– Essay –
The idea of embedded economy was first mentioned by Karl Polanyi in The Great Transformation (1944) to refer to the fact that, in the “natural” state, economic actions are regulated by non-economic institutions, such as life, social or kinship relations. Drawing on the anthropological and historical discoveries of the period about pre-capitalist societies, Polanyi notes that throughout history the conditions for the survival of human societies have remained the same, and “as a rule, the human economy is embedded in its social relations. He does not act to satisfy his own interest in possessing material goods; man acts to protect his status, claims and social goods. For him, goods have value only if they serve this purpose” (Polanyi, 2001, p. 48). This behavior, adds the author, has been possible throughout history, as long as it was based on three principles – reciprocity, redistribution, and householding – supported by institutional patterns such as symmetry, centricity, and autarchy.
In the case of tribal societies of hunter gatherers or with a primitive agriculture, the principles of reciprocity and redistribution prevailed. On one hand, mutual exchange of goods fostered trust between people (for different interests – marriage, hunting, etc.), without requiring a sophisticated registration system of these exchanges. On the other hand, the institutional pattern of centricity ensured that goods (agricultural products, materials or game) were collected and stored under the administration of the chief, who took care of their fair redistribution to the tribe’s population. Therefore, the economic system was nothing but a function of social organization (Polanyi, 2001, pp. 50-52).
The third principle – householding – was found mainly in agriculture based societies in which, until the end of the Middle Age, production – as an economic action – aimed at the simple survival of households (Polanyi, 2001, pp. 55- 56). The substantial development of the market – as a space for exchanging goods – was regulated very strictly by the existing government systems between the 16th and 19th century. The situation changed, however, starting with the Industrial Revolution, when technological progress left its mark on the possibilities of production and, implicitly, of marketing the goods produced. That was when, according to the author, the relationship between the economy and human society changed, the latter becoming an “accessory of the economic system” (Polanyi, 2001, p. 79). The possibility to increase the production volume, due to technological innovations, led to a resizing of the market supply and demand mechanism and to an increase in labor demand. Since labor force is nothing but the human factor of society, the control exercised by the employer over the time of the human factor increased as a result. Thus market society was born, in which economy was no longer a simple function of it, but the very motivation to function. With the Speenhamland Act from 1834 in England the human labor force became a fictitious commodity and the economic system became disembedded from social organization. And precisely because of the negative effects that industrial capitalism had on the working class in England, Polanyi condemns the idea of a self-regulating market present in the liberal discourse of the time (Hann and Hart , 2009, p. 9). The author notes, however, that history has shown the presence of a “double movement”. In order to reduce the control of the market institutions, the civil society’s reaction to its exploitation as a “fictitious commodity” manifested in the form of trade unions (Polanyi, 2001, p. 79).
Although a supporter of Karl Polanyi’s theory and his contribution to the way we understand the relationship between the economic and political systems today, Keith Hart discusses some of its limitations. I will stop, however, at the confusion that the author notices in Polanyi’s work regarding the notion of disembedded market. According to Hart, by reducing the new institutional form from the end of the 19th century to the generic term “market”, Polanyi omits the intervention of state bureaucratic institutions in regulating the market. Therefore, it is not clear whether one could speak in real terms about the existence of a disembedded market or whether it is an ideal type constructed as the author’s reaction to liberal capitalism (Hart, 2013). Hart argues that although markets have expanded rapidly, in reality they have always been embedded: first, through state intervention as a regulatory mechanism, and second, through other social institutions that were born precisely to counteract the effects of the market (Hart and Hann, 2009, p. 9).
Since its first use by Polanyi, the term “embedded” has undergone changes in meaning in the economic sociology (Bekert, 2007). Authors such as Sharon Zukin and Paul DiMaggio (1990, pp. 15-20) have even tried to classify the types of “embeddedness” of economic action:
- cognitive – “the way in which mental processes limit the exercise of economic reasoning”
- cultural – ““the role of collective beliefs in shaping economic strategies and objectives”
- structural – “the contextualization of the economic exchange in patterns of continuous interpersonal relationships”
- political – “the way in which institutions and decisions are shaped by the power struggle between economic actors and non-economic institutions”
Daria Kazakova builds on these four types of embeddedness an overview of this phenomenon, dissociating it from simple economic exchange:
Embeddedness, being a complex phenomenon, is always “charged” – culturally, relationally, structurally and cognitively. In cases where rules and arrangements are in place, we can speak about institutionally “charged” embeddedness. In general terms, the market is institutionally embedded, i.e. involved in a unified institutional area through the repeated, interrelated transactions of actors. Trade, on the other hand is discrete, based on repeated exchange transactions that are not integrated into cultural or institutional frameworks.
Kazakova, 2016, p. 828
The notion of embeddedness has always caught the attention of economic sociology, but today it is all the more relevant in the discourse for an economic democracy. We are currently talking about a global market, in which state borders have been overridden and large corporations also have a say. And even if economic actors seem to be impersonal entities – corporations, states, small firms – we can still see the manifestation of the principle of reciprocity in trade relations between these entities. All companies prefer to work with those suppliers with whom they have built a relationship of trust as a result of the services provided. In addition, the mentioned entities are made up of and led by people, who, through interaction, create particular organizational cultures (with specific work practices, values, beliefs and habits). And it is precisely these organizational cultures that “charge”, as Karakova suggests, the economic interaction between such entities. Therefore, I believe that “economies are still embedded”, even if the economic space has increased considerably compared to the eighteenth century. As Keith Hart suggests, “society is now protecting itself not through the formation of trades unions within nation-states but through transnational networks of activists protesting against the power of the G8 states” (Hart and Hann, 2009, p. 9).
References
- Becker, J. (2007). The Great Transformation of Embeddedness: Karl Polanyi and the New Economic Sociology. In MPIfGDiscussion Paper 07/1.
- Hart, K., Hann, C. (2009). Introduction: Learning from Polanyi. In C. Hann, K. Hart (Eds.). Market and Society. The Great Transformation Today. Cambridge: Cambridge University Press.
- Hart, Keith. (2013). The limits of Karl Polanyi’s anti-market approach in the struggle for economic democracy. Retrieved from http://thememorybank.co.uk/2013/01/16/the-limits-of-polanyis-anti-market-approach-in-the-struggle-for-economic-democracy/ [accessed September 18, 2017]
- Kazakova, D. (2016). The role of embeddedness in the reconstruction of the market paradigm: a network approach. In The 10th International Days of Statistics and Economics, Prague, September 8-10, 821-830.
- Polanyi, K. [1944](2001). The Great Transformation. The Political and Economic Origins of our Time. Boston: Beacon Press
- Zukin, S., Di Maggio, P. (1990). Introduction. In S., Zukin and P., DiMaggio (Eds.). Structures of capital. The social orgnization of the economy. Cambridge: Cambridge University Press.
Adina Grigoroiu 