ECONOMIC SOCIOLOGY

ASSIGNMENT I

SEMESTER IV

Ques: Critically analyze the debates on 'embeddedness' in Economic Sociology.

Ans: The discipline of economic sociology concerns itself with understanding the relationship
between economics and society. One of the classic questions of social theory is how behavior
and institutions are affected by social relations. Economic sociologists thus try to understand
how economic behavior and institutions are influenced by social relations and phenomena.
However, within this discipline there have been different arguments about the extent to which
social relations influence behavior and institutions in a society.

Much of the utilitarian tradition, including classical and neoclassical economics assumes that
rational, self-interested behavior is only minimally affected by social relations, which in turn
creates an idealized state. Mark Granovetter, on the other hand, argues about how behavior and
institutions are influenced by social relations to such an extent, that they cannot be understood as
being independent. This argument is what Granovetter also refers to as ‘embeddedness’ in his
writings. He is concerned with the embeddedness of economic behavior and provides a better
understanding of it through his work by providing a theoretical elaboration of this concept.

Granovetter talks about how since a long period of time, sociologists, anthropologists, political
scientists, and historians have believed economic behavior to be heavily embedded in social
relations in premarket societies, which became much more autonomous with modernization. This
view separates economy from society, isolating economic transaction by viewing it as being free
from kinship and social obligations, but rather an activity being done for individual gain, in the
modern society. Granovetter also argues how it may also be argued that the traditional situation
is reversed, which means that instead of economic life being submerged in social relations, these
relations become an epiphenomenon of the market instead. According to Mark, the
embeddedness position has some relation to Marxist thought and is associated with the
“substantivist” school in anthropology, identified especially with Karl Polanyi (1944; Polanyi,
Arensberg, and Pearson 1957) and with the idea of "moral economy" in history and political
science (Thompson 1971; Scott 1976).

Further, Granovetter argues about the different conceptions of embeddedness in economic

sociology. He states how few economists, first being Adam Smith, believe and assert that
embeddedness in earlier societies was not substantially greater than the low level found in
modern markets, thus implying that modernization did not have a great impact on embeddedness.
This view was later called a ‘formalist’ one as certain anthropologists also believed that even in
tribal societies, economic behavior was sufficiently independent of social relations for standard
neoclassical analysis to be useful. With growing interest of historians and political scientists in
economic analysis of social institutions, a new position called ‘new institutional economics’ has
developed which argues that behavior and institutions that were interpreted as being embedded
in earlier societies can be better understood as resulting from pursuit of self-interest by rational,
more or less atomized individuals. Granovetter however, mentions how his own view is different
from the ones talked about above.

According to Mark Granovetter, the level of embeddedness of economic behavior, as claimed by

substantivists and development theorists in nonmarket societies, is lower than what they believe.
He also points out that his belief that modernization has not had that major impact on this level
of embeddedness, but is and will continue to be more important than is allowed for by formalists
and economists. He further talks about two conceptions of the degree to which human action,
economic activities in particular, are influenced by social relationships and phenomena: Over-
socialised and Undersocialised conception of human action.

The over-socialised conception of human action basically assumes that people and their
behavior and actions are driven by the values and norms of the society they live in, which
become internalized through the process of socialization. In other words, people are believed to
be overwhelmingly sensitive to the opinions of others therefore, conforming and obeying with
the societal norms and values which in turn drive their economic behavior and activities.
Granovetter mentions how Dennis Wrong in 1961 complained about modern sociology having
an over-socialised conception of man, as it was prominent during that time. Wrong did put
emphasis on actors’ embeddedness in social context but he argued that the degree of this
embeddedness was being exaggerated along with the extent to which it might eliminate conflict.

The atomized, undersocialised conception of human action, on the other hand, assumes that
social structures and social relationships do not impact economic activities. Classical and
neoclassical economics operate on this conception and treat the fact that people may have social
relations with one another as a fictional drag, argues the author, which can be observed in the
utilitarian tradition. According to this conception, production, distribution, or consumption is not
affected by social elements or forces. This can be understood by looking at a perfectly
competitive market, where there is no room for bargaining, negotiation, remonstration or mutual
adjustment and there is no need for recurrent or continuous relationships between the contractors.
Also, since no produced or consumer has the ability to majorly influence aggregate demand or
supply, or prices or other terms of trade, there is no need for prolonged human or social contact
between the parties, also mentioned by Albert Hirschman in his works, as cited by Granovetter.
One question which arises here is without continuous interaction or social relations, how has the
competitive markets successfully survived intellectual attacks. Granovetter argues how one
reason for this has been the appeal of self-regulating economic structures of competitive markets,
while another being the removal of problem of order from the intellectual agenda in the
economic sphere because of elimination of social relations from economic analysis. He also cites
the writings of Hobbes and his argument about disorder arising because of the dependence of
social and economic relationships on trust and absence of malfeasance. Granovetter states how
this is unlikely when individuals are conceived to have neither social relationships nor
institutional context-as in the "state of nature." Hobbes, says Granovetter tries to contain this
difficulty by superimposing a structure of autocratic authority.

Another more recent view, reflected in the works of James Duesenberry and E.H. Phelps Brown,
which is close to the over-socialised conception of human action, argue that individuals acquire
cutoms, habits, or norms that are followed mechanically and automatically, irrespective of their
bearing on rational choice, through these social influences. Thus, people act in certain ways
because it is the ‘natural’ or the ‘right’ thing to do.

Granovetter however in his work also critiques both these undersocialised and oversocialised
conceptions of human action for ignoring the social relationships that people might have with
one another. He argues how both these conceptions coincide with each other in the sense that
both have a conception of action and decision carried out by atomized actors in common. In the
undersocialized account, atomization results from narrow utilitarian pursuit of self-interest; in the
oversocialized one, from the fact that behavioral patterns have been internalized and ongoing
social relations thus have only peripheral effects on behavior. Granovetter again cites Hobbes’s
work here, specifically Leviathan, to talk about how the conceptions merge with each other in
their atomization of actors from immediate social context. Modern economists, argues Mark,
often use the oversocialised conception of human action, to suggest how social influences do
have an impact on economic behavior. But these oversocialized conceptions of how society
influences individual behavior are rather mechanical, argues the author. Social influence then
becomes an external force, which alters the individuals’ way of making decisions.

The author also talks about the ‘historical and structural embeddedness of relations’, which can
be understood as abstracting away from the history of relations and their position with respect to
other relations. The interpersonal ties described in their arguments are extremely stylized,
average, "typical"- devoid of specific content, history, or structural location. It is assumed that
actors’ behavior results from their named role positions and role sets while their relations are not
assumed to have individualized content beyond that given by the named roles. Granovetter
argues how this has been criticized in Parsonian Sociology. He believes that for a fruitful
analysis of human action, it is necessary to avoid the atomization which is implicit in both the
conceptions talked about above: undersocialised and oversocialised. This is because actors do
not behave or decide as atoms outside a social context, instead their attempts at purposive actions
are embedded in concrete, ongoing social relations.
Another important aspect of economic life that Granovetter talks about in his study and is
important in our understanding of embeddedness in economic sociology is the question of trust
and malfeasance. He mentions the work of Oliver Williamson about how real economic actors
engage not merely in the pursuit of self-interest but also in “opportunism”, which in simple
words can be understood as a way of seeking self-interest with guile and deception in
transactions. However, Granovetter argues how historically, economists have assumed that this
deceptive behavior of the actors would be penalized in a self-regulated competitive market which
could suppress fraud and force, encouraging people to pursue individual gain or self-interest in a
‘gentlemanly fashion’. The author mentions the works of Hirschman that argue about the certain
motivations being responsible for keeping people under control and ensuring a civilized and
gentle way of fulfilling self-interest. However, in situations of imperfectly competitive markets,
this does not always hold true and people often engage in deceitful behavior in the name of
personal gain. Granovetter talks about two solutions that have been given in economic literature
for tackling with this problem, linking one to the undersocialised conception and the other to
oversocialised conception of human action.

The undersocialised account, writes Granovetter, shows an interest in explaining social

institutions from a neoclassical viewpoint arguing that social institutions and arrangements
previously thought to be the adventitious result of legal, historical, social, or political forces are
better viewed as the efficient solution to certain economic problems. Malfeasance is averted
because the way institutions have developed and evolved have made it too costly to engage in,
and thus discourage malfeasance. They do not produce trust, but instead are a functional
substitute for it argues the author. Other economists who use the oversocialised conception
assume that there is some sort of ‘generalized morality’ that exists within a society and guides
action of individuals. They assert that some degree of trust must be there for institutions to
operate.

The embeddedness theory or argument however, stresses on the role of concrete personal
relations and structures of such relations in generating trust and discouraging malfeasance.
Granovetter argues how the preference for transacting with known people instead of strangers
implies that only few people actually believe in the generalized morality or the ability of
institutions to regulate economic behavior. We often rely on people whom we trust and have
transacted with in the past, we often ask them for information or approach them for transacting
again. Mark also argues how in social networks, the presence of trust can lead to both, hindering
or fostering of malfeasance, implying that social networks do not independently or alone impact
trust or malfeasance. He argues how disorder and malfeasance can also occur in the absence of
social relations, but the level of malfeasance available in a truly atomized social situation is fairly
low. The embeddedness approach to the problem of trust and order in economic life, then,
threads its way between the oversocialized approach of generalized morality and the
undersocialized one of impersonal, institutional arrangements by following and analyzing
concrete patterns of social relations.
To conclude, the debate of embeddedness in economic sociology basically talks about how
economic behavior and activities are in fact influenced by social relationships and social
phenomena. This asserts that how people make decisions, transact or behave in the economic
sphere or market conditions is influenced by the nature of their interpersonal relationships. It
would be wrong to assume that individuals only act in a way that fulfils their self-interest without
taking into account the social influences that may lead to altering the way they behave. An
important argument was also the one about trust and malfeasance and it is important to note that
the presence of social relationships does not necessarily ensure the presence of trust. Lastly, the
undersocialised and oversocialised conceptions of human action constitute a large part of the
assumptions made by economists, the embeddedness theory however, sort of rejects the ideas
presented by both these conceptions, one being the assumption of atomized action.

ANSHITA JAIN

B.A. (HONS) SOCIOLOGY

19/SOC/09