Embeddedness - Sociology in Economic Life - Lecture Slides, Slides of Economic Sociology

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Lecture Note 3

“Embeddedness”

From Adam Smith, Karl Polanyi to

Mark Granovetter

• 1. Granovetter on Smith: undersocialized in the discussion of the perfect competition in the self- regulating market
     • “The fact that actors may have social relations with one another has been treated, if at all, as frictional drag that impedes competitive markets”
     • The level of embeddedness of economic behavior did not vanish in the course of modernization
• 2. Granovetter on Polanyi: oversocialized; emphasize the customs, habits or norms that followed mechanically and automatically in economic process
     • The argument on how social influences individual behavior is rather mechanical. But indeed culture is not a once-for-all influence but an ongoing process, continuously constructed and reconstructed during interaction.

Market vs. Hierarchy (2)

• Oliver E. Williamson and the Transaction Cost Approach
• The transaction cost approach: to assess the capacities of different structures to harmonize relations between parties and to recognize that new structures arose in the service of these harmonizing purposes
• Unit of analysis: transaction
• Where does transaction cost come from? A transaction occurs when a good or service is transferred across a technologically separate interface. One stage of activity terminates and another begins. With a well-working interface, as with a well-working machine, these transfers occur smoothly.

Market vs. Hierarchy (3)

• Low transaction cost: the parties to

the exchange operate harmoniously

• High transaction cost: frequent

misunderstandings and conflicts

between the parties to the exchange lead to delays, breakdown, and other

malfunctions

Market vs. Hierarchy (5)

• Transaction across a market interface
• Externalized transaction
• Problem: Opportunism encouraged by “information asymmetries and refers to a lack of candor or honesty in transactions, to include “self- interest seeking with guile:
• e. g. imperfect market competition, limited information, sunk costs, and ”specific human capital” investment - Transaction within Hierarchical firms - Internalized transaction - Problem: Bounded rationality the inability of economic actors to anticipate properly the complex chain of contingencies; they can be handled within the firm’s “governance structure” instead of leading to complex negotiations

Market vs. Hierarchy (6: Efficient

Boundary)

S 1

D-

S 2 S 3

D-B

C1-0 C2-0 C3-

C1-B C2-B C3-B

R

S1, S2, S3: Core production stages; R: Raw materials;

Component supply: C1-B, C2-B, C3-B (if the firm buy its components); C1-0, C2-0, C3-0 (if the firm makes it own components)

Distribution: D-B (if the firm uses market distribution); D-0 (if the firm uses own distribution.

an actual transaction; a potential transaction Docsity.com

Granovetter’s “Social

Embeddedness” (2)

• 2. Inter-personal relationship: Trust and Malfeasance
• While social relations may indeed often be a necessary condition for trust and trustworthy behavior, they are not sufficient to guarantee these and may even provide occasion and means for malfeasance and conflict on a scale larger than in their absence. Why?
• 2-1: The trust engendered by personal relations presents, by its very existence, enhanced opportunity for malfeasance.
• 2-2: Force and fraud are most efficiently pursued by teams, and the structure of these teams requires a level of internal trust that usually follows preexisting lines of relationship.

Granovetter’s “Social

Embeddedness” (3)

• 2-3: The extent of disorder resulting from force and fraud depends very much on how the network of social relations is structured.
• A. The presence of social relations inhibits malfeasance: More extended and large-scale disorder results from coalitions of combatants, impossible without prior relations. … In the business world, where conflicts are relatively tame unless each side can escalate by calling on substantial happens in attempts to implement or forestall takeovers.
• B. Disorder and malfeasance occur when social relations are absent. … But the level of malfeasance available in a truly atomized social situation is fairly low; instances can only be episodic, unconnected, small scale.

Clifford Geertz, the Bizaar Trade

(1)

http://www.nku.edu/~anthro/requirements.html

http://www.wizweb.com/~susan/kyrgyz/pictures.html

http://www.womenforwomen.org/projectindependence/Afghanphotos.htm Docsity.com

The Bazaar Trade (2)

• Commodity exchange is less based on truisms

but on information flow

• The control of information flow on the message

such as product quality, prices, and production

costs

• Clientalization: a particular purveyor-customer

relationship based on symmetrical, egalitarian,

and oppositional interaction

• “Whatever the relative power, wealth,

knowledge, skill, or status of the participants—

and it can be markedly uneven—clientship is a

reciprocal matter”