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The social embeddedness of local

economies

Paul Blokker

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Overview ClassEmbeddedness 1. Main themes:

a. the market economy as independent sub-systemb. the social embeddedness of the economyc. different forms of integration: reciprocity, redistribution, marketd. the market economy as disembeddede. fictitious commodities: land, labour, and moneyf. social reactions to disembedment

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Overview CourseEmbeddedness2. Main themes:

a. Economic sociology: markets as created, as reliant on external regulation and social norms, as based on forms of trustb Varieties of capitalism: varieties of institutionalizing the marketc. liberal market economies and coordinated market economiesd. Different modes of governance: state, market, hierarchy, association, community

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Overview CourseEmbeddedness3. Relevance:a. An understanding of historical variety of

economic activity and its relation to societyb. Current economic order designated by

convergence towards disembedded markets (globalization), but at the same time by embedded (local) markets (localization)

c. Knowledge of the role of institutions and society in reproducing the market

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Overview CourseEmbeddedness

Relevant literature of the reading list:

• Beckert, Jens (2007), 'The Great Transformation of Embeddedness: Karl Polanyi and the New Economic Sociology',

• Block, F. (2000), 'Disorderly coordination: the Limited Capacities of States and Markets’.

• Crouch, C. et al. (2001), Local production systems in Europe: rise or demise?, Oxford/New York: Oxford University Press, in particular conclusions.

• Evans, P. (1995), Embedded Autonomy: States & Industrial Transformation, Princeton.

• Polanyi, Karl (1944), The Great Transformation, in particular chapter 4.

• Trigilia, C. (2000), Economic Sociology, Blackwell Publishers, in particular chapter 5.

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1Relation between

Economy and Society

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1. Economy - SocietyEconomy as independent system?

- neo-classical economics as well as classical sociology presuppose a market economy that is detached from the rest of society, that forms an independent sub-system of its own: the famous ‘invisible hand’ regulates the market, or, the market is ‘self-regulating’

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1. Economy - SocietyEconomy as independent system?

- A very general definition of the economy is as: ‘a body of activities which are usually carried out by members of a society in order to produce, distribute, and exchange goods and services’ (Trigilia 2002: 2).

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1. Economy - SocietyEconomy as independent system?

- Economists tend to follow a more narrow definition, with an emphasis on ’activities which involve the rational allocation of scarce resources in order to obtain the most from the means available’ (Trigilia 2002: 2).

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1. Economy - SocietyEconomy as independent system?

- Two types of understanding the economy can be identified:1. Formal: means-ends relationship, actors economizing2. Substantive: provisioning for the material wants of society

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1. Economy - SocietyEconomy as independent system?

- A standard definition of the market economy would then be something like:

An economic system in which entrepreneurs hire workers to produce goods and services to be marketed (sold on the market) with the intention of making a profit.

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1. Economy - SocietyCapitalism involves at least 4 principlesi. all factors of production (land, labour, means of

production such as machinery) are subject to specified property rights;

ii. the allocation of scarce resources (primary materials, goods, services) through markets;

iii. an economy based on entrepreneurs who take initiatives, make decisions, and calculate risks;

iv. ‘civilizational condition’: the primacy of economic values and an inbuilt tendency to subordinate social activities to the goal of unending economic growth.

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1. Economy - SocietyEconomy as embedded

- Increasingly recognized that the market economy is always already embedded in larger society. In other words, a market economy can only function if it relates to, and is sustained by, larger society.

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1. Economy - SocietyEconomy as embedded

- A major thinker who was (one of) the first to elaborate an economic-sociological approach to the embeddedness of markets was Karl Polanyi (anthropologist, sociologist), although he hardly used the notion ‘embeddedness’.

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1. Economy - SocietyKarl Paul Polanyi (1886-1964)- Polanyi’s most well-known work is The

Great Transformation (1944), which analyses the rise and fall of the self-regulating market society

- Polanyi distinguishes in his The Great Transformation between 3 (or actually 4) forms of the ‘integration’ of the economy in society, that is, modes of embeddedness of the economy in wider society.

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1. Economy - SocietyKarl Paul Polanyi (1886-1964)

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1. Economy - SocietyEconomy as embedded

- Much of what Polanyi tried to explain in his The Great Transformation was the unicity of the modern market society, and of ‘market fundamentalism’, and the problematic consequences of such a type of ‘market society’.

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1. Economy - SocietyEconomy as embedded

- Polanyi takes a historical approach to the relationship between economy and society, distinguishing three (or four) modes of integration:

1. Reciprocity2. Redistribution3. Market

(4. Householding)

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1. Economy - SocietyReciprocity- The exchange of goods and services

within a (primitive) society is based on traditions related to family and kinship.

- Primitive economies functioned on the basis of complex networks of shared obligations that motivated individual behaviour.

Polanyi uses the example of Trobriand Islanders in Western Melanesia (cf. Malinowski, Thurnwald)

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1. Economy - SocietyReciprocity- Reciprocity entails that

‘goods and services are produced and exchanged on the expectation that other goods and services would be received in ways and over periods of time that were fixed by shared social norms’ (Trigilia 2002: 98);

NB. not by market supply and demand, or motives of gain or profit.

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1. Economy - SocietyReciprocity

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1. Economy - SocietyRedistribution- Redistribution entails the production

and allocation of ‘goods on the basis of norms establishing the modalities of labor services and types of resources that should be transferred to a political chief’ (Trigilia 2002: 98).

This type of integration was predominant in larger, imperial types of society (Egypt, Mesopotamia).

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1. Economy - SocietyRedistribution

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1. Economy - SocietyMarket- The market society is based on the

exchange of goods through market-regulated trade, in which prices emerge from the unrestrained interaction of demand and supply.

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1. Economy - SocietyMarketNB. But the Market Society also

demands - different from markets - that the production of goods and services, as well as the distribution of income, depend on a price-regulated market (Trigilia 2002: 98).

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1. Economy - SocietyMarket

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1. Economy - Society(Householding)- Householding (what the Greeks called

‘oeconomia’/’oikon’) consists in the production for one’s own use, thus providing for one’s self-subsistence (normally for the family).

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1. Economy - SocietyEmbeddedness of economy- Polanyi thus theorizes various forms of

embeddedness of the economy.

- The notion of embeddedness has become a key notion in economic sociology.

- Often, however, the interpretation is very different from Polanyi’s.

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1. Economy - SocietyEmbeddedness of economy- For Polanyi, embeddedness is:

1. Markets as necessarily limited by institutional regulations which connect them to the moral fabric of society. Unregulated markets will lead to social anomie.2. In a normative sense, embeddedness refers to a social reformist view of society, in which the state needs to ‘tame’ the market (Beckert 2007: 8).

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1. Economy - SocietyEmbeddedness of economy- One of the first to pick embeddedness

up was Mark Granovetter. His interpretation is embeddedness as social networks:

Economic action is ‘embedded in concrete, ongoing systems of social relations’ (Granovetter 1985).E.g. immigrant networks, information networks, organization of financial markets.

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1. Economy - SocietyEmbeddedness of economy- A more complex definition – closer to

Polanyi – is provided by Zukin and Dimaggio (1990):

1. Cultural embeddedness2. Cognitive embeddedness3. Political embeddedness4. Structural embeddedness

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1. Social QuestionDouble movement- Polanyi argues that the

commodification of fictitious commodities, i.e., those factors that are not produced for the market, leads to social resistance

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1. Social QuestionDouble movement- Double movement: too much

commodification and disembedment leads to attempts to re-embed the economy.

- At the end of the 19th century, the social reaction consisted of labour unions, socialist parties.

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1. Social QuestionMore on Karl Polanyi

- http://polanyi.concordia.ca/

- http://homepage.newschool.edu/het//profiles/polanyi.htm

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1. Social QuestionMore on Karl Polanyi

- …