Economic sociology: An Introduction

 

Gaurang Sahay

Meaning

Economic sociology can be defined simply as the sociological perspective applied to economic phenomena. To quote Neil J. Smelser and Richard Swedberg, ‘Economic sociology is the application of the general frame of reference, variables, concepts, methods and explanatory models of sociology to those complex economic activities such as production, distribution, exchange, consumption of goods and services and so on’ (Smelser and Swedberg 2005: 4). Economic sociology studies both the social effects and the social causes of various economic phenomena.

Economic sociology is particularly attentive to the relationships between economic activity and the society or socio-cultural institutions that contextualize and condition economic activity. Although traditional economic analysis takes the atomistic individual as its starting point, economic sociology generally begins with groups, or whole societies, which it views as existing independently but constituting the individual. When economic sociologists do focus on individuals, it is generally to examine the ways in which their interests, beliefs, and motivations are mutually constituted through the interactions between them. The focus on economic action as social—that is, as oriented toward other people—allows economic sociologists to consider power, culture, organizations, and institutions as being central to an economy.

 

Economic sociology is a branch of sociology that incorporates insights from economics, behavioral psychology, economic anthropology, and cultural anthropology. Structural and cultural approaches largely characterize the studies conducted in the field of economy, with the former associated with networks, institutions, and social organization; the latter with rituals, symbols, cognitive frameworks, and narratives. Economic sociologists study how social networks and relationships affect economic actions, such as the provision of loans, the acquisition of a job, and the successful construction of deals. They examine how prices are set, why some pricing schemes that do not seem rational are instead understandable and predictable, and how markets are incorporated into social life, and vice versa.

The themes of power and culture, as well as the focus on organizations and institutions, in economic sociology have naturally led its practitioners to examine also the relationship between the state and the economy. Economic sociology has generally asserted that the state and the economy exist in a symbiotic relationship: the state depends on the economy for revenue, and the economy depends on the state for the rules and regulations. This runs counter to much of the economic literature on markets in economics, which tends to portray markets and states as existing in opposition to one another. The symbiotic relationships between economies, the state, and civil society are what economic sociologists mean when they say that economies are embedded in social and political structures. The relationship between the state and the economy has been an area of inquiry central to economic sociology since its genesis.

Mainstream Economics and Economic Sociology Compared

The Concept of the Actor

The analytic starting point of economics is the individual; the analytic starting points of economic sociology are typically groups, institutions, and society. In economics, there is an individualistic approach resulting in methodological individualism that finds individual as an indenedent ultimate actor. By contrast, in sociology individual is a socially constructed actor as “actor-in-interaction,” or “actor-in-society.” Often, moreover, sociologists take the group and the social-structural levels as phenomena sui generis, without reference to the individual actor. In Economy and Society, Weber constructed his whole sociology on the basis of individual actions. But these actions are of interest to the sociologist only insofar as they are social actions or “take account of the behavior of other individuals and thereby are oriented in their course” (Weber [1922] 1978, 4). This formulation underscores a second difference between economics and economic sociology: the former generally assumes that actors are not connected to one another; the latter assumes that actors are linked with and influence one another.

 

The Concept of Economic Action

In economics the actor is assumed to have a given and stable set of preferences and supposed to choose that alternative line of action which maximizes utility. In economic theory, this is considered economic rational action. In sociology, by contrast, economic action can be either rational, traditional, or affectual (Weber [1922] 1978, 24–26, 63–68). Economics give no place to tradition or affectual economic action.

Another difference between microeconomics and economic sociology in this context concerns the scope of rational action. The economics traditionally identifies rational action with the efficient use of scarce resources. The sociologist’s view is, once again, broader. Weber referred to the conventional maximization of utility as formal rationality. In addition, however, he identified substantive rationality, which refers to maximisation or allocation within the guidelines of other principles, such as communal loyalties or sacred values. A further difference lies in the fact that economists regard rationality as an independent assumption, whereas most sociologists regard it as a variable (see Stinchcombe 1986, 5–6). For one thing, the actions of some individuals or groups may be more rational than others (cf. Akerlof 1990). Sociologists tend to regard rationality as a phenomenon to be explained, not assumed. Weber dedicated much of his economic sociology to specifying the social conditions under which formal rationality is possible, and Parsons (1940, 1954) argued that economic rationality was a system of norms—not a psychological universal.

Another difference emerges in the status of meaning in economic action. Economists tend to regard the meaning of economic action as derivable from the relation between given tastes or preferences, on the one hand, and the prices and quantities of goods and services and relations among them, on the other. Weber’s conceptualization has a different flavor: “the definition of economic action [in sociology] must . . . bring out the fact that all ‘economic’ processes and objects are characterized as such entirely by the meaning they have for human action” ([1922] 1978, 64). Meanings are historically constructed and must be investigated empirically, and are not simply to be derived from assumptions and external circumstances.

Finally, sociologists tend to give a broader and more salient place to the dimension of power in economic action. Weber ([1922] 1978, 67) insisted that “[it] is essential to include the criterion of power of control and disposal (Verfügungsgewalt) in the sociological concept of economic action,” adding that this applies especially in the capitalist economy. By contrast, microeconomics has tended to regard economic action as an exchange among equals, and has thus had difficulty in incorporating the power dimension (Galbraith 1973, 1984). The economist’s conception of power is typically narrower than the sociologist’s notion of economic power, which includes its exercise in societal (especially political and class), as well as market, contexts. Sociologists have analyzed and debated the issue of the political implications of wealth in equality and the extent to which corporate leaders constitute a a part of “power elite” in the whole of society (e.g., Mills 1956; Dahl 1958; Domhoff and Dye 1987; Keister 2000).

Constraints on Economic Action

In mainstream economics, actions are constrained by tastes and by the scarcity of resources. Once these are known, it is in principle possible to predict the actor’s behavior, since he or she will always try to maximize utility or profit. The active influence of other persons and groups, as well as the influence of institutional structures, is ignored considering them insignificant. Knight codified this in the following way: “Every member of society is to act as an individual only, in entire independence of all other persons” ([1921] 1985, 78). Sociologists take such influences directly into account in the analysis of economic action. Other actors facilitate, deflect, and constrain individuals’ action even in the market situation. Cultural meanings also affect choices of an actor. In Hindu society it is difficult to persuade people to buy cow meat for food, even though their meat isas nutritious and cheaper than other kinds. Moreover, a person’s position in the social structure (caste system) conditions his or her economic choices and activity.

The Economy in Relation to Society

The main foci for the mainstream economist are the economy and economic institutions or phenomena. To a large extent, the remainder of society lies beyond the scope of economics. In economics societal parameters are frozen by assumption, and thus are omitted from the analysis. In recent times economists have turned to the analysis of why institutions arise and persist, especially in the new institutional economics and game theory. Nevertheless, the contrast with economic sociology remains. When economists talk about institutions, norms, and the like, their vocabulary is identical to that of sociologists, but they often mean something quite different. It is still very common, for example, for economists to treat the economic arena as lacking norms and institutions. The latter only emerge when markets cannot be constructed or when traditional rational choice analysis fails. Economic sociology, on the other hand, has always regarded the economic process as an organic part of society. As a consequence, economic sociology has usually concentrated on three main lines of inquiry: (1) the sociological analysis of economic process; (2) the analysis of the connections and interactions between the economy and the rest of society; and (3) the study of changes in the institutional and cultural parameters that constitute the economy’s societal context.

Goals of Analysis

Both economists and sociologists try to understand and explain economic phenomena, however, different emphases emerge. Economists tend to be critical of descriptions and anything which is atheoretical. They stress the importance of formalisation and prediction. Sociologists, by contrast, are hardly interested in formal predictions, and often find sensitive and telling descriptions essential for explanation. As a result of these differences, sociologists often criticize economists for generating formal and abstract models and ignoring empirical data, and economists reproach sociologists for their “post factum descriptive interpretations” (Merton1968, 147–49). Though these differences have become part of the professional cultures of economists and sociologists, it should be noted that the recent years have seen a new interest for model building and game theory among sociologists, and a new interest in culture and use of empirical material among economists too(e.g., Greif 1998, forthcoming; Swedberg 2001).

Models Employed

The emphasis on prediction constitutes one reason why mainstream economists place such high value on expressing hypotheses and models in mathematical form. Though the advantages of this formal theorizing are readily apparent, economists themselves have at times complained that it tends to become an end in itself (Wassily Leontief 1971, 1). When economists do turn to empirical data, they tend to rely mainly on those generated by economic processes themselves (for example, aggregated market behavior, stock exchange transactions, and official economic statistics gathered by governmental agencies). Small surveys are occasionally used, archival data are seldom consulted and ethnographic work is virtually nonexistent. By contrast, sociologists rely heavily on a great variety of methods, including analyses of census data, independent survey analyses, participant observation and fieldwork, and the analysis of qualitative historical and comparative data.

 

Intellectual Traditions

Unlike Economists, Sociologists not only rely on different intellectual traditions, but they also regard those traditions differently. Evidently influenced by the natural or physical science model of systematic accumulation of knowledge, economists have shown less interest than sociologists in study and exegesis of their classics. Correspondingly, economics reveals a sharp distinction between current economic theory and the history of economic thought. In sociology these two facets blend more closely. The classics are very much alive, and are often required reading in theory courses. Despite these differences, and despite the persisting gulf between the traditions of economics and economic sociology, some evidence of synthesis can be identified particularly in the study of inequality, poverty and labor markets, etc.

Economic Sociology and New Economic Sociology

There exists a large and rich tradition of economic sociology, which roughly begins around the turn of the twentieth century. This tradition has generated both important concepts and ideas and significant research results. Economic sociology has peaked twice since its birth: in 1890–1920 with the classical theorists (who were all interested in and wrote on the economy), and today, from the early 1980s onwards. A major thread in the tradition of economic sociology is that investigation must combine the analysis of economic interests with an analysis of social relations.

The classical economic sociologists like Karl Marx, Max Weber, Emile Durkheim and George Simmel were particularly concerned with socio-cultural and political roots or context of modernity. Modernity typically refers to a post-traditional, post-medieval historical period, one marked by the move from feudaiism (or agrarianism) toward capitalism, industriaiization, secularization, ratio- nalization, the nation-state and its constituent institutions and forms of surveillance.

New economic sociologists like Mark Granovetter focus on locating manifestly economic processes in their social contexts by identifying effects of social contexts on economic processes as well as searching for alternative explanations of economic phenomena. A review of recent work on firms, labor markets, households, and consumer markets shows new economic sociology has made valuable contributions to the explanation of economic processes.