scale at the expense of smaller scale ecologies (Daly and Cobb 1994; Schumacher 1973/2010; Solarin and Al-Mulali 2018; Wackernagel and Silverstein 2000); and sustained trends toward ecological unequal exchange (Burns et al. 2003; Fitzgerald and Auerbach 2016; Givens and Huang 2021; Hekmatpour and Leslie 2020; Hornborg 2012; Jorgenson and Rice 2012; Jorgenson et al. 2021; Noble 2017; Pomeranz 2000; Shandra 2007; Wackernagel et al. 1999). In the late modern era, several mismatches exist between the scales at which environmental problems occur and the necessary governance institutions to address these (Bai et al. 2010; Burns and Caniglia 2017; Cash et al. 2006; Nelson, Adger and Brown 2007; Ostrom 2010; Robertson 2004; Schofer and Hironaka 2005; Young 2010). While the world-system is conceived as a global system, its processes recur at multiple levels, both locally and globally. Governance fragmentation, or unclear lines of authority, and uneven power dynamics limit the extent to which current governance systems can solve recursive and persistent ecological problems (Fisher et al. 2020). In previous decades, environmental problems have been identified as less important than concerns of capital and monetary gain (Ostrom 2010; Robertson 2004). While environmental problems often receive isolated treatment compatible with each separate issue, we argue that the complexity and urgency of our ecological precarity requires models for moving governance toward new directions. We propose the concept of fractal governance as a heuristic device for conceiving of environmental governance systems that include key characteristics required to create positive change, such as cooperation and multi-level equality. Some possibilities also include an acceptance of new measurement systems that adequately incorporate the real costs of production and
DOI: 10.4324/9780367817152-33
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consumption which include estimates of environmental externalities (Pozo et al. 2020) and ecosystem services; building reflexive governance systems that recognize the scalar complexities of environmental issues and distributing clear lines of authority to address them; and the development of governance models that place environmental concerns on equal footing with concerns of capital accumulation. We also briefly refer to two case studies as illustrative of these processes. First, we discuss the case of seismic activity in Oklahoma and its connection to the oil and gas industry. This case serves as an example of how the logic of capital accumulation interacts with governance failures to create environmental sacrifice zones or destruction of residential property. The second case is a brief governance experiment conducted at the United Nations Commission on Sustainable Development, following its first multi-stakeholder dialogue on the role of industry and sustainable development. This experiment in hybrid governance, involving non-governmental organizations (NGOs), inter-governmental organizations (IGOs), industries, and governments, serves as an example of the kind of adaptive governance that is required to address the complex and multiple shortcomings of our current approaches to environmental governance.
Macro-level environmental problems and governance The global economic market system is, at least arguably, the strongest, most robust social institution to date, establishing a worldwide reach, and affecting virtually every aspect of human and planetary life at multiple levels. As various authors have pointed out (e.g. Mandel 1998; Robinson 2004), the global market system that has evolved, has far outstripped the logic of the nation-state. While transnational corporations still typically are headquartered in core states and often receive the protection of the military and political apparatuses of those states, their reach is not constrained by the nationstate, and many argue that core states prioritize short-term profits over environmental protection (Bonnano et al. 1994; Foster et al. 2011; Robertson 2004). As Marx (1867/1967) foresaw, capital could move quickly between places and polities, finding its most advantageous place, exploiting the exchange, and then moving on to the next opportunity. This was one of the competitive advantages of capitalism over feudalism. As has been noted by many scholars in the Marxist tradition, this led to extensive instances of ecologically unequal exchange (Bunker 1984; Burns et al. 1997; Foster 1999; Foster et al. 2011; Jorgenson 2016; Moore 2000, 2003; Rice 2007a, 2007b). The nation-state arose over time in response to material conditions (Tilly 1992), and it is ill-adapted to deal effectively with certain types of environmental problems. Many attribute a lack of environmentally focused adaptations to cultural lag (Ogburn 1932/1961), in that the problems have evolved, but the lack of response is a result of cultural values intertwined with political and economic processes (Brulle and Norgaard 2019). Material conditions, most notably anthropogenic environmental changes, are accruing faster than pre-industrial institutional structures can catch up (Burns 2009). Environmental problems do not uniformly match the nation-state level of governance, and many exist across nation-state boundaries (Buttel 2000; Frank et al. 2000). When they do receive appropriate governance from the nation-state, they often compete for attention with other urgent priorities. Even when there is a will to address them, the focus and resolve can be deflected with politically polarized positions that often make what eventual action that is taken less effective than it would be optimally (Burns and
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LeMoyne 2001). In sum, moving into the Third Millennium, the logic of global capitalism threatens to overwhelm the natural ecology, even as it overpowers and engulfs the institutions that would keep it in check (Burns 2009; Foster et al. 2011; Gould et al. 2008; Hornborg 1998; McNeill 2000; O’Connor 1994; Schnaiberg and Gould 1994).
Worldwide ecological problems manifest as recursive processes in world-systems World-systems processes operate in complex ways in virtually every aspect of humanenvironment interaction, and while these processes are ubiquitous, they manifest differently in different zones and regions (Bergesen and Bartley 2000; Burns et al. 1994). This is important to keep in mind as we briefly consider several ways in which world-systems processes interact with other social factors to cause environmental problems. A property of social systems and institutions, in general, is that they operate on different levels— local, regional, and national—or increasingly in the era of late modernity—globally. In the ideal-typical sense, the world-system is conceived of globally, but its processes recur at multiple levels as well, from the global to the local (Burns et al. 2020b). In general systems terms, world-systems can be thought of as nested, differentially integrated networks of actors. Hybrid arrangements of multi-level stakeholders are dependent on the “institutional, political and cultural contexts in which they emerge;” this is referred to in some cases as “‘networked governance’” (Fisher et al. 2021: 337, 2020; Mol 2003) which also describes this modern interconnection of system-level interactions. Research in systems and complexity theories (e.g.Bailey 1994; Burns and LeMoyne 2003; Grimes 2012; Prigogine 1996; Straussfogel 2000) points out the recursive nature of networks and hierarchical processes. Networks, including world-systems networks, have core, semi-peripheral, and peripheral actors; in other words, world-systems processes have a fractal quality or multi-level similarity (Luhmann 1982, 1985; also see Bailey 1994; Burns and LeMoyne 2003; Chettiparamb 2013; Grimes 2012; Straussfogel 2000). Due to this, there are regions with core, semi-peripheral, and peripheral aspects within a given zone of the world-system. As research examining the locality of extraction industries and their institutional counterparts demonstrates, also following historical patterns of spatial inequality, the Appalachian Region of the Eastern United States can be classified as a “peripheral” zone (Scott 2010), even though it is located within the United States, a “core country” in the world-system. This lends itself to a recursive quality in exploitation, where the core within a given system gains from exchanges with regions or actors relatively peripheral to it or within it, even as it is exploited by other actors in relatively central positions within larger networks. This recursive exploitation (Burns, Kick and Davis 2006) is comparable to the dual closure processes described by Weberian scholars (Murphy 1988; Parkin 1983), where a social collective acts to usurp resources from another collective, even if it has received this same action from another set of (relatively advantaged) actors.
Fragmented governance: the prevalence of the “tragedy of the commons” Garrett Hardin’s (1968) Tragedy of the Commons was written as a warning of the potentially negative outcomes of the unregulated public use of common-pool resources (CPRs)
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and their future availability. The “tragedy of the commons” (Hardin 1968; 1993) is most often conceptualized as a mismatch between the selfish interests of individuals and those of the “collective.” Countless examples of this can be found—from the messy group house of individuals where no one takes responsibility to the rampant pollution in Los Angeles due to individuals driving personal cars instead of carpooling or using public transportation, offlaying the cost of emissions onto the environment. More broadly, the “tragedy of the commons” scenario happens on multiple levels, many of which pit one collective against another (Ostrom 2010). Thus, the problem replicates within the individual level to the global macro-level collectives. In virtually every case, particularly for the larger collective of the planet, the dark matter of this value-based mismatch gets externalized to the environment (Cash et al. 2006; Longo and York 2008). Natural resource governance (Andersson et al. 2004; Bartley et al. 2000; Bodin and Crona 2009; Crona and Hubacek 2010; Dietz et al. 2003; Lockwood et al. 2010; Ostrom 2010) is widely considered the most complicated form of governance because it attempts to govern CPRs (Berkes, Folke and Gadgil 1994; Bodin and Crona 2009). Common property or CPRs are resources, such as water, that often do not adhere to political boundaries or belong to the public but can be privatized (Koch et al. 2019). Buzbee (2003) describes the “regulatory commons” and explains that, “almost any regulatory challenge, especially in the environmental arena, involves resources that are in some respect unowned or subject to shared ownership claims” (3). Natural resource governance is then complicated because of the malleable boundaries of public-private ownership of CPRs. Additionally, natural resource governance is fragmented further because it exists at multiple governance levels including local, municipal, state, regional, and federal institutions. From both the increase of population and consumption of resources per-capita, “the absence of effective governance institutions at the appropriate scale” are causing natural resources and the environment to exist in a state of peril (Dietz et al. 2003: 1907). Natural resource governance structures can create complexities because of overlapping jurisdictions through both vertical and horizontal scales (Bai et al. 2010; Cash et al. 2006; Farrell 2016). Vertical scales refer to the different hierarchical levels of government such as federal, state, municipal, and local. Horizontal scales refer to the different governing institutions across the same level of government, such as multiple state level environmental agencies (Cash et al. 2006; Hill et al. 2008). These complexities created within natural resource governance highlight the need for more research on the ways in which CPRs could be governed more effectively. The interaction of large-scale market processes with the recursive tendencies of the “tragedy of the commons” scenario, leads to some particularly perverse consequences. Consider the prevalent tendency of capital to externalize its costs—primarily to (typically but not solely) lower tiers of the recursively organized system (Stiglitz 2017; Zhang et al. 2018). This is manifested at the local landfill in a poor and/or disproportionately marginalized area, as well as on the macro level, where rich nations have a high ecological footprint and displace the “dark” costs to a lower zone (Clelland 2012; Frey 2006; Pellow 2007; Rice 2007b). In this sense, the world-system can be conceptualized as a set of recursively nested dissipative structures (Burns and LeMoyne 2003; Grimes 2012). At the global level, in the past, environmental laws have tended to take a back seat to global markets (Dunaway 1996), sometimes accompanied by military or police force intervention (Bacon 2019; Caniglia 2012; Estes and Dhillon 2019; McCreary and Milligan 2014; Pulido 2017).
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Institutional mismatch of environmental governance Institutional mismatch arises when a problem is not handled on the level with the best chance of crafting a viable solution. Environmental problems exist at all levels of human societies from the local (polluted ponds, streams or other waterways) to the planetary (climate crises) (Di Gregorio et al. 2019; Esty 2006). At least in theory and occasionally in actual practice, there are institutions in place at some of these levels that can work to counteract specific environmental hazards. In many instances though, the scope of an environmental problem does not match the reach of an institution that could address it (Cash et al. 2006). In an ideally functional system (Parsons 1951), each level of organization could be expected to have its own institutions to adapt and provide solutions to challenges that occur. One of the failures of functional analysis is that actual processes virtually never work this way in practice following ideal models. One of the key reasons for this is precisely this mismatch between environmental problems and the necessary institutions that would address them. The mismatch between the global economy and institutions that would keep it in check has been noted by political economy scholars (e. g. Robinson 2004; Sklair 2002). This is also reflected in work by environmental researchers that the governance required for our global economic structures is not able to moderate its mechanisms (e. g. Pellow 2007; Roberts and Parks 2007; Speth and Haas 2006).
Forms of environmental governance fragmentation Fragmented governance is “the allocation of responsibility for governance among multiple actors and/or agencies, with relatively little or no coordination” (Hill et al. 2008: 316). Fragmented governance structures are common among water regulating agencies. Scholars have found that fragmentation of water governance is a “persistent challenge in solving complex water problems” (Bray 2021; Cook 2011: 25). Water governance is not the only natural resource governance structure that consistently experiences regulatory fragmentation; researchers have found that in several areas of environmental law, there is evidence of overlapping and redundancy causing inadequate responses (Buzbee 2003). Researchers have also discovered that different types of fragmentation exist at different levels of governance structures. Some different forms of fragmentation are jurisdictional fragmentation, territorial fragmentation, and biophysical fragmentation (Bakker and Cook 2011; Cash et al. 2006; Cook 2011). Jurisdictional fragmentation can be defined as “the fragmentation created by the interaction of political and legal institutions that hold or assign authority to a territory” (Cook 2011: 26). Territorial and biophysical fragmentation refers to both fragmentation caused by political boundaries or watersheds and ecosystem fragmentation through the creation of states or countries.
Jurisdictional fragmentation in natural resource governance Jurisdictional fragmentation has a negative impact on natural resource governance because “too many separate actors and actions can become dysfunctional” which leads to inefficiencies or inaction in solving resource issues (Cook 2011: 33). Jurisdictional fragmentation is the type of fragmentation most significantly affecting natural resource governance. One way to observe jurisdictional fragmentation is to analyze institutional policies such as “constitutions, statutes, regulations, common law rules, international
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treaties, and policies” (Cook 2011: 28; Ostrom 2010). The outcome of jurisdictional fragmentation is a “governance gap,” meaning that there is uncertainty between agencies and actors as to who has jurisdiction over a resource (Cash et al. 2006; Cook 2011). This “governance gap” can lead to multiple problems. The first is inaction, because “where social ill is juxtaposed against multiple potential regulators all will be tempted to ignore that social ill” and “free ride on the anticipated actions of others” (Buzbee 2003: 21). In addition to agency inaction, another issue that arises is over-action. Over-action occurs when multiple agencies attempt to take control of and address a natural resource situation without a clear understanding of which agency is responsible for the jurisdiction. Thus, when governance becomes fragmented it ineffectively regulates that which it is trying to govern. Despite being ineffective, it is often not clear that fragmentation is occurring until either it is determined through analysis, or it is exposed through a shock or disturbance to the system. This is connected to vulnerabilities within a system which are often not exposed until that system experiences a crisis and is incapable of responding to or adapting to its initial shock (Caniglia et al. 2014). As the climate crisis is likely to worsen in unpredictable ways (Chew 2008; Norgaard 2018; Uekoetter 2010; Victor 2001), it is now more important than ever to analyze natural resource governance structures so that governance structures can become prepared before the system is exposed to an irreversible threat. When an environmental problem occurs at a given level or set of levels, and the institutional response fails, another institution, from a different level, may operate as a “stopgap.” This is less than optimal but, in some cases, at least partially, it can address the ecological problem, such as issues arising from water governance fragmentation in Oklahoma (Kerner 2015). Many environmental problems occur and go largely unaddressed because the problem can be “externalized” to a level unmatched by an appropriate governance structure (York, Rosa and Dietz 2003). A factory in the Great Lakes Region of the United States, for example, may comply with local regulations by raising a smokestack so that emissions go higher into the sky, thereby rendering its discharge levels within the letter of “compliance.” This results in increased air pollution across the national border, for Canada, also causing acid rain hundreds of miles north in the Hudson Bay. As the recipients of that set of “externalities” are part of a different polity, there are often limits to what can be done to directly address air pollution problems under current human organizational structures (Baklanov et al. 2016; Wang et al. 2020; York and Rosa 2012). Increasingly with processes of global “integration,” the mismatches could become more acute. This is attributable to several reasons, but particularly to a cascade of mismatches between and among actors, organizations, and institutions at various levels, and their respective relationships to the natural environment (Fisher et al. 2021). The action often that does occur is in terms of a prioritization of economic and market exchange processes, but not in terms of non-market, or ecological, needs.
Hydraulic fracturing legislation in Oklahoma: a case of fragmented governance The prevalence of seismic activities related to oil and gas processes in the state of Oklahoma in the central United States is illustrative of all three dysfunctions of contemporary natural resource governance: fragmented governance, jurisdictional mismatch,
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and the dominance of the market over environmental and human health concerns. The grievances associated with hydraulic fracturing include health consequences due to methane and other emissions, groundwater contamination due to drilling and wastewater re-injection practices, increased industrial traffic, and noise and light pollution from drill sites. In north central Oklahoma, particularly in Payne County, the strongest set of grievances centered around the causes and impacts of a significant increase in seismic activity. The earthquakes caused structural damages to homes and infrastructure throughout the state, leading to increased earthquake insurance policies and complaints across social classes regarding who should be held accountable for their shaking foundations and the resulting destruction. Oklahoma has a long history of petroleum production dating back to the late 1800s, and currently, the industry holds a prominent place in the state’s political formation and modern economic processes, as is the case with other petroleum-dominant localities in the world. Hydraulic fracturing, or “fracking,” as an industrial petroleum process, began in 1947. By 2011, it was evident that seismic activity had begun to increase significantly in the state (Ellsworth 2013) including a large earthquake with a magnitude of 5.7. This resulted in geological research and a statement by the state of Oklahoma regarding the possible relationship between injection wells for the wastewater produced from hydraulic fracturing and the increase in seismic activity (Holland 2013; Keranen et al. 2013). Further research indicated that it was difficult to conclusively state a causal link between “fracking” and earthquake increases (McGarr 2014). There is a significant amount of research indicating that the increase in seismicity is largely related to oil and gas processes more broadly, rather than solely hydraulic fracturing (Ellsworth 2013; Keranen et al. 2014; McGarr 2014). Oklahoma and the surrounding states, particularly Texas, maintain a significant historical legacy of oil and gas extraction and production. Communities gained economic affluence with the boom of oil discovery, including the Osage Nation, and economic downfalls with each oil bust. Reliance on the industry was clearly seen in economic, social, and political aspects of state decision-making as well as the daily life of residents. Frehner (2011) clearly articulates the perpetuation of power dynamics and the creation of a culture steeped in the economic and social dependence on the newly developing industry. While outlining the rise of Petroleum Geology in the southern plains’ region, Frehner (2011) also uncovers power dynamics and the social construction of knowledge and expertise creating a tension between scientific and local ways of knowing. The benefits and costs of the industry are evident historically and clearly impact what is occurring in the state in contemporary times. Further data is accumulating that current setbacks for oil rigs are insufficient to protect health and safety of those living in the vicinity of oil and gas drilling platforms (Apergis et al. 2021; Murray 2013). In recognition of the seismic and health concerns, several U.S. states, including Maryland and New York, have banned hydraulic fracture drilling either permanently or temporarily. In Oklahoma, a strong “Stop Fracking” movement arose in Payne County, which is home to Oklahoma State University in the city of Stillwater. Working with their local legislative representative, Cory Williams (D), the Attorney General and the Planning Commission, “Stop Fracking Payne County” members devised a set of recommendations that would increase the distance from neighborhoods that oil and gas platforms must be placed, along with an increase in taxes that would go to street repair and remediation efforts after drilling was completed. As stated by one member of the City Planning Commission, the City was
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looking for a set of regulations that would be “good for the City, for her citizens’ health and safety, and for Industry – a healthy compromise.” Just as Payne County appeared ready to pass the new legislation due to strong support from citizens and the accumulation of scientific evidence, the state legislature introduced a bill that criminalized any bans or limitations on hydraulic fracturing by cities within Oklahoma. Rapidly, the state passed two bills that restricted the ability of local authorities, like the Payne County Council, to regulate oil and gas activities in their jurisdictions. State Bill 809 allows “reasonable” regulation of road use, traffic odour and noise, but prohibits any direct regulation of oil and gas exploration, drilling or hydraulic fracturing. In a nearly unprecedented move, State Bill 468 warns that “any interference with oil and gas production would be considered a “taking” of property, meaning royalty owners could seek compensation” (Phillips 2015). In essence, the State acted as the legal counsel for the oil and gas industry, which otherwise would have to prove that a “taking” had occurred. Based on recent findings, it is unlikely that a “takings” lawsuit would win, especially if all hydraulic fracturing activities were regulated the same within a given jurisdiction. Regarding the fragmented environmental governance of natural resources, Oklahoma serves as a case—of a sacrifice zone created from damaging externalities and jurisdictional mismatches where economic profit is prioritized over the health and property of the residents (see Steingraber 2010; Diamond and Harrad 2010; Carson 1962 for other examples of public health dangers from water contamination). This occurs not only in the United States but also around the world as far as low-income countries exposure to pesticide pollutants and other toxins (Bondi et al. 2010).
Systemic processes in world-systems and ecosystems: a case for fractal governance World-systems themselves can be conceptualized as dissipative structures (Grimes 2012; also see Luhmann 1982, 1985; Straussfogel 2000), in which there is a transfer of resources from the periphery and semi-periphery to the core, and an externalization of waste and risk back to the semi-periphery and periphery. This manifests in a relatively high ecological footprint from core nations ( Jorgenson 2003; Knight et al. 2017; Wackernagel and Rees 1996), and the flow of externalities in the form of “anti-capital” or waste to the lower tiers of the world-system (Frey 2006). This surplus drain, or “dark value” (Clelland 2012) flowing toward the periphery, is as much a part of world-systems processes as is the accrual of value toward the core. There is ample evidence that these processes, rather than equalizing, are becoming more extreme over time (Wallerstein 2012). In a quantitative investigation of the changes in ecological footprints over the last decade of the 20th century, for example, Jorgenson and Burns (2007) find that countries with the greatest growth in footprint typically were those with higher levels of consumption to begin with. More generally, this persistence and deepening of the “North-South Divide” (Arrighi et al. 2003) has manifested in greater accumulations of wealth and the increasing expropriation of ecological resources over time. Problems associated primarily with the core, in earlier times in the trajectory of industrialization, have spread to the semi-periphery and periphery, just as they have created peripheral sacrifice zones in places like Oklahoma, or low-income countries internationally (Rudel 1993). As they have globalized, they have replicated and morphed
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into patterns of degradation that parallel many of the unequal exchange processes that characterize the world economy. The neoliberal bias against regulation and the ever-increasing scales of production and consumption dovetail closely with patterns of environmental degradation (Schnaiberg 1980); this, increasingly, has been the case in low-and middle-income countries in the late 20th and early 21st centuries (Gould, Pellow and Schnaiberg 2008).
IGOs and NGOs as organizational alternatives for environmental solutions IGOs and NGOs serve as alternative logics to the nation-state, on the one hand, and global markets, on the other, which can offer possibilities for environmental protection (Boli and Thomas 1999; Burns and Clark 2009; Caniglia 2010; Frank et al. 2000; Jacobson et al. 1986; Schofer and Hironaka 2005; Smith and Wiest 2012; Willetts 1996). In political terms, these can serve as transboundary axes of power or influence, which can counteract otherwise hegemonic processes (Mosca 1884, 1980). Globally, there is a lack of governance to regulate the international economic institutions. Yet in some cases, IGOs and NGOs are engaged in ecologically conscious activities that attempt to achieve this. IGOs typically are created by treaties between nation-states, while NGOs have no official government affiliation. NGOs, particularly the larger ones that are well-networked, can sometimes exert considerable normative influence, if not true geo-political power (Caniglia 2010; Pattberg 2007; Slaughter and Zaring 2006). Beckfield (2010) finds a dramatic rise in the scope of IGOs over the last century. Many memberships in IGOs are intersecting, such that virtually any nation-state, even the most peripheral, can link with other nation-states through IGOs (Caniglia 2010). Particularly in the wake of decolonization, IGO membership is often region-based. At least in theory, IGOs set the stage for transnational governance, and they may facilitate environmental treaties among nation-states. In practice, there often is not a clear separation between national sovereignty and IGOs, and nations can become “entangled” with those IGOs ( Jacobson et al. 1986). Significant aspects of contests between nation-states sometimes are replicated within IGOs (Caniglia 2010; Chasek and Downie 2020). In the arena of sustainable development and environmental protection policy, the UN Commission on Sustainable Development (UNCSD), renamed the High-Level Political Forum on Sustainable Development (HLPF), is the central IGO accountable for the negotiation and establishment of international consensus principles and policies. The Commission was mandated: to enhance international cooperation and rationalize the intergovernmental decision-making capacity for the integration of environment and development issues and to examine the progress of the implementation of Agenda 21 at the national, regional and international levels, fully guided by the principles of the Rio Declaration on Environment and Development and all other aspects of the Conference, in order to achieve sustainable development in all countries. [United Nations A/RES/47/191] Since 1993, the Commission has acted to coordinate and harmonize the environmental and developmental activities of all UN agencies within the purview of the Secretariat,
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which is housed in the Division for Sustainable Development. Although the Commission is not a treaty organization, it is the only intergovernmental agency worldwide focused exclusively on the accumulation of expertise and promulgation of policy related to the achievement of sustainable development. Annually, member governments come together for the CSD meeting to examine progress toward the implementation of Agenda 211 and to develop a policy framework to enhance the accomplishment of Commission mandates. The outcome of each annual meeting is the production of a consensus text, which highlights the principle recommendations of HLPF member governments. The text then becomes part of the larger matrix of written principles and policies representing “soft law” on sustainable development.2 Although the UNCSD/HLPF is the central UN agency related to sustainable development, contemporary environmental policy negotiations are characterized by an increasing overlap of delegation members who represent their governments’ environmental positions in diverse venues. As a result, the positions taken at the UNCSD are more likely to be consistent with environmental and developmental positions taken in organizations of “hard law,” such as the World Trade Organization (WTO), than previously. Coincidentally, the UNCSD/HLPF is the most transparent and inclusive agency within the UN system, having accredited the most non-state organizations. Over 200 non-state organization representatives attended the first UNCSD meeting in 1993, and by 2000, there were over 700 in attendance (Dodds et al. 2002). All associated meetings are open to accredited non-state actors, and the Commission provides small grants to enable traditionally underrepresented groups to send delegates (Consensus Building Institute 2002). The attractiveness of the UNCSD as an intervention point for non-state actors was enhanced by the establishment of the annual multi-stakeholder dialogue, which provides an official platform for organized inputs from non-state actors in the presence of government representatives. Such dialogues are a relatively new mechanism within international policymaking institutions and first gained prominence in the UNCSD in 1997, during the five-year follow-up of the Rio Earth Summit in 1993. Importantly, the dialogue format implemented at the UNCSD was subsequently adopted by several other international and national institutions (Hemmati and Hohnen 2002). As a case for fractal governance, we focus on transcripts from the first multi-stakeholder dialogue held in spring 1997 and a fractal governance structure created as a result of that dialogue. Based on Agenda 21, the UNCSD multi-stakeholder dialogues are open to accredited representatives of all officially defined “Major Groups”: Farmers, Indigenous Peoples, Industry, NGOs, Scientists, Trade Unions, Women, and Youth. Each annual dialogue is focused on specific sectors and/or issues relevant to the achievement of sustainable development, such as agriculture, tourism, and energy, and consists of four three-hour dialogue segments, resulting in a total of twelve hours of dialogue each year. In 1997, the focus was on the role of industry in sustainable development. The format of each dialogue segment was consistent, with prepared opening statements by each of the represented major groups followed by more informally structured statements by those in attendance. Approximately one hour was allotted to opening statements in each segment, leaving approximately two hours for open discussion. Throughout the four dialogue sessions, covering a two-day period, the Chair of the UNCSD Secretariat served as moderator. When looking at this dialogue as a positive example of fractal governance, we point out five outcomes that characterize the model of governance we advocate: (1) diversity
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of participation, (2) opportunities for collaborative learning, (3) a focus on consensus-building across common conflict divides, (4) providing input to policymaking venues that are often dominated by the interests of capital, and (5) providing follow-up monitoring that builds trust across sectors and serves to balance the interests of both the environment and capital. The UNCSD/HLPF dialogues, in 1997, exhibit these characteristics, not only according to our objective evaluation but more importantly according to the participants in those dialogues (Consensus Building Institute 2002). According to a report by Michele Ferenz, former Senior Fellow at the Harvard University Consensus Building Institute, 67% of participants in the dialogues reported favorable reviews of the overall dialogue experience. The top three cited benefits of the dialogues were: (1) the opportunity to advocate in an important policy forum (30%); (2) informing the debate by providing specialized knowledge (21%); and (3) the opportunity to build consensus across sectors (16%). Ninety-four percent of participants reported that they revised their views of other sector participants either wholly or somewhat after participation in the dialogue. The dialogue also resulted in a concrete fractal process that was organized to monitor the implementation of voluntary sustainability initiatives created by industry. The monitoring body consisted of representatives from a variety of sectors, including NGOs, trade unions, industries, and governments, which insured oversight that spanned the jurisdictional regions that often confound governance of natural resources. The formal decision stated that: …as a first step, representatives of industry, trade unions and non-governmental organizations should examine voluntary initiatives and agreements to identify those elements that can be considered for this review. The Department of Economic and Social Affairs of the United Nations Secretariat could provide assistance in this process…. (E/CN.17/1998/L.10, Section D, Paragraph 18) In response to this recommendation, the United Nations Department of Economic and Social Affairs (DESA) invited a Steering Committee in 1998 with representatives of the three major groups and UNEP’s Technology, Industry and Environment Office. An additional meeting was held the following year in Toronto, hosted by the Canadian government, which resulted in a Report of the Secretary-General on voluntary initiatives and agreements (E/CN.17/1999/12)—a report that was ultimately presented at the following UNCSD meeting.
Discussion: the contribution of cooperative fractal governance It is important to acknowledge that many environmental problems transpose both governance levels and bioregions. Emissions on local levels aggregate globally into greenhouse gases (Dick and Jorgenson 2010; Doda et al. 2016; Gallego-Álvarez and Martínez-Ferrero 2015; Jorgenson 2006; Knight et al. 2017; Roberts et al. 2006), and plastic and other non-biodegradables are thrown into tributaries around the world conglomerate into ecological calamities like the “Pacific Trash Vortex” (Bidyuk and Zahirska 2013; Smith-Llera 2018). Current levels of human social organizations only partially match the needs of natural ecological systems (Chase-Dunn and Hall 1998). These mismatches, along with previously low ecological consciousness, are major reasons why
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human institutions so often fail to steward the natural environment in anything other than a piecemeal fashion. A rise in ecological consciousness would involve the ability to think in terms of multiple levels of analysis, from the small and local to the entire planet, or fractally—mirroring many elements in nature that exist in a fractal pattern. Different levels of governance would optimally be coordinated across those levels in a similar pattern of egalitarian importance (Cash et al. 2006; Ostrom 2010). The rise of integrated governance structures that bridge traditional jurisdictional fragmentation could address this, such as those found at the United Nations HLPF. Due to its recursive quality and its ability to operate across diverse scales and jurisdictions, this could be called fractal governance. Fractal governance would allow local institutions to address local problems, meso institutions to address meso-level problems, and international institutions to address international problems, as well as an integration of all levels to collectively solve existentially threatening environmental problems. This, of course, often only works in theory—in practice, the most powerful institutions often dominate the others, as illustrated by the case of Oklahoma’s previous decision to ban restrictions on hydraulic fracturing activities despite public sentiments. We argue, however, that the matching of institutions operating at various levels would stand a better chance of addressing problems more directly and efficiently and the collaboration between the levels would be focused on addressing the needs of local stakeholders. The work by process theorists (e.g. Cobb 1991) point to the importance of addressing mismatches between levels of institutional engagement (also see Daly and Cobb 1994). Global environmental governance structures would ideally be in place to challenge and perhaps to counterbalance the institutional hegemony of the global economy (Commission on Global Governance 1995; Hines 2000; Robertson 2004; Shuman 2000). In juxtaposing the current market culture of “economism,” with an alternative vision of “planetism,” Cobb does not dismiss markets out of hand but is leery of their overweening default power. In concert with green economists (e.g. Daly 1977; Porritt 2005), the “planetist vision” seeks to find patterns of economics and governance that work within the real constraints of the ecology of the earth. “Planetism” would ideally “…[meet] physical needs with the smallest possible disruption to the larger, natural economy” and the Earth’s ecological balance (Cobb 1991: 2). A global justice movement would not necessarily find itself rid of markets but would incorporate aspects of capitalism and socialism with ecological awareness and priority (O’Connor 1994; also see Boswell and Chase-Dunn 2000). These transpositional logics would, at best, keep the system stable enough to address environmental problems more efficiently from a multi-level perspective. Such fractal governance structures would have anti-systemic qualities. In other words, there is something akin to globalization from below (Chase-Dunn 2002), but the process would ideally be invigorated by integrating strands of governance from various sides, informed by environmentally aware people of good will (North 2010; Wright 2010). An organizing feature of such an anti-systemic movement would be the centrality of ecological thinking. This would go far beyond the positions of many of the single-issue movements (e.g. NIMBY protests around the citing of a local incinerator). There is, of course, a wide diversity among anti-systemic movements (Arrighi et al. 2012; Moghadam 2012). To be effective, an environmental consciousness would necessarily arise that integrates traditional social movements as well as politically bound localities. Such a consciousness could work to negotiate the maze of mismatches between environmental problems and institutional structures that regulate them. Environmental
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movements, geared to the level of governance where they are seeking influence, such as local ones, tend to be more effective than those which may yield more power and resources but for which there is an institutional mismatch with their intention of influence (Burns and LeMoyne 2001). Indigenous movements and others that are engaged ecologically facilitate connection to the natural environment and thereby help to reduce the alienation attendant to the neoliberal default of free market prioritization (Brondizio and Tourneau 2016; Estes and Dhillon 2019; Fenelon and Hall 2008; Gedicks 2001; Hall and Fenelon 2009; Jacob 2013; Perry 1996). Other things that may help people to connect on the local level include community farms, open green and commuting space such as interconnected biking trails as viable alternatives to an automobile culture that feeds international fossil fuel markets. These in turn dovetail with more macro-level structures, facilitated by environmental fractal governance model-based systems. At any level, or across levels, the efficient functioning of the system is facilitated by conscious people of good will, while a system is degraded by the “free riding” of selfishness and corruption (Olson 1965). With the current neoliberal market economy as default, “environmental free riding” is built into the system, with its tendency to excuse or condone such behavior as an “externality,” or the cost of doing business (Burns 2009; Lux 1990). A strong normative system prioritizing environmental ethics (Burns et al. 2020a) and a sense of responsibility and stewardship could come together to at least partially overcome the perversity of the “tragedy of the commons,” particularly when actors at each level feel a sense of ecological and social connection (Ostrom 1990). Moving to sustainability would be facilitated by an emergent culture of ecological consciousness (Burns 2009; Cohen 2017; Gifford and Nilsson 2014). Any pro-active steps would be seen in more “cybernetic,” or regulatory terms and need to be monitored and adjusted based on valid measures and reliable feedback (Bailey 1994; Luhmann 1982).
Conclusion Fractal governance would combine formal organization with the emergence of environmental consciousness. This could serve as a counter to the institutional isomorphism (DiMaggio and Powell 1983) that diminishes what could be environmental stewardship into alienated bureaucratic inertia. Environmental justice is inextricably linked with environmental responsibility, and yet it is important to be knowledgeable of how justice is perceived in different political and economic spheres. The power of modernization theory as a master trope has daunted previous ecological movements. If economic justice is perceived and acted upon as the ability of low-income countries to match their consumption levels and ecological footprints with the “core,” the sustainability of the planet will be compromised. If an IGO were to arise that has something akin to the power and clout of one of the Bretton Woods institutions (The World Bank, WTO, IMF), but with a warrant for, and a priority of, environmental stewardship, this could be a victory for the natural ecology of the planet (Biermann 2002). Such an institution would, at best, be integrated with governance structures at different levels, including nation-states and local and regional bodies. Regardless of the “system” or institutional structure, however, it is vital that the people whose lives it touches have a stake in its governance, rather than being disconnected from it. In contradistinction to the socially constructed, fetishized demands issuing from a market-based culture and enabled by neoliberal economic practices and values,
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ecosystems have real constraints (Deffeyes 2008). A crucial task of social observers and world-systems analysts, moving into the Third Millennium, is to take these ecological constraints seriously and to account for them in every analytical model and plan for action. Rather than treating environmental concerns as something to be examined with a few variables tacked onto analyses, the critical challenge, at this stage of history, dictates the environment become a “central organizing feature” (Gore 1993) of the analysis itself. Environmental fractal governance models could serve as a guiding light for ecologically sound praxis across multiple levels of both human and ecological systems for the betterment of all embedded in our collective global systems.
Notes 1 Agenda 21 stands for the sustainable development agenda for the 21st Century and was created at the Earth Summit in Rio de Janeiro in 1993. 2 Hard law generally refers to treaties, which carry clear consequences for violating signatories, while soft law provides general principles and guidance without clear consequences. For more information on the distinction between soft and hard law, see Guruswamy, Palmer, and Weston (1994), International Environmental Law and World Order.
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30 The sociology of sustainable development A focus on communities Dale Yeatts, Christy Cooksey and Leigh Messenger
Introduction “Sustainable Development” is sometimes thought to be economic development that continues over time. However, the most widely accepted definition was provided by the United Nations in 1987 within the now famous Brundtland report which defined it as: “meeting the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland Commission 1987, 43). The term “Sustainable Community Development” (SCD) has been used when considering the sustainable development of communities. Three widely accepted major components that contribute to SCD include what is referred to as the three Es of SCD: economic vitality, a healthy physical environment, and social equity that offers all inhabitants good health, comfort, and happiness (Mazmanian and Kraft 2009). Scholars, attempting to explain how community development can be sustainable for existing and future generations, have highlighted the need for communities to focus on all three components. For example, when considering economic vitality, the city of Detroit, Michigan historically neglected to develop economic diversity with only one major industry—automobile production. When the auto industry began to suffer so did Detroit. The city eventually filed for bankruptcy in 2013, reflecting the unsustainable economic condition. Subsequently, city officials learned from this experience, and today Detroit has a vibrant and diverse economic base and is pushing for more economic equity or justice for Detroiters (Lynch et al. 2021). Similarly, when considering the importance of a healthy environment, an example can be seen through a village in China that invited an industry to come to their village in order to provide jobs for the current inhabitants (Tilt 2010). Once the industry moved into the village, it began dumping toxic waste into the water supply. Eventually, the water became so polluted that the entire village had to disband and move for lack of healthy water. While the needs of the current inhabitants had been initially met, the degradation of the environment did not allow for a sustainable village. When considering social equity or the welfare of the community residents, examples can also be found to highlight its importance for SCD, such as when some US cities chose to demolish acres of low-income housing and replace it with economic ventures and upscale housing (e.g., a shopping mall or a high-end neighborhood). While this development benefited many, in some cities, displaced persons expressed their dissatisfaction by rioting and looting. It is certainly not a sustainable condition for existing or future inhabitants. The importance of these components can be seen by examining major historical developments in the United States leading up to the emergence of the concept of SCD. This
DOI: 10.4324/9780367817152-34
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chapter briefly reviews the theory behind SCD, examines some major developments that brought it about, and overviews an array of current initiatives that focus on creating a SCD, i.e., a healthy environment, economy, and resident life.
A theory of SCD Research has highlighted the importance of the economy, environment, and social conditions for creating a sustainable community. A focus on these three components has led to a well-accepted theoretical framework explaining what must take place in order for SCD to exist (Figure 30.1). Creating sustainable development appears to be most successful when the three Es are complementing and protecting each other (Roosa 2010). However, as described below, the three Es have historically been at odds with one another. An imbalance of the three components typically exists when the proponents of one have more influence politically than proponents of the other two. For example, where proponents of economic growth dominate, decisions may be made that strengthen economic conditions but allow for polluting the environment and reducing the social welfare for many. Similarly, where proponents of a healthy environment dominate, decisions may be made that put polluting companies out of business and leave residents without gainful employment. To create communities where SCD thrives, history has shown that there is a need for advocates of the three components to work together and seek compromises where needed.
Historical conditions leading to the emergence of SCD in the United States In the second half of the 19th century, industries and businesses were growing alongside an increasing use of coal. While many communities had not yet experienced heavy industrial pollution, a growing number of cities, particularly the largest and those that were migration sites for immigrants, began experiencing increasingly unhealthy conditions (Davidson et al. 1979; Levine 2010). Some of these negative conditions included the rise of tenements, overcrowded living conditions, disease, and early death for many. Additionally, low-income housing was typically polluted and dangerous, making them hotspots for fire hazards. Examples of this include the Great Chicago Fire of 1871 and the 1911 factory fire in New York. Despite these conditions, many city officials around the country welcomed industrial development as a means of providing residents with jobs and the city with tax revenue. Meanwhile, many industry leaders found the best locations to be those where they could easily receive the materials needed to produce their products, transfer said products, and inexpensively dispose of any waste produced during production. Such locations were often next to rivers or on the coast where Economy
Environment SCD Social
Figure 30.1 A model displaying components important to SCD.
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materials could be easily received and waste released via waterways or the air (Levine 2010). Such environmentally destructive practices were largely overlooked by governments and the public because of the positive growth and opportunity that industry provided, especially to individuals needing gainful employment and cities needing tax revenue. The water and air pollution produced by these practices were often viewed as an unavoidable exchange to reap the benefits of industrial development. The first half of the 20th century also saw a huge increase in the use of automobiles and the emergence of disposable products. “Urban sprawl” was underway with neighborhoods built outside central cities and, with relatively cheap energy, neighborhood residents often drove individually into the central city for work. The American dream of owning a house in a suburban neighborhood, which included the watering and fertilizing of one’s property, became more affordable and realistic. Generally, there was a lack of motivation to curb air pollution from automobiles, water pollution from the run off of fertilizers into streams, lakes and rivers, or the overflow of landfills with disposable products. At this point, the extent of pollution was not large enough to off-set the benefits being experienced. Furthermore, Roseland (2005: 18) has pointed out: “Most North American cities were built using technologies that assumed abundant and cheap energy and land would be available forever.” This cheap energy allowed for the construction of spacious homes and buildings, fostered automobile use, and increased the distances that workers traveled from home to work and back—all of which contributed to the increase in pollution. Many communities grew inefficiently as roads and transportation systems were not well planned, adding to the time workers spent in their cars which in turn added to a growing pollution problem. It wasn’t until the middle of the 20th century that the general public began recognizing the severe damage that economic development was having on the environment and human health. One pivotal incident in the United States that brought increased attention to industrial pollution and the need for regulation was the Donora Smog of 1948 that killed an estimated 40 people in Donora and Webster Pennsylvania and harmed the health of many more (Boissoneault 2018; United States Environmental Protection Agency 2021). During this time, city officials across the country were becoming aware of the serious health problems created by the exposure to toxic and dangerous air and water. A prime example of growing pollution is the coastal city of Los Angeles, California. It was becoming increasingly unhealthy due to toxic air and water pollution caused by shipping, transporting of imported goods out of the city, a growing population, increases in automobile and energy use, and mountains that inhibited polluted air from leaving the area. Similarly, other cities experienced air pollution from growing industries and the increased use of coal-fired power plants that are now known to produce mercury contamination, dispersion of particulates, and acid rain (e.g., sulfuric and carbonic acids) (Roosa 2010). For some communities, the water was becoming unsafe to drink and the fish in local waterways were becoming unsafe to eat. In 1963, it was determined that Lake Erie’s oxygen content had become so depleted from polluted conditions that the center of the lake sustained almost no life (Egerton 1987). In 1969, there were fires on the Cuyahoga River in Cleveland, Ohio that were directly caused by pollutants (Stradling and Stradling 2008). In 1970, Love Canal in Niagara Falls, New York was dangerously contaminated by toxic industrial waste and the pollution of the Chesapeake Bay crippled the crab industry when it was determined the crabs were no longer safe to eat (Chesapeake Bay Foundation 2022; Steegmann 2001; Van Cleve 2021). Shutting down fishing and crabbing industries had negative impacts on many lower income
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workers who lost their jobs. Furthermore, as populations grew, communities began experiencing an abundance of waste that contributed to the already polluted waters and landfill space which was rapidly becoming costly and forced the need for new waste management strategies. These conditions heightened the tensions between the three Es of economic development, a healthy environment, and social equity. In response, some states and local communities took steps to regulate industries that were creating these harmful polluted conditions in order to prevent them from doing further damage to the environment and the health of residents. However, many states and local communities found it difficult to enforce these regulations. Furthermore, there were industries that could not afford or did not want to pay the costs associated with disposing of toxic materials in a safe way. While the industries could operate profitably by dumping toxic materials into a local stream or river, they could not operate profitably if they took on the added expense of safely disposing of these toxic materials. Likewise, some industries could not afford the costly technology needed to prevent their produced toxic fumes from being released into the atmosphere. For many communities and states, regulating these industries meant that some of them would be forced to close which would lead to a spike in job loss/unemployment. An example can be seen in the Appalachian town of Saltville, Virginia where the Olin Mathieson Alkali Works plant was dumping waste into holding ponds and releasing calcium chloride effluent into the North Fork of the Holston River that flowed past the plant. Regulations were created that made such polluting of the river illegal and so the continued dumping of toxic materials into the river had to stop. As a result, the company announced that the plant would need to close and its employees terminated as the company could not meet the water pollution standards and remain financially solvent (Mazmanian and Kraft 2009). During this time, Rachel Carson (1962) published her now famous book, Silent Spring, describing the indiscriminate use of pesticides toxic to homeowners. Meanwhile, an offshore oil rig in California polluted beaches with millions of gallons of spilled oil. While these rapidly growing incidences increased people’s environmental awareness, local communities and states continued to have difficultly creating and enforcing environmental regulations for a number of reasons. Three of the most prominent included the negative impacts that doing so would have on jobs, on those who benefited financially from a lack of regulation, and on financial contributions to political campaigns. Subsequently, in the early 1970s, as communities continued to experience environmental degradation, President Richard Nixon presented a 37-point program focused on a variety of environmental issues including water and air pollution control, solid waste management, parklands, and public recreation (Nixon 1970). Regarding air quality, standards and stringent guidelines were put in place to lower motor vehicle emissions. The message also asked for a clean-up of federal facilities that were polluting the air and water, sought legislation that would end the dumping of wastes into the Great Lakes, and proposed a tax on lead additives in gasoline. As a follow-up, Nixon created a council to consider the best way to organize the various federal government programs that had been established to address environmental issues. This culminated in the creation of the federal Environmental Protection Agency (EPA) that had the authority to respond to environmental problems through research, establish quantitative “environmental baselines” to measure the success of pollution abatement efforts, and, in concert with the states and local communities, to set and enforce standards for air and water quality (Portney 2013). The EPA was charged with the tasks of stopping existing pollution
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practices, requiring improvements to existing polluted environments, and preventing future problems. The EPA quickly stepped in where communities and states had been hesitant to tread and began setting regulations and recommending new federal laws. These included the Clean Air Act, Clean Water Act, Safe Drinking Water Act, setting regulations for hazardous waste disposal, and creating regulations for the life cycle of toxic commercial chemicals. To carry out its expanding role and monitoring activities, the agency’s staff grew from about 6,000 in its first year of operation to roughly 18,000 by the mid-1990s with ten regional offices and an annual budget of over 1 billion dollars. This period came to be known as the “command and control” era of the EPA (Mazmanian and Kraft 2009). The EPA began to command industries to follow environmental regulations and in doing so controlled what they could do. The initial result was a clear improvement of the environment throughout the United States. However, the struggles of industries to comply with the growing number of regulations eventually lead to a substantial “backlash” to the EPA’s “command and control” tactics (Mazmanian and Kraft 2009). The new environmental regulations forced some businesses to close while others struggled to remain solvent. Furthermore, businesses and industries were often forced to follow specific technological guidelines to reduce pollution, even when the managers of a business or industry believed they could develop new technologies that would be less expensive and more effective at reducing pollution. The EPA came to be viewed by many in the business community as a “bully” forcing change (Mazmanian and Kraft 2009). This often resulted in the managers of businesses and industries resenting the pressures of the EPA, which drastically reduced any potential for a true partnership with the EPA to protect the environment. Instead, the managers of businesses and industries chose to comply with only the minimum requirements rather than making a real effort to curb pollution. Meanwhile, some community residents were also at odds with the EPA, particularly when jobs were threatened or land owners were prevented from using their private property in a way determined by the EPA to be detrimental to the environment. At this time in history, pollution was decreasing but major flaws with the command and control approach became evident. As noted, strict regulations were impeding industries from seeking out new and better technological approaches to pollution control. EPA regulators also sought to control businesses and industries by requiring near-constant documentation of compliance. Furthermore, EPA regulations were sometimes applied to an entire industry without considering differences within the industry (Roosa 2010). Meanwhile, social equity was sometimes ignored, which resulted in a decline in the quality of life for many lower income and minority residents. These residents already experienced the detrimental effects of pollution more often than others as they lacked the means to escape pollution caused by the harmful acts of the economy. Residents of the wealthier neighborhoods had the money and knowledge to organize and get city officials and the EPA involved if a “dirty” industry made a proposal to build near their neighborhoods. On the other hand, the residents of lower income neighborhoods lacked the time and knowledge to fight such proposals. They were more focused on meeting their basic needs such as paying the rent and buying clothes for their children—they lacked the time and knowledge to organize and find ways of stopping an industry proposal. At the same time, “dirty” industries were looking for places to locate and build that offered little resistance and this was typically near low-income
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neighborhoods (Mazmanian and Kraft 2009). Thus, the tensions between social equity, economic development, and the environment continued to grow. Overtime, the command and control strategy of the EPA was applied to thousands of companies. However, EPA regulators found that they were unable to monitor all the companies which resulted in the EPA itself not doing everything the law and their own regulations mandated. During this period, there was a clear struggle between businesses trying to grow the economy, environmentalists trying to protect the environment, and social activists who believed that lower income and minority groups were not being treated fairly or equitably. Businesses and industries resented the EPA’s forceful tactics, environmental groups believed the EPA was not doing enough, and social activists noted the unfair treatment of the less fortunate. There was no doubt that the struggle between the three Es was creating divisiveness rather than collaboration.
Emergence of SCD By the 1980s, proponents of each of the three Es were beginning to recognize the contributions and importance of the others to a community’s ability to be sustainable, i.e., meet the needs of the present community residents without compromising the ability of future community residents to meet their own needs. The EPA came to recognize inherent problems with its command and control approach and so looked for new strategies that would protect the environment while also allowing for economic growth and social equity. One overarching EPA strategy that emerged was to switch from an emphasis on forcing businesses and industries to comply with regulations to emphasizing incentives for them to do so (Dechant and Altman 1994). For example, companies that were reviewed by the EPA and received high marks on compliance might receive a reduction in reviews (e.g., once every three years rather than yearly). Another example was the EPA’s efforts to bring to the public’s attention those companies that were doing an exceptional job of protecting the environment. The public’s subsequent positive view of these companies became a valuable reward as the public was found to be more likely to purchase the products of companies that made an effort to protect the environment (Dana Ioana RUSU 2020). The EPA also put more emphasis on making helpful information available to those in business and industry and educating the owners of businesses and industries on environmental concerns and new technologies. Furthermore, the EPA began practicing and encouraging “cooperative” decision-making that included the input of business managers, social advocates, local and state officials, and environmental groups. In 1994, Dechant and Altman (1994: 7) noted this move away from a command and control philosophy by providing a description of conference proceedings that included the managers of Fortune 500 companies: …it was apparent that these firms have moved past the ‘why are you telling us what to do?’ attitude of the 1970s when companies’ environmental efforts were driven primarily by government regulation and a desire to avoid significant legal and financial liabilities. They are now in leadership positions, working hard at raising their efforts to a strategic level where good environmental management becomes a source of competitive advantage. The competition between the three Es was subsiding in the favor of cooperation and looking for ways to assist each other.
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Current SCD practices in the United States The 21st century has seen many successful initiatives introduced or further developed to help achieve SCD. These initiatives address economic viability, environmental protections, and citizen wellbeing. Some of the more widely used and successful initiatives are described below. Sustainability plans and city departments of sustainability Perhaps the single most influential initiative has been the establishment of sustainability plans found within newly established city departments of sustainability found not only in large US cities but also in medium and smaller sized cities. When city sustainability departments and plans were first being created, skeptics argued that the conflict of interest between economic growth, environmental protectionism, and social equity would prevent any meaningful change toward SCD. It was argued that city leaders rely on the money brought in by local businesses and industry for a large portion of the city’s budget and so would not commit to a true three-E sustainable development model requiring increased restrictions (Portney 2009). However, this view has proven to be short-sighted. Many city leaders as well as supporters of economic development have come to recognize the value of an attractive, healthy environment to economic growth and social equity. Industries need employees, businesses need customers, and cities need tax payers. Officials of a city with an attractive and healthy environment find it easier to attract residents, businesses, and industries to their city—this has encouraged city officials to use their positions to create and implement sustainability departments and plans. City plans often include purchasing renewable energy and energy efficient products, enforcing stricter design and building codes, tracking and taxing energy consumption, and building city infrastructure that is sensitive to environmental concerns (Roosa 2010). City leaders have begun monitoring energy use by city buildings and operations (e.g., energy for lighting and air conditioning) and use city supported educational programs to garner support and enthusiasm for SCD. City leaders use monetary incentives to encourage residents to install and use more energy efficient building products, such as upgrading to more energy-efficient windows and lighting (Yeatts et al. 2017). One popular initiative is the “utility rebate program” that gives energy discounts or rebates for participation in reducing energy consumption (Roosa 2010). Monetary incentives have also been effectively focused on businesses to garner their attention for increased sustainable practices. One can gain a better understanding of the importance of urban sustainability plans by examining the development of a sustainability program within a single city. One of the first and most successful sustainability plans was developed by the city of Seattle, Washington. The beginnings of the city’s push for a sustainable environment began in the 1960s when local citizens became concerned with the erosion of local agriculture that threatened a diverse community of growers and vendors (Sanders 2010). As citizens began to organize, they encouraged the development of alternative agriculture, backyard gardens, art festivals, and technologies that support SCD. This was eventually followed by community participatory sessions and workshops on sustainability. In 1993, Seattle created perhaps the first official “indicators of sustainability” to assist in determining the extent to which Seattle was making progress toward sustainability (these sustainability indicators are available on the Sustainable Seattle website). These
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indicators have subsequently been revised and adopted by other cities to allow the indicators to more accurately reflect the uniqueness of each city. In the initial development of the sustainability indicators, there were 250 citizens involved who identified 40 environmental, social, and economic measures. Soon thereafter, Seattle’s Center for Applied Sustainability was created which was eventually followed by Seattle’s Office of Sustainability and the Environment (OSE). Some of the activities of the OSE include hosting community workshops for youth, neighborhoods, and the general public as well as producing action agendas and specialized participatory research programs (Sanders 2010). The OSE has made it a point to focus on social justice issues through workshops that focus on race and sustainability and with awards given for sustainability leadership. It also makes an effort to include neighborhoods and community residents in the development of infrastructure initiatives, such as seeking stormwater solutions and de-paving projects. Seattle has received national attention as a result of its efforts and leadership in this area, including the attention of city officials from other parts of the country who want to develop their own SCD plans and departments. Furthermore, Seattle has used its notoriety and successful efforts to its advantage by attracting a variety of employers to Seattle. Collaborations and coalitions for sustainable development There are a variety of organizations made up of like-minded city and regional leaders as well as business executives seeking to collaborate in their efforts to create sustainable cities. Some of these include the International Council for Environmental Initiatives (ICLEI) and the Clean Cities Program. ICLEI is a global network of more than 2,500 local and regional governments committed to sustainable urban development. City leaders who take part in the ICLEI have access to a number of valuable resources to help in the planning and implementing of energy saving programs. Member cities collaborate to share their sustainability plans and highlight their successes and shortcomings (Roosa 2010). The Clean Cities Program was first initiated by the US Department of Energy’s Vehicle Technologies Office in 1993. As stated on the 2021 Clean Cities website, their goal is to “encourage economic, environmental, and energy security by working locally to advance affordable, domestic transportation fuels, energy efficient mobility systems, and other fuel-saving technologies and practices” (https://cleancities.energy.gov). The program has grown to include 75 Clean Cities coalitions across the United States, each made up of member cities, businesses, fuel providers, vehicle fleets, community organizations, and state agencies. Each coalition seeks ways to build partnerships among its members and to advance affordable and environmentally conscious urban energy systems. This includes the goals of implementing alternative fuels, fuel-saving technologies and practices, and new mobility choices. The coalitions are typically organized by a coordinator who takes a lead role in helping members to tailor projects and activities to the uniqueness of their local area. It has been estimated that there are roughly 18,000 participating communities and organizations in the Clean Cities coalitions (Roosa 2010). Since its beginning in 1993, it has been estimated that the Clean Cities coalitions have achieved a cumulative impact on energy use equal to nearly 11 billion gallons of gasoline. For comparison, the United States consumes approximately 20 million barrels of petroleum per day, about threefourths of which is used for transportation. To evaluate the effectiveness of the Clean
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Cities Program, Qui and Kaza (2017) used a Difference-in-Differences evaluation of the program from 1990 to 2010. When compared to a control group, cities and counties participating in the program experienced a reduction in days with bad air quality (3.7%), a decrease in automobile commuters (2.9%), an overall increase in transit commuters (2.1%), and the participating cities and counties had greater numbers of new alternative fueling stations (12.9%). Improving efficiency and reducing transportation costs have made a notable impact on the economy and have reduced emissions that impact air quality and public health (https://cleancities.energy.gov). Smart growth development The term “smart growth” has been used to describe city efforts to reduce the spreading out of residential and commercial developments over a wide geographical area. The focus is to reduce resident time spent on the roads driving to work and commercial areas by discouraging suburbs built far from jobs and major commercial areas. Instead of allowing for low-density growth, smart growth development promotes high-density urban environments and was originally supported by environmentalists, transit operators, open-space advocates, and some farm advocacy groups (Alexander and Tomalty 2002). It has been described as a “big tent” program because it attracts large interest groups who have combined their efforts to affect land use policy. This includes transportation groups, advocates for affordable housing, environmentalists, and neighborhood activists (Ahvenniemi et al. 2017). Most of the reasoning for smart growth focuses on the reduction in carbon emissions, environmental burden, and resource consumption. Furthermore, smart growth has been found to increase social equity via better access to healthcare, desirable living spaces, and increases in social cohesion. Research by Alexander and Tomalty (2002) suggests that urban infrastructures supporting high-density living have higher job ratios and employment rates. Furthermore, they found that carbon emissions were lower due to shorter commute times. Critics of smart growth have noted that housing costs tend to be greater in high-density areas resulting in less affordable housing for low-income residents and a subsequent detriment to social equity. Alexander and Tomalty (2002) have pointed out that higher density areas have less land available for recreational use such as parks or space for dog-walking which have been positively associated with resident satisfaction. Consequently, they have suggested that increased density does not automatically equate to increases in better quality of life. To address these shortcomings, Alexander and Tomalty (2002) have recommended that smart growth plans include planning for pedestrian-friendly environments, traffic-calmed side streets, and “urban oases” where people can get away from the hustle and bustle of the city. In response, some city decision-makers have set aside funds to help lower income individuals obtain affordable housing and have also created policies to incentivized property owners to lease to lower income individuals. Energy rating systems Several energy rating systems have been developed to encourage and highlight energy savings, including the Energy Star Partnership Program and the Leadership in Energy and Environment Designs (LEED). The Energy Star Program is used by both businesses and cities as a means to rally around sustainability goals by allowing consumers and
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businesses to identify and purchase those products that have been designed to increase energy efficiency, save money, and protect the environment. The EPA ensures that each product that earns the Energy Star label is independently certified to deliver the efficiency performance and savings listed which helps consumers trust and sustain confidence in these products that are environmentally efficient. The Energy Star rating system is well known and used in many areas of business and city operations where sustainability is a priority for its leaders. In 2021, the Energy Star website stated that thousands of industrial and commercial businesses participate in the system, including more than 40% of all Fortune 500 companies, 2,000 manufacturers producing products in more than 75 product categories, and 2,000 retailers with thousands of storefronts. Other participants include 700 utility, state, and local governments, as well as nonprofits. When considering the impacts of all of these together, it is believed that roughly 95% of all US households have access to Energy-Star-rated products (https://www.energystar.gov/partner_resources/). The private, government, and nonprofit organizations participating in the Energy Star program have noted their satisfaction with the system because they can track, monitor, and rate energy usage wherever energy is consumed ranging from the machines used in every day office use to whole buildings and heavy equipment. Asensio and Delmas (2017) conducted an evaluation of the Energy Star program in Los Angeles to assess the building energy savings between 2005 and 2012. They measured energy savings in terms of the percentage energy change in kilowatt-hours due to the program and concluded that there was a savings of 19% (p