Granovetter, M., "Economic Action and Social Structure: the Problem of Embeddedness.", American Journal of Sociology, 91 (1985), 481-93 (first half)


M. Granovetter: "Economic Action and Social Structure: The Problem of Embeddedness."

In this paper, Granovetter attempts to find a more appropriate middle ground between economic theory that under-socializes behavior, and much of the existing sociological theory that over-socializes behavior. Granovetter believes that it's more accurate to view economic rationality as "embedded" within social relationships.

He sees both extremes in this debate as "atomizing" the individual as blindly obedient either to "perfect knowledge" decision making or social norms. His view is similar to Gidden's views on structuration in that one may gain better understanding by acknowledging that both extreme views are important and must be considered simultaneously.

By example, Granovetter extends his reasoning to the issue of trust and malfeasance in transactions. He sees the traditional economic view of "gentleman actors" and the over-socialized views of "generalized morality" as missing the mark.

Instead, he shows embeddedness theory acknowledges that "the on-going networks of social relations between people discourage malfeasance." People guide their choices based on past actions with people and continue to deal with those they trust. However, embeddedness theory makes no assumptions of an orderly self-regulating system, and acknowledges that social networks alone will not deter malfeasance.

This paper is about the embeddeness of economic action within social theory. Attempts at explaining economic embeddedness have either been undersocialized or oversocialized.

Traditional economic interpretations of interactions between people assumes rational, self-interested behavior affected minimally by social relations. At the other extreme is "embeddness", the belief that actions between individuals is so predicated on social relations that evaluating behavior based on independent economic actors is grossly misleading.

Sociologists have felt that embeddedness was highly prevalent in pre-market societies but has been reduced with modernization. They see the economy as becoming separated from society, with economic transactions being more rational and based on individual gain.

Economists have felt that even earlier societs (and even more recent tribal societies) have had economic and social relations separate enough to allow analysis of individual behavior based on economic terms. The new "institutional economics" assumes enough independence to be able to use rational actor theory to explore organizations.

The author believes that embeddedness was lower in premarket societies, but that it is also more substantial now than most ecnomists will admit.

Dennis Wrong in 1961 felt that social theory had over-minimized the effect of economic considerations in individual behavior and over-emphasized social normative effects.

Traditional economic theory assumes many individual actors with perfect knowledge and rational decision systems, ignoring possibilities of long-term relationships between buyer and seller. Economic theory implies that relational ideas such as trust are rendered as unneeded in the model, because in instances of mistrust or malfeasance buyers will just move on to other sellers. Competition renders political control unnecessary. All behavior is controlled by the market.

Social relations (especially poor relation issues like mistrust) become a frictional drag that impedes competitive markets. Adam Smith recognized that social atomization if the prerequisite fo perfect competition (in other words, relationships only screw things up).

Others have seen recent sociology as being too deterministic based on social norms. John Duesenberry quipped that "economics is all about how people make choices, sociology is all about how they don't have any choices to make". Other critics point out that "over-sociologists" assume everyone looks out for the group and makes mainly "fair" decisions that conform to group norms.

Ironically, both views suffer from the assumption of individual actors, one based on economic decisions and the other based on society norms. In fact, the utility theory in economics could be utilized in embeddness theory by assuming conformity to norms as a utility function!

Basically, both over and under-socialization have implicit assumptions of atomization that limit their effectiveness. One cannot model organizations as agents solely guided by either economic gain or social norms and structures. Instead individual action is embedded in dynamic systems of social relations.

Embeddedness, Trust, and Malfeasance in Economic Life

Since about 1970, economists have wrestled with the notion that agents may act with guile and deception in transactions. Historically, economists have assumed that the market would penalize such behavior, and that most would pursue self-interest "in a gentlemanly fashion". But in situattions of imperfectly competitive markets, this probably does not hold true. People can't move to other sellers so easily.

"Undersocialized" researchers attempt to explain why people aren't usually devious by claiming that instituaional structures have evolved to make such behavior too costly. "Oversocialized" economists imply some sort of "generalized morality" that guides actions.

Embeddedness theory, instead, acknowledges that ongoing networks of social relations between people discourage malfeasance. People guide their choices based on past interactions with people and continue to deal with those they trust. In social networks the presence and evolution of trust can both hinder and foster malfeasance, which demonstrates that social networks alone are not a deterrant.

"Unlike either alternative.... [embeddeness] makes no sweeping (and thus unlikely) predictions of universal order or disorder but rather assumes that the details of social structure will determine which is found."