38
3 The great transformation of embeddedness: Karl
Polanyi and the new economic sociology1
Jens Beckert
Introduction
Over the last 25 years, economic sociology has developed into one of the fastest
growing fields of sociology and became an important subfield of sociological
scholarship (Smelser and Swedberg 2005; Beckert and Zafirovski 2006). This
does not mean that sociologists during the postwar era did not study economic
phenomena, but they did so either selectively by focusing primarily on issues
of the organization of the industrial work process, labor markets, and industrial
relations, or by focusing on the societal and cultural effects of capitalist
economies. An example of this is the concentration of critical social theory on
issues of alienation and the “colonization of the life world” (Habermas 1981).
Class theory was primarily interested in the distributional effects of capitalism
and various phenomena of exploitation of the industrial worker. What was lost
in these sociological approaches to the economy in the postwar period was the
comprehensive study of the social preconditions of capitalist economies and
their core institutions, especially markets. This broad approach had been developed
by the classical sociological authors in their studies of the economy. For
Max Weber, Émile Durkheim, and Georg Simmel, the exploration of the institutions
of modern capitalism was an important part of their respective social
theories, and the neglect of this issue left a void in sociological scholarship
during the postwar period.
It is not easy to understand this decline of economic sociology and its
reemergence in the late 1970s, but there is widespread agreement on several
contributing factors. On the one hand, the decline of sociological interest in
the economy is probably related to the “solution” of many of the economic problems
that were paramount during the classical era of sociology. Once patterns
of stable growth developed in the Western world during the 1950s and 1960s,
economic problems became less important for the understanding of social
integration. Keynesianism seemed to offer effective political instruments to
steer economic growth, which made the fulfillment of “adaptive functions”
2
1
I am grateful to the editors and to Akos Rona-Tas for their helpful comments.
The great transformation of embeddedness 39
(Parsons 1951) a problem that appeared to have found an enduring solution in
a regimen of “embedded liberalism” (Harvey 2005; Ruggie 1982). Moreover,
the dominant Parsonsian paradigm of structural functionalism advocated a
division of labor in the social sciences which left most aspects of the investigation
of economic phenomena to the discipline of economics.2
Even the later
critiques of structural functionalism did not touch this division of labor – at
least at first – since the Marxist critiques, conflict theory, and interpretative
sociology led either to the study of phenomena of distribution and exploitation
or, as in the case of Harold Garfinkel, to an orientation which showed
little interest in the investigation of economic phenomena.
These developments provide clues as to why economic sociology declined
in the postwar era. But why did the field reemerge during the 1980s? First,
problems of inflation, increasing rates of unemployment, and low growth
rates since the 1970s brought economic problems into the focus of societal
attention once again. These macroeconomic changes were accompanied by
profound transformations on the organizational level, commonly referred to as
the end of the Fordist production regime. Second, during the 1970s and 1980s
sociologists, anthropologists, and political scientists “discovered” economic
configurations whose success had to be attributed to factors not accounted
for in orthodox economic theory: the enormous success of Japan (Dore 1986;
Hamilton and Biggart 1992; Yamamura and Streeck 2003), the rise of industrial
districts (Trigilia 2006), and the discovery of the informal economy (Hart
1973). Third, the global economic picture started to change significantly in the
1980s because of the pronounced shift to market-oriented economic policies
not only in the Western capitalist countries but also in the developing world,
especially in Asia and Latin America, and, later, in the transitional countries
of the former Soviet bloc. Markets gained in importance relative to political
regulation, which dominated the capitalist postwar economies. Though this
shift toward markets brought the dominant political orientations closer to the
assumptions of orthodox economics, sociologists were sensitized for the social
anchoring of economic action and turned to the investigation of markets as
the paramount institution of exchange advocated by neoliberalism. After the
failure of shock therapy in transition economies, the insight that markets have
social and political preconditions also reached policymakers in international
organizations like the World Bank, where “social capital,” for instance, became
a core policy concept.
In addition to the “real” changes in the economy, changes in the relationship
between economics and sociology must be mentioned, too. First and foremost,
the 1970s saw an expansion of the rational choice approach into substantial
2
The resulting paradigm has been called the “economy and society perspective” (Swedberg 1987;
Granovetter 1990). Geoffrey Hodgson (2008: 137) refers to the “Robbins-Parsons Consensus.”
Market and Society40
fields that were hitherto domains of sociology. The new economic sociology
is in part a reaction to this “economic imperialism” and its understanding of
action, making the counterclaim that even on economics’ home playing field,
i.e. “the economy,” many phenomena can be better understood by approaching
them from sociological perspectives. At about the same time, however, new
developments took hold within economics which made the discipline itself
more sensitive to the institutional preconditions of market exchange. This
holds true for information economics and the new institutional economics.
Sociologists started to address the systematic problems raised by economists
from these schools.
Given these transformations, the renewed interest of sociology in investigating
core institutions of modern capitalist economies, especially markets, might
not be surprising. What is surprising, however, is that the essential concept
applied in the new economic sociology is not derived from the classical sociologists
Max Weber, Émile Durkheim, Georg Simmel, or Karl Marx. Instead,
the “founding manifesto” of the new economic sociology, Mark Granovetter’s
(1985) seminal article “Economic Action and Social Structure – The Problem
of Embeddedness” centers on Karl Polanyi’s concept of embeddedness. This
concept had been introduced by Karl Polanyi in his The Great Transformation
(Polanyi 2001).3
Ever since the concept was brought to the attention of sociologists
by Mark Granovetter, it has been a focal point of the new economic
sociology. Hardly any article associated with the new economic sociology
fails to mention “embeddedness” as the core concept indicating a sociological
approach to the economy. Few economic sociologists would disagree with the
statement “We are all Polanyians now.”
I will argue in this chapter that, in its adaptation by the new economic sociology,
Karl Polanyi’s concept of embeddedness has itself undergone a great
transformation. As it has been continually reinterpreted, significant meanings
of the concept have vanished, while others have been added. In particular, the
social-reformist connotations of the concept have been neglected. I begin by
exploring below the different meanings attached to the concept of embeddedness
in the new economic sociology. Against the established approaches, I
argue that it is not the embeddedness of economic action as such that should
constitute the vantage point of economic sociology, but rather three coordination
problems that actors face in economic exchange. It is only by starting
from these coordination problems that the necessity of embedding economic
action becomes theoretically comprehensible. I will argue that by proceeding
from these coordination problems, sociological, anthropological, and
3
Though Karl Polanyi is usually cited as the originator of the concept of embeddedness, it was used
earlier by Richard Thurnwald in his study “Die menschliche Gesellschaft” (Thurnwald 1932).
Polanyi was familiar with the works of Thurnwald when writing The Great Transformation (see
Firth 1972).
The great transformation of embeddedness 41
historical approaches to the economy can find common research questions
which allow them to enter into more fruitful conversations with each other.
Later, I draw attention to the social-reformist inclinations of Polanyi’s use of
the notion of embeddedness and thereby highlight the challenge posed in The
Great Transformation that was largely not taken up by economic sociologists.
Finally, I note limitations with regard to the development of a macro theory of
the economy that result from making embeddedness the core concept of economic
sociology.
Embeddedness: the ironies of the career of a concept
The career of the concept of embeddedness in the new economic sociology
would certainly have come as a surprise to the man who is quoted as its originator.
It has been pointed out repeatedly that Polanyi hardly ever used the term
(Barber 1995: 401; Krippner 2001: 779), and by no means could one claim that
it is a well-defined, central concept in his work. In The Great Transformation
the term is used only in the chapter on the “Evolution of the Market Pattern.” In
the relevant paragraphs Polanyi contrasts the market economy with economic
configurations based on reciprocity and redistribution: “Instead of economy
being embedded in social relations, social relations are embedded in the economic
system” (Polanyi 2001: 60). The second use of the term a few pages
later also alludes to this contrast:
In the vast ancient systems of redistribution, acts of barter as well as local markets were
a usual but not more than a subordinate trait. The same is true where reciprocity rules:
Acts of barter are here usually embedded in long-range relations implying trust and
confidence, a situation which tends to obliterate the bilateral character of the transaction.
(Polanyi 2001: 64)
Evidently the centrality of the concept of embeddedness is an artifact of the
reception of The Great Transformation. Nevertheless, it is possible to identify
two core meanings the concept had for Polanyi; first, he sees markets as necessarily
limited by institutional regulations which connect them to the moral
fabric of society. Unregulated markets cannot be more than a pathological form
of organizing the fulfillment of adaptive functions in society and will lead to
social anomie. This institutional anchoring of the economy is characteristic of
all three types of economic exchange distinguished by Polanyi: reciprocity,
redistribution, and market. Second, the term “embeddedness” is not only an
analytical term but also alludes to the political or social reformist task of
stabilizing a (democratic) organization of society through the institutional
regulation of markets, especially in the realms that Polanyi termed fictitious
commodities: land, labor, and money. Hence the reference point of embeddedness
is not the economy as such, but “the larger social systems in which all
Market and Society42
economies are located” (Barber 1995: 406). In both connotations of the term
“embeddedness,” Polanyi’s assessment of the modern capitalist economy corresponds
fully with the approaches of classical sociological theory.
That “embeddedness” should become the central concept of the new economic
sociology with reference to the works of Karl Polanyi is surprising given
the limited significance the term has in the works of the author himself. This
irony, however, is complemented by a second incongruity: the understanding
of embeddedness advocated by Mark Granovetter (1985), which led to the
widespread use of the term in the new economic sociology, differs fundamentally
from the meaning of the term in the work of Karl Polanyi.
Granovetter introduced the notion in direct reference to two debates. These
concerned the dispute between substantivists and formalists in economic
anthropology (Schneider 1974), and the controversy between two competing
concepts of action in sociology: on the one hand, the “undersocialized concept
of action,” incorporated from economics, which sees actors as isolated from
each other and, on the other, the “oversocialized concept of action,” which
represents actors’ behavior as being entirely controlled by the social norms in
which they have been socialized.
For Granovetter, both concepts of action are flawed.As an alternative, he suggested
making the patterns of relationships among actors the core variable for
the explanation of economic outcomes. According to Granovetter (1985: 487),
economic action is “embedded in concrete, ongoing systems of social relations;”
in other words, in actors’ social networks. This use of Polanyi’s notion
of embeddedness promotes a structuralist economic sociology in which economic
outcomes are explained by the structural properties of social networks
(Granovetter 1973, 2005). Networks pattern market exchange and facilitate
collective action. The significance of network structures has been validated in a
variety of different research areas, such as the diffusion of information on labor
markets (Montgomery 1991; Granovetter 1995), immigrant networks (Portes
and Sensenbrenner 1993), and the organization of financial markets (Baker
1984; Uzzi 1999; Mizruchi and Stearns 2001). Proceeding from Granovetter’s
programmatic essay, the network approach has become the most influential
advance within the new economic sociology.
Yet Granovetter’s linking of embeddedness to the structuralist network
approach in economic sociology implies a fundamental transformation of the
concept. As Krippner (Krippner 2001; Krippner and Alvarez 2007) has argued,
Polanyi’s understanding of the embeddedness of the economy is rooted in
institutional analysis. For Polanyi, markets are not networks of structurally
equivalent producers but “rather fully social institutions, reflecting a complex
alchemy of politics, culture, and ideology” (Krippner 2001: 782). The network
approach, by contrast, isolates a single aspect of markets – networks of ongoing
social relations – “as constituting the proper domain of economic sociology”
The great transformation of embeddedness 43
(Krippner 2001: 799). This is a limited perspective because an exclusive focus
on the structure of social relations leads to a neglect of the social content underlying
the observed structure. By not taking attributes of actors and institutional
rules into account, network analysis fails to explain how the social structure of
markets emerges and why networks are structured the way they are (Beckert
2005). Moreover, the network perspective does away with Polanyi’s concern
with the stability of social order, by focusing exclusively on the process of market
exchange itself and not on the larger social system.
This, however, is not the last irony in the career of the concept of embeddedness.
On closer inspection it becomes evident that Granovetter’s focus on
network structures gives rise to a further inconsistency, this time with regard
to his own intention to provide an alternative to the oversocialized and the
undersocialized view of action. Far from providing an alternative within action
theory, he does away with a grounding of economic sociology in action theory
altogether (Beckert 2003, 2006a). Network structures, rather than social action,
become the explanatory variable (Granovetter 2005). Small wonder that institutional
economists and rational choice sociologists eagerly took up this notion
of embeddedness, since they could readily incorporate it into a rational choice
framework (Burt 1992; Lin, Cook and Burt 2001).4
In short, the central position of embeddedness – and, hence Karl Polanyi’s
work – in the new economic sociology appear to be the result of cumulative
interpretative misunderstandings on several levels.
Coordination problems in market exchange as the starting
point of economic sociology
Despite this confusion the notion of embeddedness has become the core
concept of the new economic sociology. This was also possible because the
meaning given to the term by Mark Granovetter has not remained the only
reading. Zukin and DiMaggio (1990 elaborated a taxonomy that distinguished
between four types of embeddedness. In addition to Granovetter’s “structural
embeddedness,” they distinguished between cultural embeddedness, cognitive
embeddedness, and political embeddedness. This broadening of the concept
of embeddedness unquestionably brought it closer to the meaning that may
be deduced from The Great Transformation. This breadth allowed different
4
The comedy of errors behind the concept of embeddedness took a final turn a few years ago
when Mark Granovetter stated that he did not even have Karl Polanyi’s work in mind when introducing
the notion of embeddedness in his programmatic essay: “I use the term ‘embeddedness’
[in the 1985 article] in a narrower and somewhat different way than Polanyi meant it. The reason
is that I was not trying to borrow the term from Polanyi, or to re-appropriate or to reintroduce
it. Something more complicated was going on. I have looked back at my old notebooks and
found that I used the term embeddedness in some of my early notes, before I ever read Polanyi”
(Krippner et al. 2004: 113).
Market and Society44
sociological approaches to the economy to be brought together under a single
heading, which has contributed to the development of the field over the last two
decades. To what extent, however, can any notion of embeddedness provide a
satisfying starting point for economic sociology?
Following Polanyi, I take it as axiomatic that the embeddedness of economic
exchange makes economic and social integration possible: the attempt to
establish a system of self-regulating markets based on the commodification of
the “fictitious commodities,” land, labor, and money, produced the dehumanizing
social conditions that Polanyi held responsible for the social and political
instabilities he witnessed in his lifetime. The analytical – and, as I shall argue
later, also the political – challenge is to identify the social preconditions for the
organization of the economy that allow the fulfillment of economic functions
to be combined with the realization of a humane social and political order.
No critique of the notion of embeddedness as the initial concept of the new
economic sociology can deny the indissoluble connection of the actor with
his or her social surroundings. However, we may question whether sociology
should start from this notion as its entry point into the field of the economy.
My position is that “embeddedness” characterizes a general answer to specific
problems without identifying the underlying problems themselves.5
By starting
from the embeddedness of economic action we are putting the cart before the
horse. The first proper step would be to identify the problems that can actually
be solved by an approach focusing on the embeddedness of economic action. I
suggest that we identify these problems and make them the analytical starting
point of economic sociology. The problems to be resolved in market exchange
are found not only in contemporary, highly developed capitalist economies but
also in preindustrial market exchange. Since sociologists have largely ignored
such societies, the approach I am advocating invites collaboration with anthropologists
and historians; in this respect it is fully consistent with the multidisciplinary
interests of Karl Polanyi.
If the strict assumptions underlying neoclassical economic theory are
relaxed, the embedding of economic action needs be viewed in the light of three
problems of social coordination that actors face in market exchange. General
Equilibrium Theory posits that markets can stabilize without being “embedded”
because exchange allows for individual utility maximization based on
fixed and exogenously given preferences and no actor has an interest in changing
the equilibrium result. Once the assumption of perfect markets is given
up, however, the problem of the social order of exchange reemerges (Latsis
1972), and it is only by the formation of robust expectations with regard to the
actions of relevant “alter egos,” i.e. the reduction of the social uncertainties
5
Cf. Dobbin (2004). Rather than proceeding from a set of problems, Dobbin’s approach proceeds
from a set of social mechanisms that resolve underlying problems.
The great transformation of embeddedness 45
entailed in market exchange, that stable markets become possible. The reduction
of uncertainty is an indispensable precondition for the emergence and operation
of market economies (Beckert 1996). Market actors need “stable worlds”
(Fligstein 2001) or “calculability” (Weber 1978) in order for role sets to be
reproduced. Embeddedness is the mysterious substance which provides this
stability in market exchange.
Three coordination problems
The three coordination problems actors face in market exchange are the problem
of value, the problem of competition, and the problem of cooperation.6
Value
The problem of value may be defined as the “difficulties that market participants
have in forming clear subjective values for goods in the market” (Koçak
2003: 8). Only if buyers are able to “discriminate between the worth of goods
or services that confront them in the market” and sellers are able to reliably
demonstrate “the value of goods they bring to the market” (Koçak 2003: 5f.)
can market exchange take place. The basis for this is the cognitive process of
commensuration, in which actors rank products according to their contribution
to the fulfillment of a need and thus provide the basis for attaching value
to a product in relation to others.7
This is to some extent a technical process if
standards are defined to distinguish different qualities of commodities and the
contribution of a commodity to resolve a technically defined task. However, in
large parts this process of valuation is social in character. The emergence of a
“market for whale-watching” on Canada’s west coast, for instance, depended
on cultural transformations that changed the way whales are valued in Western
culture. Although whales were perceived for centuries as feared behemoths – a
perception most dramatically described by Melville – this perception began to
change from the 1950s onward to the point where whales are seen today as a
threatened species that symbolize the value of freedom. Only on the basis of
6
An additional social precondition for the emergence of stable markets is the social legitimation
of the market exchange of a certain good. Historically, markets have been subjected to numerous
limitations in terms of their location, their duration and the goods they are legally allowed
to trade (Braudel 1979; Polanyi 1944; 1976a; Walzer 1983; Weber 1922). The prohibition of
trade in human beings (e.g. slavery or adoption), organs, or certain substances (e.g. illegal drugs)
are but a few examples of such limitations. Clearly, there is no unilinear historical process by
which markets become ultimately legitimate mechanisms for the exchange of all goods. Illegal
markets face the same coordination problems as other markets. Actors in illegal markets must
find different solutions to these coordination problems, however, which makes illegal markets
even more precarious.
7
I do not attempt to develop a theory of market prices here. Understanding why actors think of a
product as being valuable and as having more or less value compared to another good is only one
element of price formation; see Guyer, Chapter 11 in this volume.
Market and Society46
this change in perception did it become possible for the watching – and not
the hunting! – of whales to become a valued commodity for which people
are willing to pay money (Lawrence and Phillips 2004). In the case of the
market for wine, similar social processes lie behind the possibility of differentiating
a product that is perceived by outsiders – or “non-experts” – as largely
homogenous. Assigning vastly different values to wine based on the grapes
used, the producer, the location of the winery, the year of production, the type
of bottle used, and the evaluations of third parties is a complex process without
which this market would not exist at all. The “quality markers” constituting the
reputation of a wine must be established in communicative processes involving
producers, consumers, traders, and intermediaries, especially wine critics.
Through these processes the social uncertainty inherent in the product is
reduced and consumers can develop confidence in the “value” of a wine despite
the fact they cannot classify its quality based on its sensual characteristics.
Valuation processes are social in character in a second sense. Value may be
based on the recognized contribution of the good or service to the positioning
of its owner on the social ladder and thereby contribute to the definition of the
owner’s social identity. Products constitute and express membership of specific
life-worlds. The classic treatment of this phenomenon is Veblen’s (1899 ) discussion
of “conspicuous consumption.” But it holds true, of course, in a much
more general sense: products are located in a social landscape which allows
the owners of goods to be positioned and, conversely, to form social identities
based on market choices. Only through such socially based processes of the
subjective valuation of goods can stable markets emerge. Hence markets must
be socially and culturally embedded to be feasible. In the case of valuation, the
embeddedness of economic action is a necessary condition for classifying the
material world in terms of the relative value of the products offered, i.e. for creating
motives for product demand. A sociological theory of markets will aim
to understand how the mechanisms of classification emerge and work (Bowker
and Star 2000).
It is obvious that the study of processes of valuation is a field in which
sociological, historical, and anthropological perspectives meet. The historical
perspective highlights the processes of change in the valuation of goods. For
example: Zelizer (1979), in her study of the emergence of the life insurance
industry in the United States during the nineteenth century, reveals the long
process before potential buyers of life insurance overcame their resistance to
the product. At the outset of the industry, life insurance was seen by potential
customers as morally corrupting since it involved a gamble with God and
provided a premium for the death of another person. It was only by taking this
cultural resistance into account that a change in marketing strategies could be
achieved; the meaning of the product was reframed, and potential customers
started to value life insurance. Economic anthropology has investigated such
The great transformation of embeddedness 47
phenomena as the social base of measurement systems (Gudeman 2001: 12),
the dependence of the value of goods on their meaning as symbolic representations
of social status (Geertz 1973), and the cultural bases of the demand for
products (Douglas and Isherwood 1979; Appadurai 1986; Graeber 2001; Hann
and Hart forthcoming).
Competition
The second coordination problem actors face derives from competition. From
the economist’s standpoint, markets are based on competition. But sellers can
only make a profit if markets are not perfect in the economic sense. If markets
were perfect, marginal utility would equal marginal costs and the incentive to
produce for the market would vanish. Profits emerge when markets are imperfect
(Chamberlin 1933; Knight 1921; Robinson 1933). Therefore, market actors
attempt to create market structures that provide protection from pure price
competition. A power-driven “market struggle” (Weber 1922) ensues in which
actors try to restrain competition or use existing regulations to their advantage.
At the same time, market actors experiencing disadvantages from existing market
regulations attempt to challenge incumbents by trying to change the rules
of competition (Fligstein 2001). The state plays a major role in these market
struggles by laying down ground rules, for instance in competition law or intellectual
property law, and by granting subsidies or collecting tariffs. Political
embeddedness as well as market differentiation based on the “singularization
of the good” (Callon, Méadel and Rabeharisoa 2002: 201) and processes of
network closure are mechanisms aimed at resolving this coordination problem.
This is a second indication that markets can only emerge through their embeddedness
in noneconomic social and political contexts.
Again, the investigation of these market struggles would profit from a close
collaboration between sociologists, historians, and anthropologists. In the
Middle Ages, guilds had the function of protecting established producers from
unwanted competition. The rise of John D. Rockefeller in the oil industry in the
late nineteenth century may be described as the result of a strategy of eliminating
competition. Rockefeller created a monopoly by taking over the refineries
owned by competitors. The government reacted by introducing antitrust legislation
leading to the dissolution of the Standard Oil Company (Hohensee 2003:
78). Closing certain labor market segments to persons on the basis of their race,
gender, caste, ethnicity, union membership, and so on also serves to protect
defined labor market groups from competition. Geertz (1963: 32ff.) showed
how competition in a Javenese bazaar takes place between buyer and seller
rather than between sellers because no fixed prices exist. Here it is the lack of
an institutional provision which inhibits the type of competition usually associated
with market exchange. Stephen Gudeman (this volume) cites examples
from anthropological research showing how market exchange is regulated by
Market and Society48
communal bonds as well as social networks and how these bonds restrict the
trade of certain goods or trade between certain actors.
Competition and its moderation through regulation, entry barriers, or product
differentiation reflects a fundamental coordination problem for market
exchange. It allows market exchange to be understood as a political and social
struggle over institutional regulation and “blocking action” (White 1992),
pointing to the embeddedness of economic action as a resolution to a specific
problem market actors face.
Cooperation
The third problem of coordination that actors confront in market exchange is
the problem of cooperation.8
It arises from the asymmetric distribution of information
about price, product quality, and the possible opportunism of exchange
partners in the light of incomplete contracts. Exchange relations are inherently
risky undertakings. The resolution of the social risks of exchange, notably that
of “defection,” is a crucial precondition for the emergence of stable markets. In
addition to social networks, clientelistic relationships, reputation systems, formal
warranties, and branding, mechanisms such as trust, social norms, power,
network closure, and emotions all help to resolve this coordination problem
(Beckert 2006b). While trust, reputation, and institutional safeguards have been
extensively discussed as forms of embeddedness in the new economic sociology,
it is the systematic problem itself which provides the vantage point from which
the cultural and institutional embeddedness of markets may be explained.
Again, proceeding from the coordination problem illustrates the commensurability
of sociological, historical, and anthropological approaches. For example,
from a historical perspective Berghoff (2005) has explored the origins of the
credit reporting and rating agencies in the nineteenth century in the USA
and Europe. Modern credit markets could only emerge when institutional
solutions had been found to the problem of assessing the risks of credit. The
historical investigation shows how the establishment of standards of creditworthiness
emerged and altered as social and economic conditions changed
and new technological and mathematical possibilities arose. Starting from
interpersonal relationships in tightly knit religious networks, the instruments
became increasingly formal up to the point where creditworthiness today is
established through scoring systems. The very same problem has been investigated
in a contemporary empirical case study by Guseva and Rona-Tas (2001),
who examined the establishment of credit card markets in Eastern European
countries. The research shows the specific solutions credit card companies find
8
The distinction between competition and cooperation as two distinct coordination problems does
not imply that competition does not involve cooperation between competitors. The solution to
collective action problems is a form of cooperation. The distinction refers to the structuring of
competition, on the one hand, and the social risks entailed in the exchange process, on the other.
The great transformation of embeddedness 49
when operating in an environment in which potential credit card holders have
no documented credit history. In economic anthropology, Hart (1988: 179),
among others, investigated practices of lending in the informal economy of
a migrant community in Ghana, identifying the mechanisms by which traders
assess the trustworthiness of their clients (cf. Gudeman, Chapter 2 in this
volume). All of this research shows how the potentially devastating problems
stemming from the asymmetric distribution of information and the freedom
of choice of ego and alter ego are resolved through the connection of market
exchange with the institutional, cultural, and social contexts in which this
exchange takes place.9
Combining sociological, historical, and
anthropological perspectives
Identifying the three coordination problems makes the cultural, political, structural,
and cognitive embeddedness of market relations comprehensible in terms
of the actual problems market actors confront. The embeddedness of market
exchange is not the vantage point of economic sociology. Instead, it reflects
social conditions that help actors in addressing underlying problems of coordination.
This approach comes closer to Polanyi’s conceptualization of embeddedness.
It allows for a much broader perspective that does not have to limit
itself to just one type of embeddedness but can investigate the actual solutions
market actors find for the identified coordination problems as a combination
of all four types of embeddedness and their mutual interdependencies. This
corresponds to Polanyi’s view that we should see markets as social institutions
enmeshed in politics, culture, and ideology (Krippner 2001: 782).
The closer interaction between sociological, historical, and anthropological
scholarship on economic exchange also corresponds to the Polanyian perspective.
This plea for increased cooperation is not meant to reinforce disciplinary
lines, but, rather, to improve the empirical understanding of economic
exchange by enlarging the theoretical and empirical scope of scholarship in all
three disciplines. How? First, by systematically studying the historical variance
of solutions to the identified coordination problems and the historical
genesis of current solutions. Second, by identifying and studying the large pool
of alternative solutions to the coordination problems, which not only sharpens
the understanding of solutions found in a specific situation but also heightens
people’s awareness of the cultural specificity and contingency of particular
solutions.A comparative and historical perspective makes it possible to identify
9
Many other examples of the study of this coordination problem in market exchange and of the
investigation of the specific mechanisms by which it is resolved could be cited from the three
fields (Kollock 1994; Braudel 1979). Of course the social and institutional context sometimes
works to hinder the solution of cooperation problems. The argument is only that the solution to
the problems cannot be analyzed in purely individualistic terms.
Market and Society50
specificities of modernity and its variances in the organization of the economy
in a non-functionalist way. Third, by applying theoretical concepts developed
in one of the disciplines to empirical fields that get less attention in the discipline
in which the concept originates. An example would be the concepts
of gift-giving, reciprocity, and classification as important analytical concepts
in anthropology. Despite their origins in sociology (Durkheim, Mauss), they
were long neglected in economic sociology. Recently, however, they have been
successfully applied to the analysis of economic exchange by economic sociologists
(Godbout and Caillé 1998; Steiner 2004; Healy 2006; Adloff and Mau
2006).
Proceeding from the three coordination problems also enables us to connect
economic sociology systematically with economics. Value, competition, and
cooperation have been subject to extensive research in economics, especially
during the last thirty years. What distinguishes a sociological – or anthropological,
or historical – approach to the economy from an economic approach is
not the questions asked but, rather, the answers given. The most profound difference
– though this crosses disciplinary lines – is either seeing economic action
from a normative perspective as contained in the universe of rational actors and
efficient economic institutions, or understanding the economy empirically as
a cultural and political phenomenon from its dialectic interrelation with other
societal spheres (see also Gudeman, in Chapter 2). Which of these perspectives
we take, however, is not simply a matter of taste. The coordination problems
point to fundamental uncertainty for intentionally rational economic actors that
impedes the maximization decisions presumed in orthodox economic models
(Beckert 1996).
Embeddedness and social reform
I argued in the previous sections that there are two shortcomings in the use of
embeddedness in the new economic sociology. The first difficulty is specific
to Granovetter’s (1985) influential conceptualization, which restricts embeddedness
to the investigation of social network structures. The second, more
general, limitation is that embeddedness is used as a starting point and not seen
in its connection to the particular coordination problems market actors face.
However, even if embeddedness is redefined to include the cultural, cognitive,
and political contexts in which economic action takes place and is understood
as a response to the three underlying coordination problems, another crucial
challenge posed by Karl Polanyi would still not be taken up. In The Great
Transformation Polanyi did not aim to understand the functioning of market
exchange in order to explain the social preconditions for market efficiency; he
was concerned with what happens to social order and political freedom when
economic exchange is organized chiefly through self-regulating markets. This
The great transformation of embeddedness 51
unease is evident throughout The Great Transformation, but is most directly
stated in the last chapter of the book.
It follows that a sociological theory of the economy that claims Karl Polanyi
as its inspirational source cannot be limited to the investigation of the social
and political preconditions for the efficient fulfillment of economic functions,
but must also pay attention to the effects of the organization of the economic
system on society at large. Firms, for example, have increased leverage to exit
existing national regulatory regimes. How does this affect the ability of nationstates
to organize social solidarity? What impact does the increasing insecurity
of employees caused by new employment regimes have on family structures?
How does the expansion of markets effect social inequality, working conditions,
and local communities? How are actors responding to the increasing
uncertainties they face owing to the marketization of “fictitious commodities?”
Whatever answers we give to these questions, they must be part of an economic
sociology – and economic anthropology – which analyzes adaptive functions
as part of the much larger question of the social integration of society. For
Polanyi social order is precarious (Streeck 2007). The embeddedness of market
exchange does not result from markets themselves or some other resource
floating in society. It is the unstable result of social and political struggles, an
outcome that has to be shielded by means of deliberate political engagement
from the danger of an “institutional separation of society into an economic
and political sphere” (Polanyi 2001: 74). The “double movement” is not an
automatic response to the devastating effects of self-regulating markets but,
rather, is the result of political intervention in markets in the light of their
social consequences.10
The “re-embedding” advocated by Polanyi implied a
substantial political authority over the economy as a result of political and
social engagement. In this sense Polanyi followed in the footsteps of the works
of economic sociologists from the classical period (1890 to 1920), especially
Émile Durkheim and Max Weber, whose scholarly work was also written to
provide a scientific basis for social reform.
This reading of The Great Transformation as a social theory concerned with
the question of social integration under conditions of political freedom is not
widely accepted in the new economic sociology. Instead, the embeddedness
of economic relations is seen as a constitutive element of all economies that
can be taken as fact and is only to be discerned through sociological analysis.
To the extent that the embeddedness of market exchange is seen as something
to be established deliberately, it is the efficiency perspective that dominates.
Embeddedness is then reduced to the optimal design of network structures
for economic gain or of efficient economic institutions (Williamson 1985;
Burt 1992).
10
For a critique of Polanyi’s notion of self-regulating markets see Gemici (2008).
Market and Society52
Embeddedness and modernity
I argued earlier that economic sociology, economic anthropology, and
economic history can find a common ground for the analysis of markets by
proceeding from three coordination problems that have to be addressed wherever
markets are found. This perspective does have certain limitations, however,
which brings me back to the debate between substantivists and formalists
in economic anthropology. For Karl Polanyi the embeddedness of economic
exchange applied to modern societies as well and this perspective is shared by
today’s economic sociology. To quote Granovetter (1985: 483):
I assert that the level of embeddedness of economic behavior is lower in non-market
societies than it is claimed by substantivists and development theorists, and it has
changed less with “modernization” than they believe; but I argue also that this level has
always been and continues to be more substantial than is allowed for by formalists and
economists.
The trouble with this perspective is that it does not help us to discriminate
between traditional and modern economies, or between different types of market
economies. In stark contrast to theories of functional differentiation, the
new economic sociology highlights phenomena that demonstrate structural
similarities between traditional and modern capitalist economies. It shows, for
example, that particularistic networks remain paramount in the highly sophisticated
market exchanges of today’s capitalism (Portes and Sensenbrenner 1993;
DiMaggio and Louch 1998). “Blocking action” aimed at restricting competitors
(White 1992) is as much a feature of today’s economies as it was during
the time of the medieval guilds. Economic rationality has been deconstructed
and shown to be determined by cognitive scripts that are culturally anchored
(Dobbin 2001; Beckert 2002b). The rhetorical mana of concepts like “outsourcing,”
“diversification,” or “shareholder value” is seen as structurally similar
to the power of totems. Such management concepts serve as orientations
for action based on the belief in their rational outcomes. On closer inspection,
however, they are hardly more rational than magical beliefs.
The dominant narrative of economic sociologists is thus one of continuity.
Such a perspective on the economy is appealing against the backdrop of
modernization theories that see social networks, particularistic exchange, and
magical beliefs exclusively as elements of premodern economies that have vanished
in the course of rationalization. It is definitely enlightening to examine
the cultural underpinnings of the notion of rationality and to call into question
the ontologization that characterizes this concept in much of economic theory.
This is also a valuable corrective to the agenda of classical sociology, including
mid-twentieth century economic sociology, that sought to identify the distinctive
characteristics of modernity in opposition to those of earlier economic formations
(Parsons and Smelser 1956).
The great transformation of embeddedness 53
The appeal of Karl Polanyi for the new economic sociology might stem from
the fact that his social theory does not imply a linear concept of development
of the sort found in Marx, Weber, Durkheim, and Parsons. Embeddedness is
not a characteristic that separates premodern economies from modern ones.11
Based on the notion of a “double movement,” social change is conceptualized
as a dynamic process of oscillation between embedding, disembedding, and
reembedding. Thus “all economies are embedded” (Barber 1995).12
However,
“embeddedness” does not provide a theoretical perspective informing us about
the specific characteristics of the embeddedness of modern capitalist economies.
The strong emphasis on similarities of economic systems across time and
space, based on the notion of embeddedness, impedes the development of conceptual
tools to address differences between economic configurations and, in
particular, the specificity of the organization of modern capitalist economies.
This leaves us with an economic sociology that is unspecific with regard to
the structural changes taking place in the organization of the economy with
the development of modern capitalism. At the end of the day, all economies
are embedded. Given the fact that the new economic sociology started from a
strong anti-Parsonsian sentiment inAmerican sociology in general, the allure of
the notion of embeddedness is understandable. It has allowed for a concentration
on meso- and micro level processes of economic organization and relieved
sociologists from the task of addressing socioeconomic development at the
macro level. This limitation is regrettable, however, because it excludes the
possibility of analyzing changing forms of embeddedness from the premises
of a sociological macro theory. I am not arguing for a return to the teleological
errors of the past (Joas 1992: 218ff.). But we need an historical perspective if
we are to understand the specific ways in which economic action is embedded
in institutions and social structures of modern societies. We also need to
identify the (normative) implications of such changes. Bourdieu’s work on the
transformation of peasant society in Algeria provides a fine example (Bourdieu
19636
). He showed how the logic of calculation wins over the logic of the
household in the process of modernization, leading to social dislocation. It is
not that modernization leads to disembedding in the sense of making networks
and social institutions irrelevant, but structural changes devalue specific forms
of embeddedness and force actors into new modes of social organization. The
traditional habitus of the peasant clashes with the rational habitus demanded
by capitalist society.
11
This line of argument is also followed by Stephen Gudeman (in Chapter 2) when he emphasizes
the dialectical relationship between necessity and contingency.
12
It is true that Polanyi draws attention to the increasing role of the state in the organization of
economic exchange (Block 2003: 281). Nonetheless, the dominant reading of Polanyi’s work in
the new economic sociology singles out the concepts of embeddedness and double movement,
and shows little interest in a macrosociological theory of modernity.
Market and Society54
A second example concerning the systematic changes of embeddedness in
modern societies refers to cooperation, one of the coordination problems discussed
earlier. Trust is a crucial facilitator of cooperation since market actors
must take risks when engaging in exchange (Gambetta 1988a; Möllering 2006).
Trust itself depends on social and institutional contexts that encourage the willingness
to trust by improving the possibility of assessing the trustworthiness
of the trusted party (Beckert 2005). Trust plays a role in economic exchange
in both traditional and modern economies, but this observation should not prevent
us from identifying structural differences in the ways in which trust is
established.
Anthony Giddens (1990: 100ff.) distinguishes different ways of organizing
the integration of exchange in premodern societies. The development of
modern capitalist societies, however, tends to destroy the contexts of trust that
support cooperation in exchange in traditional societies. Following Giddens,
modern societies are characterized by an increasing time–space distantiation
of economic exchange and the loss of traditional contexts of action. These
changed macrosocial conditions necessitate the development of new forms of
embeddedness that are able to support trust between exchange partners. Zucker
(1986) has described this development for nineteenth-century America and
shown the structural changes that characterize this development. She identifies
a process where the sources of pre-industrial trust were increasingly disrupted
by high rates of immigration, internal migration, and an increase in
transactions across group boundaries and great geographic distance (Zucker
1986: 54). These changed macrosocial conditions led to a push to develop formal
mechanisms for the production of trust, mainly through the establishment
of formal institutions. The spread of new forms of standardization that were
regulated by formal organizations, the increase in surveillance on the company
level, the rise of the professions and of intermediaries like rating agencies may
all be read as institutional responses to these changed conditions.
This observed increase in formalization of the bases of trust in modern
economies does not exclude the continued existence of tight networks of
interpersonal relations or cooperation based on religious beliefs. However, a
structural change in the form of embeddedness of exchange relations occurred
in nineteenth-century America as a response to a changing macrosocial
situation. A comparative perspective shows, however, that the dissolution of
traditional social relations does not automatically lead to efficient institutional
forms of this kind. Hart’s (Hart 1988) ethnographic description of economic
relations among migrants living in the slums of Accra (Ghana) demonstrates
unresolved trust issues in their exchange relations that ultimately lead to
extremely high transaction costs and unsteady economic exchange. Trust
emerges in particularistic friendship relations, but its generalization fails
(Hart 1988: 190ff.).
The great transformation of embeddedness 55
These few examples suffice to show that historical analysis of the phenomenon
of trust and trustworthiness makes it possible to identify and theorize
systematic elements of modernization processes. Historical analysis of the
economy is a key component of general theories of social change. The comparative
approach is directed at the historically specific uncertainties actors face in
economic exchange and at their particular reactions. This way a comparative
perspective can direct our attention to the plurality of possible responses to
macrosocial changes and also to possible failures to establish efficient solutions,
thus avoiding the traps of teleological claims.
Conclusion
Based on the works of Karl Polanyi the notion of embeddedness has become the
core concept of the new economic sociology. I have argued here that reading of
embeddedness in the new economic sociology show a “great transformation” of
the concept that does not do full justice to the meanings it had for Polanyi. This
holds especially true for the reduction of embeddedness to networks of social
relations. But the more encompassing understanding developed by Zukin and
DiMaggio (1990) also leaves out the normative and social reformist concerns
that formed the intellectual background of The Great Transformation. The way
the new economic sociology has made use of the concept of embeddedness
has, however, two further limitations. First, it does not address the coordination
problems actors in economic contexts must resolve, which I have identified to
be the problems of value, competition, and cooperation. To start from these
problems provides a systematic vantage point for economic sociology and a
basis for closer collaboration between sociological, anthropological, and historical
approaches to the economy. Second, taking embeddedness as a foundational
concept directs research in economic sociology to the meso- and micro
levels and neglects processes of macrosocial change which were paramount
in the investigation of economic phenomena by classical sociologists. For an
understanding of the relationship between markets and society, an understanding
of modernization processes and their effects on the organization of the
economy remains indispensable.