Re-Imagining Economic Sociology 0198749767, 9780198749769

Table of contents :
Cover
Re-Imagining Economic Sociology
Copyright
Contents
List of Figures
List of Tables
List of Contributors
Introduction
Classical Economic Sociology
The Formation of New Economic Sociology
Theoretical Contributions to Economic Sociology
The Network Approach
The Cultural Approach
The Organization Approach
The Performativity Approach
Boundaries, Challenges, and Future Development
Outline of the Book
References
1: Theorizing in Economic Sociology
From Theory to Theorizing
Step 1: Observing
Step 2: Naming the Phenomenon, Developing Concepts, Perhaps Constructing a Typology
Step 3: Using Analogies, Metaphors, and Patterns
Step 4: Coming Up with an Explanation
Preparing for Theorizing
Concluding Remarks
APPENDIX 1 Some Concepts and Theoriesin Economic Sociology
References
Part I: Creating Economic Futures
2: Re-imagining Capitalist Dynamics: Fictional Expectations and the Openness of Economic Futures
The Temporal Order of Capitalism
Economic Detraditionalization
Institutional Preconditions for an Open Economic Future
Imagined Futures
Expectations
Fictional Expectations
Four Constituents of Capitalist Dynamics
Money and Credit
Investment
Innovation
Consumption
Conclusion
References
3: Utopianism and the Future of Money
Introduction
Ruskin´s Labor Money
Gesell´s Rotting Money
Proudhon´s Bank
Mutualism: Clifford Hugh Douglas
Edwin Riegel and Monetary Freedom
Fisher´s 100 Percent Money
Bitcoin
Ecological Money
The Euro
Conclusion
References
4: What is a Financial Market? Global Markets as Media-Institutional Forms
Financial Market Action: Not Simply Exchange
Real Financial Market Action: Contingent Promises, Position Taking, and Trading
The Architecture of Financial Markets
Who Are the Conversationalists? Traders and Trading Floors, and How Markets and Firms Intersect
Attentional Integration and the Scrolling and Transiting Market
Conclusion
References
Part II: Consolidating Economic Structures
5: Economy and Law: Old Paradigms and New Markets
Over-the-counter Derivatives
To Regulate Or Not To Regulate
Private law and OTC derivatives
Legal Harmonization
Conclusion
References
6: Economic Institutions from Networks
Introduction
The Network Foundation of Economic Institutions
The Relationship Between Informal Norms and Formal Rules
Emergence of Economic Institutions: the Rise of Capitalism in China
Networks and Institutions
The Making of Capitalist Institutions
The Underlying Social Exchange Mechanism
Personalized Exchange
The Role of Reputation
Norm Compliance and Conflict Resolution
Conclusion
References
7: The Fourth Dimension of Power: The Social Construction of Interest in the New Economic Sociology
Power Without Meaning: Post-war Economic Sociology
The Four Dimensions of Power
Marx on Coercion and Ideology
Pluralism and Elite Theories
Resource Dependency
Bank Control Theory
The Revival of Economic Sociology
Constructionism: Bringing Meaning Back In
The Integration of the Paradigms
Structural Power and Objectivation
The Rise of Experts
The Fourth Dimension of Power: Theorization
Conclusion
References
8: Certifying the World: Power Infrastructures and Practices in Economies of Conventional Forms
Resources to Analyze Economies of Conventional Forms: Theories of Conventions and Economic Sociology
French Convention School in the Context of Economic Sociology: an Introductory Comparison
Convention of Coordination, Network Tie, Institution
Human Agency and Relations With the Material World
Action
Cognition, Information
(E)valuation
Power
Conventions in practice and situation: challenging the collective/individual and symbolic/material oppositions
Individual Behavioral Imitation and Salient Meeting Points: David Lewis
Symbolic Forms as Idealist and Delirious Collective Representations: Emile Durkheim
The Letter of the Convention Put to the Reality Test in Situation: the Pragmatic Turn
Valuable Regimes of Engagement Valued in Organizations, Markets, and Standards
Valuation Through Organizations and Markets: Quality Conventions Reducing Orders of Worth
Valuation Through the Certification of Use-Values: Standards Reducing Regimes of Engagement
Profit and Power from the Transmutation of Valuations
Profit and Exploitation Out of Differentials of Valuation Forms
Governing Through Certifying-Standard-Value: Which Political Economy?
References
Part III: Enacting Economic Relations
9: Thinking about Social Relations in Economy as Relational Work
Introduction
Relationality as Networks
Relationality as Relational Work
Overcoming Uncertainty Caused by Lack of Information and Trust in Economic Relations
Dealing with Power Asymmetry in Economic Relations
Surmounting Cultural and Moral Incommensurability in Economic Relations
Summary
Contributions to Theorizing in Economic Sociology
References
10: Phenomenological Identity Theory in Economic Sociology
Introduction
Action in Economic Sociology
Relation to Existing Identity Approaches
Relational Ontology
From Ontology to Empirical Identity
Becoming and Being
Three Types of Identity and Their Interrelations
Collective and Unique Identities
Preferred Identity and Action
To Become
To Be Defined
Concluding Discussion
References
11: The Organizational Gift and Sociological Approaches to Exchange
Transplant Surgery and the Organizational Gift
Organizational Gift, Gift and Market Exchange
Reciprocity and Alternative Forms of Exchange in Modern Economies
Polanyi´s Four Types of Economic Integration
What ``Reciprocity´´ Means in a Market-System Society
Forms of Integration and the Relational Dimensions ofEconomic Integration
Conclusion
References
Concluding Reflection
12 What Kind of Re-Imagining Does Economic Sociology Need?
The Organizational Origins of Economic Sociology
The Intellectual Structure of Economic Sociology
What Barriers and Opportunities Are There to Re-imagining Economic Sociology?
Conclusion
References
Index

Citation preview

Re-Imagining Economic Sociology

Re-Imagining Economic Sociology Edited by Patrik Aspers and Nigel Dodd

1

3

Great Clarendon Street, Oxford, OX2 6DP, United Kingdom Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide. Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries © Oxford University Press 2015 The moral rights of the authors have been asserted First Edition published in 2015 Impression: 1 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, by licence or under terms agreed with the appropriate reprographics rights organization. Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this work in any other form and you must impose this same condition on any acquirer Published in the United States of America by Oxford University Press 198 Madison Avenue, New York, NY 10016, United States of America British Library Cataloguing in Publication Data Data available Library of Congress Control Number: 2015938207 ISBN 978–0–19–874846–5 (hbk.) ISBN 978–0–19–874976–9 (pbk.) Printed in Great Britain by Clays Ltd, St Ives plc Links to third party websites are provided by Oxford in good faith and for information only. Oxford disclaims any responsibility for the materials contained in any third party website referenced in this work.

Contents

List of Figures List of Tables List of Contributors

Introduction Patrik Aspers, Nigel Dodd, and Ellinor Anderberg 1. Theorizing in Economic Sociology Richard Swedberg

vii ix xi 1 34

Part I. Creating Economic Futures 2. Re-imagining Capitalist Dynamics: Fictional Expectations and the Openness of Economic Futures Jens Beckert 3. Utopianism and the Future of Money Nigel Dodd 4. What is a Financial Market? Global Markets as Media-Institutional Forms Karin Knorr Cetina

57 79

103

Part II. Consolidating Economic Structures 5. Economy and Law: Old Paradigms and New Markets Bruce G. Carruthers

127

6. Economic Institutions from Networks Victor Nee and Sonja Opper

148

7. The Fourth Dimension of Power: The Social Construction of Interest in the New Economic Sociology Frank Dobbin and Jiwook Jung

174

8. Certifying the World: Power Infrastructures and Practices in Economies of Conventional Forms Laurent Thévenot

195

Contents

Part III. Enacting Economic Relations 9. Thinking about Social Relations in Economy as Relational Work Nina Bandelj

227

10. Phenomenological Identity Theory in Economic Sociology Patrik Aspers

252

11. The Organizational Gift and Sociological Approaches to Exchange Philippe Steiner

275

Concluding Reflection 12. What Kind of Re-Imagining Does Economic Sociology Need? Neil Fligstein

301

Index

317

vi

List of Figures

6.1

Multiplex network relations

163

6.2

Absence of norms

168

10.1

Graphic illustration of identity differentiation

262

11.1

Organizational gift

280

11.2

Typology of transactions

283

11.3

Typology of transactions involving organizations

283

11.4

(a) Relational translation of Polanyian forms of economic integration; (b) Relational configuration of the market system

294

11.5

Percolation and bequest as forms of economic integration

295

12.1

Network diagram of works that were linked within a single week’s assignment in syllabi

310

List of Tables

1.1

The two parts of the research process or inquiry in social science: the prestudy and the main study

36

3.1

Utopian monies

81

6.1

Standard mean comparison tests of reflexive reputation and norm enforcement

168

6.2

Standard mean comparison tests of reflexive reputation and norm enforcement

169

8.1

Convention School and economic sociology: a comparative sketch

201

9.1

Stylized comparison of network ties and relational work

244

Twenty most canonical authors by number of syllabus appearances

309

12.1

List of Contributors

Ellinor Anderberg is a Ph.D. candidate in sociology at Uppsala University. Her main sociological fascination revolves around the ways in which people think and perceive their world, an interest that has channeled into the sociology of knowledge and science. Her dissertation in progress is a reflexive inquiry into the conditions of sociological knowledge making itself, or more precisely the making of economic sociological knowledge. Patrik Aspers is Professor of Sociology at Uppsala University. His research focuses on theory development, and especially of markets. His work is grounded in phenomenology. Empirically Aspers has studied the economy, especially the fashion industry. He has published several books, including Markets in Fashion, A Phenomenological Approach (Routledge 2006), Orderly Fashion, A Sociology of Markets (Princeton UP, 2010), Markets (Polity Press 2011) and, co-edited with Jens Beckert, The Worth of Goods (Oxford University Press 2011). Nina Bandelj is Professor of Sociology and Co-Director of Center for Organizational Research at the University of California, Irvine. Her work examines the social and cultural bases of economic phenomena, emotions in economy, determinants and consequences of globalization, and social change in postsocialist Europe. She is the (co)author or (co)editor of five books and numerous articles, past chair of the American Sociological Association’s Economic Sociology section and one of the editors of SocioEconomic Review. Jens Beckert is Professor of Sociology and Director of the Max Planck Institute for the Study of Societies in Cologne. His research focuses on the fields of economic sociology, organization studies, and social theory. He studied sociology and business administration at the Freie Universität Berlin and the New School for Social Research in New York. He received his Ph.D. in sociology from the Freie Universität in 1996 and his Habilitation in 2003. Beckert was a visiting fellow at the sociology department of Princeton University in 1994/95 and at the Center for European Studies of Harvard University in 2001/02. In 2007 he was a Fernand Braudel Fellow at the European University Institute in Florence, in 2012/13 he was a Fellow at the Institut d’études avancees in Paris. Bruce G. Carruthers is the John D. MacArthur Professor of Sociology and Director of the Buffett Institute for Global Studies at Northwestern University. He works in the areas of comparative-historical sociology, economic sociology, and the sociology of law. He has written five books, most recently Money and Credit: A Sociological Approach, as well as numerous articles. Carruthers has been a visiting fellow at the Russell Sage

List of Contributors Foundation, the Radcliffe Institute for Advanced Study, and the Wissenschaftskolleg zu Berlin. Frank Dobbin is Professor of Sociology at Harvard. His Inventing Equal Opportunity (Princeton, 2009), which won the Max Weber and Distinguished Scholarly Book Awards from the American Sociological Association, charts how corporate human resources professionals have defined discrimination under the Civil Rights Act. He is studying (with Alexandra Kalev and Soohan Kim) the effects of corporate diversity on firm performance and (with Jiwook Jung) the role of shareholder-value management practices in the growth of corporate corruption and malfeasance. Nigel Dodd is Professor of Sociology at the London School of Economics, and Editor-inChief of the British Journal of Sociology. He obtained his Ph.D. (under the supervision of Anthony Giddens) from the University of Cambridge in 1991 on the topic of Money in Social Theory, and lectured at the University of Liverpool before joining the L.S.E. in 1995. Nigel’s main interests are in the sociology of money, economic sociology, and classical and contemporary social thought. He is author of The Sociology of Money and Social Theory and Modernity (both published by Polity Press). His new book, The Social Life of Money, was published by Princeton University Press in September 2014. The main purpose of the book is to reformulate the sociological theory of money in the aftermath of the global financial crisis, focusing on the question of how money can be wrested from the domination of banks and the mismanagement of states and restored to its fundamental position as the ‘claim upon society’ that Simmel once described in The Philosophy of Money. He is now working on a new book for Princeton University Press, Utopianism and the Future of Money, which looks at the prospects for monetary reform by exploring a number of alternative currencies, from Bitcoin to the Brixton pound. Neil Fligstein is the Class of 1939 Professor in the Department of Sociology at the University of California. He is the author of numerous papers and books including The Architecture of Markets (Princeton, 2001), Euroclash (Oxford, 2008), and A Theory of Fields (with Doug McAdam, Oxford, 2012). He has written on the topics of economic sociology, organizational theory, and European economic and political integration. He is currently working on a book on the 2007–09 financial crisis and a project trying to understand how lifestyles have been affected by growing inequality. Jiwook Jung is Assistant Professor of Sociology at the National University of Singapore. He completed his Ph.D. at Harvard in 2012. His research interests include organizational theory, economic sociology, and labor markets. His current research explores how the growing influence of the financial sector has realigned power relations among investors, managers, and workers, leading to the transformation of employment practices of large U.S. firms since the 1980s. Karin Knorr Cetina is Distinguished Service Professor at the Departments of Sociology and Anthropology, University of Chicago, and project leader of a comparative project on scopic media at the University of Konstanz. She has published extensively in the area of science and technology studies and the area of finance, and has received several prizes. She recently published the Oxford Handbook of the Sociology of Finance (with

xii

List of Contributors A. Preda, 2012) and is currently working on a book on the social and cultural structures of global financial markets. Victor Nee is the Frank and Rosa Rhodes Professor of Sociology at Cornell University. His papers on the new institutionalism, China’s transition to a market economy, inequality, and contemporary immigration, have appeared in journals in sociology and economics and books include Remaking the American Mainstream with Richard Alba, and The New Institutionalism in Sociology with Mary Brinton. His research focuses on institutions, cooperation, and economic change in studies of the rise of New York City’s technology-enabled economy, and a decade-long study of the rise of capitalism in China. Sonja Opper is the Gad Rausing Professor of Economics at Lund University (Sweden) and a Fellow of the Center for Economy and Society at Cornell University. Her current research focuses on explanations of patterns of institutional change, institutional sources of economic growth and development, and the interplay between formal and informal institutions. Sonja Opper is co-author with Victor Nee of Capitalism from Below: Markets and Institutional Change. Her articles have appeared in Management Science, Social Forces, World Development, and Journal of Institutional and Theoretical Economics. Philippe Steiner is Professor of Sociology at the University Paris-Sorbonne and senior member of the Institut Universitaire de France. His recent research is devoted to organ transplantation (La transplantation d’organes, Paris, Gallimard 2010), and the relation between markets and morals (Calcul et morale. Coût du travail servile et valeur de l’émancipation, with C. Oudin-Bastide, Paris, Albin Michel, 2015, and Marchés contestés, Quand le marché rencontre la morale, with M. Trespeuch, Toulouse, Presses universitaires du Mirail, 2015). Richard Swedberg has been Professor of Sociology at Cornell University, Department of Sociology since 2002. His specialties are economic sociology and sociological theory. Before coming to Cornell, he worked at the Department of Sociology at Stockholm University. His works include Max Weber and the Idea of Economic Sociology (1998), Principles of Economic Sociology (2003), and The Art of Social Theory (2014). He is also the co-editor together with Neil Smelser of The Handbook of Economic Sociology (1994; 2005). Laurent Thévenot is Professor at the Ecole des Hautes Etudes en Sciences Sociales (Paris), he co-initiated the Boltanski-Thévenot new ‘Pragmatic sociology’ of critical tensions, on the one hand and, on the other, the ‘Convention School’ which has developed the analysis of economical, social, and political conventions that regulate uncertain coordination. His research extends critical approaches to power through the analysis of oppressions on valued ways people are empowered by engaging with the environment and with others, from intimacy to the level of public conventions.

xiii

Introduction Patrik Aspers, Nigel Dodd, and Ellinor Anderberg

This volume tries to re-invigorate the role of theory in economic sociology by providing a platform on which leading economic sociologists develop and present their theoretical insights. All of the scholars included in the book have made path-breaking contributions to economic sociology. In the chapters that follow, they reflect on those contributions, discuss their major theoretical insights, and debate their significance for economic sociology. The field of economic sociology has been central for developing new theory in the social sciences, with network theory as its clearest shining example. The contributions in this volume will also turn the findings of the successful field of economic sociology into general theoretical statement that will further the knowledge beyond the precinct of economic sociology.* There is more than one way to think about theory and to develop theory, as will be explained in the introduction and shown in the chapters, but the more systematic and general ambition that characterizes theory is shared by all contributions. It is, we argue, not only of great value to economic sociologists to pay close attention to what the contributors of the volume are doing, but also fruitful to study how the major arguments, concepts, and findings of economic sociology can be incorporated into other areas of the discipline, and social science more broadly. We argue that the concepts and findings presented in this volume can be used in the analysis of contemporary issues in a large number of different areas. In this Introduction, however, we discuss the field of economic sociology with a focus on its theory. We identify the main approaches and highlight their theoretical contributions. This serves as a background and additional source of reference to the concrete contributions discussed in the individual chapters.

* We are very grateful for the support by the Department of Sociology at Uppsala University, and especially Helena Olsson and Alexander Dobeson. The work process that has resulted in this book is supported financially by the ERC Grant 263699 (CEV). This grant financed the “Convaluation” project lead by Patrik Aspers.

Patrik Aspers, Nigel Dodd, and Ellinor Anderberg

Since its resurgence during the 1980s, economic sociology has been a highly productive and innovative field of empirical research, presenting both a sustained challenge to neoclassical and mainstream economics and an innovative set of arguments to practitioners and policy-makers across a wide economic terrain. Leading figures within the field have largely abstained, however, from presenting their findings as general sociology. The impact of economic sociology can be seen in adjacent fields of research, such as economic geography, economic anthropology, and not least business studies. These fields have imported far more ideas from economic sociology than they have exported. There is no unifying theoretical core in economic sociology, as there is in economics; indeed, “purely” theoretical contributions to the field are somewhat rare, although earlier works in this vein—such as Simmel’s Philosophy of Money (1907, Simmel 2004), Weber’s Economy and Society (1922, Weber 1978), and Parsons and Smelser’s Economy and Society (Parsons and Smelser 1956)—are still worthy of attention. In compiling this volume, we are not suggesting that economic sociology needs a general theory; indeed it seems fair to say that most of the scholars included here believe that it does not. We do, however, argue—first—that a moment of careful reflection on the major theoretical contributions of economic sociology is overdue, and—second—that this should take place alongside an assessment of the role of economic sociology in relation to the discipline, and to social science as a whole. Although the “new” economic sociology developed since the 1980s is one of the most vibrant sub-fields of sociology, there is a long tradition of sociologists studying the economy and engaging critically with classical and neoclassical economic thought. There are strong substantive and conceptual links between new and classic economic sociology, as well a number of more recent studies (Dodd 1994, 2014; Swedberg 2000; Steiner 2010) and collections (Weber 1999) exploring the classics as contributions to the field that continue to resonate today—in this respect economic sociology is not different from sociology at large. It is hardly an exaggeration to say that classical economic sociology constituted a major part of sociology. The study of questions about the division of labor, the growth of the money economy, inequality, and the role of religion, and the relationship between market and state, for example, were not specialist “economic” concerns, but were central to the way in which the “classical” sociological thinkers were grappling with the momentous changes going on around them. Although several established people in economic sociology today are central figures within the field of sociology, the relationship between economic sociology and the discipline appears to have shifted: economic sociology is a specialized sub-field, and although its key figures publish in core journals such as the American Journal of Sociology, Theory and Society, and the British Journal of Sociology—and in this respect are part of the core of sociology—links 2

Introduction

between economic sociology and “wider” sociology are rarely fully explicated, although there have been attempts to connect economic sociology with other sub-fields of the discipline, such as the sociology of law (Swedberg 2003b) and science and technology studies (Swedberg and Pinch 2008). The importance of the economy, we argue, is surely not less prominent today—in times of globalization and economic crisis—than it was when the founding fathers of sociology addressed economic issues as central to their work. Sociology is a general science whose knowledge is codified in theory. But the question of exactly what constitutes “theory” in sociology has varied significantly over time. Major programmatic statements that seek to theorize the nature of a generic “society” and to deal with abstract problems such as the relationship between structure and agency—for example, those published by Parsons in The Social System (Parsons 1961), Bourdieu in The Logic of Practice (1980), and Giddens in The Constitution of Society (Giddens 1984)—are no longer in vogue. Likewise, large-scale theoretical projects encompassing long, sweeping periods of social and economic history are rarely published these days, with Mann’s four-volume Sources of Social Power (Mann 2012) and Runciman’s three-volume A Treatise on Social Theory (1983, 1989, 1997) the most notable exceptions. What passes for “theory” in sociology these days tends to be closely incorporated in its empirical studies, even though the discipline has no specific empirical domain (cf. Swedberg, Chapter 1 of this volume). If theory in many social science disciplines consists of knowledge about a specific domain of society (government, economy, etc.) in a condensed form, in sociology it is more likely to consist of a particular set of methods and techniques with the aim not of description or explanation per se, but rather the provision of a “toolkit” for research, somewhat in the spirit of Max Weber. This, for example, is how Swedberg describes network theory, game theory, Bourdieu’s idea of the field, and the sociological concept of interest. Of new economic sociology he concludes: while lacking a cohesive theoretical core of the type that mainstream economics has, [it] nonetheless has at its disposal a number of concepts that are helpful in untangling the impact that social relations and social structures may have on the economy. These concepts can also be used to approach the interactions between the political sphere and the economic sphere in modern society (Swedberg 2004: 16).

Characterized in this way, the theoretical “toolkit” of new economic sociology has been informed by two fundamental propositions: first, that economic action is embedded in social structure and/or other variants, such as political processes and cultural practices; and, second, that the economic system is embedded in society. Broadly speaking, we tend to find a stronger emphasis on the first proposition, which thus describes social theory among contemporary practitioners of economic sociology, while more attention is paid to the 3

Patrik Aspers, Nigel Dodd, and Ellinor Anderberg

second proposition, best characterized as theory of society, in classical sociological texts. The term “embedded” has been used in various ways, and there are significant differences between Polanyi’s “original” use of the term in works such as The Great Transformation (Polanyi 1957), and the meaning subsequently given to the term in Granovetter’s influential AJS article, “Economic action and social structure: the problem of embeddedness” (Granovetter 1985) (see Beckert 2009; Krippner et al. 2004). Embeddedness, however, is not the only tool to use for analyzing the role of the economy in the social life that has been used by sociologists. For analytical purposes, we identify five key strategies for dealing with economic life in sociology. These are themes that overlap and are sometimes contradictory. And the list is by no means exhaustive. We hope it is useful, though, as a means of orienting the discussion. First, economic sociologists do not define the economy as a separate dimension of society. One early scholar who deserves to be considered among the key figures of classical economic sociology was an anthropologist, Bronislav Malinowski (1922). Malinowski once referred to Kula ring as “Trobriand Economic Sociology” (Malinowski 1922: 129 n.). His primary aim was to show how economic aspects are naturally integrated in a larger whole, although this was an analysis of an undifferentiated society. Mauss, too, wrote of the moral economy of gift exchange as a total social fact whose significance embraced society as a whole. Second, economic sociology treats the economy on the same basic footing as other dimensions of society. Most classical economic sociologists, Marx, Weber, Durkheim, Simmel, and Pareto, used this second strategy and tried to develop general schemes, of which the economy was merely one dimension of society among others, and was accorded no special analytical or explanatory privilege of its own. This idea is vividly present in the work of Weber. He points out in several works (e.g. Weber 1946) that there are different spheres of society, and the economy does not possess a status different from any other sphere, such as the religious or the aesthetic (see Swedberg 2000: 209 n. 6). A third strategy is to develop distinctive sociological accounts of economic phenomena. These accounts would include, for example, a sociological theory of markets, money, or consumer behavior. Geoffrey Ingham’s work on money offers what he argues is a fully fledged sociological theory of the monetary system, albeit one that draws heavily on Keynesian economic theory. This sociological approach to money offers its own distinctive account of monetary phenomena such as inflation, the rate of interest, and the credit crisis (Ingham 2004). Likewise, Harrison White’s (1981) producer market theory proposes “embedding economists’ neoclassical theory of the firm within a sociological view of markets” (1981: 518). White’s characterization of markets as “self-reproducing 4

Introduction

social structures” rests on the “key fact that producers watch each other within the market” (1981: 518). Sociological accounts, of course, should not be claimed, and cannot be justified, only because they are sociological; they should compete with rivaling approaches also from other disciplines. A fourth strategy is to put flesh and bones onto the homo economicus, turning the narrow, isolated decision-making agent of economic theory into a nuanced human agent who is embedded in social institutions and intersubjective relations, and who has emotions. There are numerous sociological critiques of the idea of homo economicus. Bourdieu, for example, calls it an “anthropological monster . . . the most extreme personification of the scholastic fallacy” (2005: 209), while Granovetter (1985) argues that it is “under socialized.” Although sociologists accept that homo economicus is an analytical abstraction—similar to an ideal-type—there is a suspicion that the concept plays an implicit normative role in discussions of economic life (and the formulation of economic policy), such as being used to justify self-serving behavior (DiMaggio 2001: 240). An alternative strategy, encouraged by Michel Callon under the rubric of Actor Network Theory, has been to treat the model as “performative” (Callon 1998a,b). The critique of homo economicus has also fuelled attempts to include emotions into sociological studies of the economy (e.g. Bandelj 2009; Barbalet 2001; Berezin 2009; Illouz 2008). According to this strategy, economic sociology should rectify the narrowly defined perspective of economics, although it is rarely if ever suggested that we should fundamentally alter the idea of rational man, merely that it should be modified. Beckert, for example, refines the critique to argue that it is not the model per se that is problematic, but its connection with economic equilibrium and optimal decision-making (Beckert 2002: 17). A fifth strategy is to develop general theory of society that may build on a detailed understanding of its economic forms without restricting this to the economic domain. Parsons and Smelser, for example, sought to develop a “general conceptual scheme under which we may regard economic theory (in its main system of categories) as a special case” (Parsons and Smelser 1956: 7). Harrison White argued along similar lines: “It is time to show how economic analysis can and should be fitted in a special case of more general analysis of social structure” (White 1993: 164–5). We should note that White, as well as Parsons and Smelser, suggest that it is economic theory that should be integrated into a larger framework. Bourdieu sought to develop a general theoretical scheme that could be applied also to the economy as well as to other areas of society. “One can reunify an artificially divided social science only by becoming aware of the fact that economic structures and economic agents or, more exactly, their dispositions, are social constructs, indissociable from the totality of social constructs constitutive of a social order,” he argued (Bourdieu 2005: 210). In a similar but more ambitious way, 5

Patrik Aspers, Nigel Dodd, and Ellinor Anderberg

Fligstein and McAdam (2012) call for more general knowledge, rather than piecemeal contributions. This, however, is an argument about the connection between sociology and other social sciences, whereas our main concern is, first, with the relationship between economic sociology and sociology in general, and, second, with the specific contribution that theory can make to understanding and mediating that relationship. Ultimately, this contribution, we argue, can be used by any social scientist. This Introduction builds on the research done by economic sociologists. In more general terms, we also point out the main fields of sociology to which the new economic sociology has made a significant general contribution. In part, this means examining what sociologists outside our sub-field have taken from it. Our ambition with the Introduction is to give an overview and perspective. It is the task of the authors of the individual chapters to discuss the details of how sociology at large can benefit from the works done by economic sociologists.

Classical Economic Sociology The field of economic sociology emerged in relation to its critique of neoclassical economics. The field is now large, established, and institutionalized. Since Swedberg’s seminal articles (Swedberg 1987, 1997) reviewing key contributions and new directions in economic sociology, the field has grown exponentially, and it is barely possible to do justice to it within the space of a single article. Today, and after the last major review by Swedberg (2003a), we increasingly see articles and books reviewing economic sociological topics, suggesting that the field not only has established itself, but also that it has grown large. We will therefore not attempt such an overview, but refer instead to existing textbooks, introductions, and overviews, most of which are made by central people within the field, to identify the most important ideas. Our strategy means that many names of central economic sociologists may not be mentioned. We hope that our presentation is a representative one, and avoids some of the idiosyncratic tendencies that may have been created if were we to make our own selection of “key” contributions and ideas. We briefly present the history and development of the field, but only as a short background to the themes that we think have had, or will have, the largest impact outside of the economic sociology field. Auguste Comte once declared that economics—which at the time was more established and renowned than sociology—was “metaphysical nonsense,” devoid of scientific value (Swedberg 1987: 14). Comte maintained that political economy was misguided in its methods (these were too abstract), its basic 6

Introduction

assumptions (it treated the economy as an autonomous sphere), and its moralpolitical implications (economists were hostile to state intervention in the economy). His critique led economists to go on the offensive; many of whom advocated a complete rejection of sociology. Notwithstanding such debates, classical sociologists saw economic phenomena as part of the social domain, which thus demanded sociological investigation. Economics and sociology shared the same subject matter, but disagreed on how to rightly study and conceptualize it. Following the Methodenstreit (“Battle of Methods,” see Swedberg 2003a) within economics, however, a larger gulf opened up between economics and sociology (this was also propelled by the separation from the more historical school of economics). Whereas economics was cast as a theoretical and deductive science, sociology was meant to rely largely on empirical, inductive approaches. Moreover, the increasing methodological specialization of economic theory, particularly its reliance on conceptual abstraction and mathematics, led to a situation in which economists felt increasingly able to claim sovereignty over the economic domain. In the U.S., sociology more or less bought its rights to academic existence and recognition at the price of surrendering the economy as the subject matter of legitimate sociological research (Swedberg 1987: 20). The leading classical sociologists were essentially the same people who founded economic sociology. Each, of course, had his own approach to conceptualizing economic phenomena, which was usually drawn from his more general idea of sociology. For instance, Durkheim described economic phenomena in terms of social facts, Simmel relied on the notion of social form in his analyses of value and money, Weber utilized the concepts of social action and social orders in his investigations of economic life, and Pareto discussed the difference between logical and non-logical actions. Significantly, the category of social action was pivotal within each of these conceptions of economic sociology—even that of Durkheim (Granovetter and Swedberg 2011: xix). Substantively, the classical thinkers engaged in full-scale studies of the division of labor (Durkheim), markets, states, and firms (Weber), and money and exchange (Simmel). Overarching questions about the nature and developmental trajectory of capitalism are posed by all social thinkers from Marx onwards. Many of these topics remain central to the economic sociological agenda today (Trigilia 2002: 126), while questions about capitalism’s trajectory have been re-energized following the 2007–8 global financial crisis (Swedberg 2013). The history of economic sociology conveys a picture of its early classical era as blossoming. It is of course possible to include thinkers like Adam Smith and Karl Marx. It was, however, Durkheim’s The Division of Labour in Society (1893), Simmel’s The Philosophy of Money (1900, published complete in 1907), and Weber’s Economy and Society (produced between 1908 and 1920), that were 7

Patrik Aspers, Nigel Dodd, and Ellinor Anderberg

among the most influential contributions of this classical era. These thinkers were described by Smelser and Swedberg as “remarkable” in their pioneering spirit and their precise entrenching of the most essential questions of the domain: the role of the economy in society, the difference between sociological analysis of economic matters and that of economists, and the nature of economic action (Smelser and Swedberg 2005: 7). This reasonably fertile period, however, seems to have come to a rather abrupt end after the First World War. What happened is often described as a fragmentation of sociology into a multitude of specialized sub-domains: The main trend in sociology after World War I was to develop various subfields . . . and somehow economic sociology got lost in this process. A series of specialized areas appeared which were concerned with some aspect of the economy: ‘industrial sociology’, ‘consumer sociology’, ‘sociology of professions’ and ‘stratification studies’. No subfield, however, was developed for dealing with the economy as a whole. (Swedberg 1987: 42)

A few scattered works, some of them influential today, were published during these years by non-sociologists, most notably Schumpeter and Polanyi. It was only the work by Parsons and Smelser (1956) that continued the ambition of classic thinkers to address larger issues. In Europe, the most extensive use of classical heritage was made in Germany and France (Swedberg 1987: 44). In the U.S., Parsons, most likely influenced by Pareto, argued for clear boundaries between the disciplines: economics would take the “analytical factor” view, by studying “the allocation of means in the means-ends chain that constitutes human behavior,” while “sociology would concentrate on the value factor . . . ultimate common ends and the attitudes associated with and underlying them” (Parsons 1961: 529). Parsons later revised this opinion—sometimes referred to as “Parsons’s Pact” (see Stark 2009: 7)—in favor of greater integration (Smelser and Swedberg 2005: 14). Under Parsons’s influence, the idea of “economic sociology” was dropped in favor of the broader and perhaps less threatening idea of “economy and society” (Swedberg 1987: 53). During this era, “studies of economic growth in developing countries” and the “new comparative political economy” typified the field (Trigilia 2006: 198). Guillén et al. point out that during the 1960s, a plethora of studies related to market production were conducted in the fields of “organization theory” and “work and occupation.” During the 1970s and 1980s, organization theory took a step away from this wider approach (Guillén et al. 2002: 2). In the sociology of work and occupation, interest was directed towards stratification, class, occupational hierarchies, status, and income distribution. Two related domains were the “sociology of development,” studying industrialization and economic growth, and the “sociology of culture,” developed in close 8

Introduction

connection to the flourishing domain of anthropology in the 1960s and 1970s (Guillén et al. 2002: 2). Although all of these sub-domains involved the investigation of economic phenomena, they were never assembled and described collectively as “economic sociology.” Granovetter and Swedberg nevertheless refer to these scattered efforts as “the old sociology of economic life” and maintain that it had a few branches, the two main ones of which were “industrial sociology” and the “economy and society” perspective advocated by Parsons and followed up by his disciples (Granovetter, in Swedberg 1990). Furthermore, it is not possible to say exactly how certain theories or topics contributed towards anything that may in retrospect be assembled under a label of “economic sociology.” It was not until the early 1980s, then, that a new era in the history of economic sociology was initiated.

The Formation of New Economic Sociology In 1981 Harrison White published an article asking, “Where do markets come from?” (White 1981). Not only did this article focus directly on a core economic topic. It did so, moreover, by claiming that the neoclassical economic model of markets was both unrealistic and flawed. To remedy these failings, White offered a theory that applies to what he argued is the majority of markets. These are producer markets in which the producers offer products to consumers, in contrast with the neoclassical model that essentially is an exchange market, in which buyers and sellers exchange offers with one another, without having roles as producers or consumers. White is also the person who introduced network theory in sociology, and has published texts on opportunity networks in internal labor markets (White 1970) and block modeling (White et al. 1976), both of which contributed towards the general market model that he later developed in Markets From Networks (White 2002). White’s article is commonly regarded as influential for the formation of the new economic sociology. However, if we were to designate a single carrier of responsibility for the re-establishment of economic sociology, it would be his student, Mark Granovetter. Richard Swedberg once dubbed Granovetter “the leading scholar” in the field (Swedberg 1990: 96). Already well known for his groundbreaking article on weak ties (Granovetter 1973), Granovetter cemented a reputation as the leading figure in new economic sociology with his article, “Economic action and social structure: the problem of embeddedness” (Granovetter 1985). This had an invigorating influence on economic sociology, not least because it challenged the division (or “pact”) between economics and sociology that had been more or less accepted since Parsons’s time. Given the enormous influence of the article, it is worth pausing for a 9

Patrik Aspers, Nigel Dodd, and Ellinor Anderberg

moment to reflect on exactly why it made such an impact. Swedberg argues that in terms of critique raised towards economic theory, Granovetter’s line of reasoning was new in that it did not simply focus on the unrealistic notion of rationality, but rather on the methodology behind it: that is to say, the atomism that characterizes the reasoning of economic actors (Swedberg 1997: 162). Moreover, Granovetter managed to present a line of reasoning that was sufficiently elaborated and clear to allow sociologists to follow in his footsteps. The notion of embeddedness, which was linked to the analysis of both networks and institutions (see Swedberg 2003a: 36), was crucial to this. There is no doubt that many people have contributed to the field of new economic sociology, many, even most of whom, cannot be directly mentioned here. For details we recommend the numerous introductions, handbooks, textbooks, and overviews that exist. In addition to these two pioneering studies, several important contributions towards an economic sociology were published between the mid-1970s and mid-1980s, which with hindsight can be seen as an indication of the upcoming rebirth of what was soon to become the new economic sociology. These include Makler, Martinelli, and Smelser’s edited collection, The New International Economy (Makler et al. 1982), Stinchcombe’s Economic Sociology (Stinchcombe 1983), Zelizer’s Morals and Markets (Zelizer 1979) and Pricing the Priceless Child (Zelizer 1985), Adler and Adler’s edited book, The Social Dynamics of Financial Markets (Adler and Adler 1984), Kanter’s The Change Masters (Kanter 1983), and Heimer’s Reactive Risk and Rational Action (Heimer 1985). Up until now, sociological attempts to deal with economic phenomena had been made by emphasizing the role of the economy in society at large (see Swedberg et al. 1990: 58). Insofar as sociologists referred to or imported concepts from economics in their work, these were left more or less untouched. During the late 1970s and early 1980s, by contrast, elements of “the social” were being injected into the theoretical core of economics, for example through the application of sociological reasoning to issues such as moral hazards, pricing, and financial market trading. The trend, increasingly, was for sociologists to take on the same issues as economics, such as production, consumption, and distribution (Granovetter in Swedberg 1990: 107). The pervasive neoliberal atmosphere in the Anglo-Saxon economies might well have helped to inspire some of this work, which was in many ways a direct challenge to the pre-eminence of economics as a social science discipline (see Smart 2003). The story of the new economic sociology thus begins as a number of sociologists decide to play on the economists’ part of the board (e.g. Swedberg et al. 1990: 80). In 1985, the same year that Granovetter had published his programmatic statement, he gave a speech at the annual meeting of the American Sociological Association in Washington D.C., in which he formally baptized the 10

Introduction

field (Swedberg 1997: 163, 2003a: 34). The high degree of self-consciousness in the formation of the new economic sociology has characterized the domain ever since; the history of the discipline has been followed up and “collected” regularly by the publication of readers and overviews. The flock, so to speak, was being constantly herded. Initially, new economic sociology resembled a social movement, or what Swedberg prefers to call “a collective effort of some magnitude” (1997: 164). According to Convert and Heilbron, Swedberg was one of the earliest advocates for reinvigorating “economic sociology” as a descriptor, aiming “to bring and hold together sociologists working on the economy and to reconstruct and promote this branch of the discipline” (2007: 46). For this reason, they conclude, economic sociology “represents not so much a specific intellectual as an institutional project, more an intradisciplinary coalition than a distinct approach” (Convert and Heilbron 2007: 51). The institutionalization of new economic sociology was, to a large degree, a goal in its own right at this time. A plausible explanation for this ambition, reflected in the vast amount of effort spent on recapitulating the achievements and re-establishing the boundaries of new economic sociology, could be that the domain is still positioned in a tense relation to its historical antagonist, the discipline of economics. To present economic sociology through comparison with economics, that is to say, to bring up a number of essential topics on which economic sociology rejects the conclusions drawn by economists, is common (e.g. Swedberg 1987; Zukin and DiMaggio 1990; Hirsch et al. 1990; Swedberg et al. 1990; Smelser and Swedberg 2005). However, the relationship is Janus-faced: while some economic sociologists nourish a wish to cooperate with their counterparts in economics, the apparent indifference of the latter, and their perceived unwillingness to listen, often lead sociologists to reiterate the original differences. New economic sociology began largely as an American enterprise. Although classic sociology was clearly relevant to the instigators of the field, little reference was made to non-American contemporaries (Convert and Heilbron 2007: 50). In Europe, Luhmann was writing about the economy as a subsystem (Luhmann 1988), and Bourdieu’s entire theory was strongly related to economic theory, while he also published empirical work dealing with both production (Bourdieu 1993) and consumption (Bourdieu 1984). The works of Boltanski, and Boltanski and Thévenot (only recently translated into English), were also focused on economic phenomena. There was, however, no recognizable subfield of economic sociology in France, although a variety of social science approaches to the economy emerged there during the 1980s. These included the “regulation school,” which was an unorthodox macroperspective influenced by neo-Marxism and the Annales School (Aglietta 1976); the “economics of conventions,” which was an interpretive microperspective focusing on situated interactions between economic actors (Salais and 11

Patrik Aspers, Nigel Dodd, and Ellinor Anderberg

Thévenot 1986); and the Revue du Mauss, which put forward a crossdisciplinary “anti-utilitarian” approach. According to the convention theorists, evaluation and judgment underlying for instance economic choices are based on historical conventions (De Munck 2011). Diaz-Bone describes conventions as “ideal forms” or “logics of” coordination and evaluation (DiazBone 2011: 55). They are not scientific constructions, but present for all competent actors. Thus, the economics of convention takes as its object of study the processes through which actors coordinate themselves by making situations explicable and ordered, for instance by invoking certain logic, by differentiating causes and consequences, and by creating categories. The authors of this perspective are Luc Boltanski and Laurent Thévenot. Their most renowned contribution is the theory of Worlds of Worth (published in 1991, and translated into English in 2006). Also worthy of note is Lucien Karpik’s work, which was also known in France much earlier than the publication of his translation, Valuing the Unique (Karpik 2010). It is clear that economic sociology is gaining momentum in France today, not least among younger scholars. In Germany, despite its strong classical tradition and the work of scholars on the boundary between economics and sociology such as Hans Albert and Klaus Heinemann during the 1970s and 1980s, the field of economic sociology was not prominent (see Beckert 2000 for an extended review), although works by Christoph Deutschmann (on money) and Dirk Baecker (on, for example, banking), drawing on Luhmann were important. The intersection of politics and economy has been another topic, on which Wolfgang Streeck has published extensively. Karin Knorr and Herbert Kalthof have been important for analyses of the financial system. Economic sociology in Germany has been much more organized since 2005, and it is today a strong section of the German Sociological Association, with several strongholds, not least the Max Planck Institute for the Studies of Societies in Cologne. Markets have become a central topic of concern, but we can indeed speak of a resurrection of variety of themes in contemporary German economic sociology. In the U.K., sociologists who had been working on work, employment, and industry, and the study of organizations were securely institutionalized with strong representation in academic departments and business schools, while John Goldthorpe and others produced work on the “political economy of inflation” during the late 1970s (Hirsch and Goldthorpe 1978). There was, however, little recognition of the “economic sociology” label in journals or academic departments. The situation has changed more recently, with significant work in the field being undertaken at universities in Manchester and Essex—at the Centre for Research on Socio-Cultural Change and the Centre for Research in Economic Sociology and Innovation, respectively—and at the 12

Introduction

London School of Economics. At Edinburgh University, Donald MacKenzie has promoted research, primarily on financial markets. In all of these countries there were, of course, sub-fields that existed more or less parallel to economic sociology, such as the study of labor markets, which have been seen, within economic sociology, as “peculiar” or “special” (Swedberg 2003a: 155), and in the field of development studies, the analysis of global production chains. There are, moreover, a great number of European sociologists, in different countries, who have focused on economic sociology; details of these scholars’ work can be found in the European Electronic Newsletter: Economic Sociology (2000–present).

Theoretical Contributions to Economic Sociology We have suggested that new economic sociology emerged partly as a challenge to economics. Whereas economists traditionally have been satisfied with a formal definition of the economy that yields abstract models of economic activity, sociologists attempt to analyze the economy in substantive terms, by letting “economy” refer to “the entire social organization of material life” (Fligstein 2002: 63, following Polanyi). Rather than simplifying the picture, they generally try to capture as much real-life detail as possible in their analysis. This is exemplified by Granovetter’s question: “How do individual actions, conditioned by incentives, trust and cooperation, power and compliance, and norms and identities that affect these states and actions, come to be shaped by and themselves reshape larger institutional configurations?” (Granovetter 2002: 49). Partly as a consequence of the ambition to maintain a high level of empirical detail, economic sociology lacks the formal coherence and unified purpose of economics (Swedberg 2006: 3). In contrast with economics, there is no unifying theory in economic sociology, but rather a range of different theories and perspectives. (This is in keeping with sociological practice in other areas of the discipline, of course.) Economic sociologists also differ in relation to which processes they highlight as being of primary importance to economic behavior. Power relations, institutions, social convention, networks, embeddedness, and roles are just some of the theoretical constructs that economic sociologists use when trying to capture economic life (Dobbin 2005: 27). However, the economic domain can be summarized with a reasonable degree of unanimity. On the most general level, economic sociology’s programmatic ambition is to demonstrate how economic elements infiltrate social life; or vice versa, to show how the economy is based on or permeated by social factors. At its simplest, as Trigilia suggests, the task is one of “ . . . establishing the links between economic and social phenomena” 13

Patrik Aspers, Nigel Dodd, and Ellinor Anderberg

(2002: 1). The complexity emerges when it comes to explaining what exactly those linkages consist of, and how they operate in different empirical contexts. During the first decade following the emergence of new economic sociology, two of the most prominent theoretical constructs within the domain were “embeddedness” and “the social construction of economic institutions” (Swedberg 1997: 161). Granovetter introduced the notion of embeddedness in the 1985 article referred to above. He did not define the concept explicitly, other than to say that economic actions are embedded in a “concrete, ongoing systems of social relations” (1985: 487). Broadly speaking, embeddedness is invoked as a means to argue that “the economic” (action, actor, market, organization, e.g. in the form of a network etc.) is situated—embedded—in “the social” (culture, society, structure, etc.). The concept, which appears first in Polanyi’s The Great Transformation, has enjoyed an astonishing career in the new economic sociology, although the term has been used quite differently in the latter (Krippner and Alvarez 2007; Beckert 2009). It has been criticized, debated, and analyzed, but above all extensively used. Today there are very few contributions to the new economic sociology in which the term does not occur at some point (Lie 1997: 350; Beckert 2009: 40). The idea of social construction derives from Luckmann and Berger’s The Social Construction of Reality (1991). In their formulation, the approach rests on the argument that specific agglomerations of “reality” and “knowledge” pertain to specific social contexts, and these relationships will have to be included in an adequate sociological analysis of these contexts’ (Luckmann and Berger and 1991: 3). In other words, whatever becomes established as “reality” in a given context must be examined sociologically, because the knowledge that sustains that reality is developed, transmitted, and maintained in social situations. Increasingly, the idea that the social world is constructed through social processes has become almost taken for granted by sociologists. This is true also in economic sociology, in which this idea has been applied to a diverse range of phenomena: for example, speculative bubbles (Abolafia and Kilduff 1988), value (Smith 1989), East Asian business systems (Whitley 1991), economic institutions (Granovetter 1992), the Great Depression (Dobbin 1993), and organizational knowledge (Mizruchi and Fein 1999). As with the notion of embeddedness, the term’s wide use— both in economic sociology and beyond—has inevitably resulted in a lack of clarity about what “social construction” actually entails, and what claims it implies about the nature of the world (for a philosophically oriented discussion, see Hacking 2000). We now turn to the major theoretical approaches within economic sociology. For quite some time new economic sociology was viewed as being composed of three main branches; network theory, neoinstitutionalist 14

Introduction

organization theory, and cultural sociology (Trigilia 2006; Swedberg 1997). We broadly concur with this division and reproduce it here while adding a fourth main branch, performativity, which has developed rapidly during the past decade or so. We therefore identify four main theoretical approaches in economic sociology, which are focused on networks, culture, organizations, and performativity. Intriguingly, the theoretical roots of these approaches are all located outside of economic sociology. We are not, it should be emphasized, claiming that these may be the lines that are most clearly cut in economic sociology; other lines of dispute—many of which we find also in other fields of sociology, such as between quantitative and qualitative research—may be more recognizable. In presenting these, we are drawing a distinction between theoretical approaches on the one hand, and the various substantive areas of economic sociology on the other. Among the latter, we would identify areas such as the sociology of markets (see Aspers, Chapter 10 of this volume), the sociology of money (see Dodd, Chapter 3), the social studies of finance (see Knorr Cetina, Chapter 4), the sociology of evaluation and worth (see Thévenot, Chapter 8), and so on. Each of the theoretical approaches we have identified—networks, culture, organizations, and performativity—can be found in more than one of these substantive areas of investigation. Our aim is to discuss general theoretical contributions, not the substantive topics themselves. Moreover, many sociologists—including some whose contributions are published in this volume—will be reluctant to identify their work with only one particular theoretical approach.

The Network Approach Brief consideration of the events that took place in the 1970s in the U.S. offers a logical answer to the development of the networks- and organization“branches” of economic sociology. Prominent among the very first members of what was later called the new economic sociology were Charles Perrow, Arthur Stinchcombe, and Harrison White, all three of whom received their Ph. D.s in 1960 (Convert and Heilbron 2007: 35). Contrary to the sociological currents of their time they all defied functionalism, and rather embraced organizations theory (Perrow and Stinchcombe) and, or better, developed network analysis (White). These approaches were thus part of the “stem” of the domain. The cultural branch was represented from the start by Viviana Zelizer and a few others, Zelizer being the most renowned advocate of this approach in the new economic sociology. The question of what economic sociology has contributed to our understanding of network theory does not make much sense. Network theory, as we know it, is largely an invention of economic sociology, and it was crucial for 15

Patrik Aspers, Nigel Dodd, and Ellinor Anderberg

the emergence of the field as such. The phenomenon and term, however, can be traced to structural anthropology, and to Simmel, who investigated ties and their impact on social life (Simmel 1923). Nonetheless, the network approach is arguably the most significant theoretical contribution made by economic sociologists to the discipline as a whole (see Granovetter, in Swedberg 1990: 108). Recognition of the influence of networks on economic action is so widespread that even many works that do not explicitly use the concept have a close affinity with it through their emphasis on social context. Network analysis also has a strong relation to structural theory. As Swedberg argues: “While all sociologists who use network analysis do not see themselves as structural sociologists, it is nonetheless true that most structural sociologists use networks and also that structural sociology has played a crucial role in promoting and adding to network analysis in sociology” (2003a: 38). Sometimes the distinction above is not made at all, but network theory is simply referred to as “the structural approach.” Network theorists tend to have a structural view of economic action, as they assume that action in general is affected by network position (Trigilia 2006: 201). Between the early 1960s and mid-1980s, network theory was developed primarily in interlock studies, which explored networks of individuals sitting on several corporate boards (e.g. banks and insurance companies) (Swedberg 1997: 167). Another notable early study, of course, was Granovetter’s Getting a Job (Granovetter 1974), which showed how job chances are a function of their social connections. Granovetter’s argument was not simply about the importance of social contacts per se, but on the diversity of those contacts. In showing the virtues of weaker, less personalized links in terms of information flow and increased opportunity, Granovetter turned attention to the characteristics of the entire network, not just links between specific individuals within it. White’s study, Chains of Opportunity (1970), on internal labor markets is the first prominent study. There exist a large number of important economic sociological studies of networks (Baker 1984; Burt and Carlton 1989), also of firms within industrial regions (Perrow 1993; Powell et al. 1996), and the role of personal connections in entrepreneurship (Burt 1992) and business groups (Gerlach 1992). This development brought an upswing to network theory. Harrison White and Mark Granovetter formed the backbone not only of the domain of new economic sociology, but also of the network approach (Lie 1997: 350). Network theory reflects the structural origin of network theory in kinship analysis of anthropology. It was this idea that Harrison White, the father of network theory in sociology, brought in to sociology in the 1960s. Although White carved the “structural path,” it was Granovetter who took the theorizing down to a more concrete level. 16

Introduction

The Cultural Approach Network theory and organization theory operate largely on the “middle range.” That is to say, they analyze relations between individuals and, typically, are interested in structural formations on an aggregate level, such as within or between firms or organizations. Cultural sociology usually embraces a wider picture. Perhaps by definition, and certainly by virtue of its empirical richness, this branch tends to be less coherent—and less self-conscious as an “approach”—than the two others, although much work has been done recently to clarify its insights in terms of relational sociology (see Zelizer 2012). Those who are identified as proponents of the cultural approach seldom cited each other and were seldom cited by network or organization theorists. For this and possibly other reasons, the cultural approach has been somewhat marginal in economic sociology (Zelizer 2002: 109; Convert and Heilbron 2007: 43). The main proposition of the cultural approach to economic sociology is that all economic activities are embedded not just in social structure, but also in culture (Swedberg 2003a: 241). Expressed more boldly, the theoretical position of the cultural approach is that other approaches—such as the network approach, for example—overemphasize the importance of social structure in their view of economic phenomena, and consequently need to be nuanced. But rather than clearing the board of all other theoretical entities and spreading out “culture” as a supreme explanatory mechanism, these scholars are generally careful to sustain what we might call a “realist” outlook on the influence of culture (Smelser and Swedberg 2005: 16). As Zelizer puts it, although it is important not to see culture and markets as hostile worlds, it is equally important not to be drawn into suggesting that markets are “nothing but culture” (Zelizer 2011: 314). One of Zelizer’s main arguments concerns the boundaries drawn in economic sociology and everyday theorizing between the economic and the intimate. More recently, she has drawn some of her arguments together under the umbrella of relational sociology (Zelizer 2012; see Bandelj, Chapter 9 of this volume). In a number of studies, Zelizer seeks to demonstrate that “the economic” is a well-integrated part of people’s intimate lives and relationships, what she calls a “connected-lives” approach. Furthermore, culture is not to be understood as a mere backdrop against which (purely) economic phenomena are played out. Rather, culture is immanent to the very relations we call economic. The approach therefore “shifts from context to content” (Zelizer 2002: 108, emphasis added). Culture, defined as “shared meanings and their representations in objects and practices,” is the inevitable foundation without which economic action would be impossible. Paul DiMaggio has also been a significant figure in this area of economic sociology. DiMaggio has used a number of sites—including consumer behavior 17

Patrik Aspers, Nigel Dodd, and Ellinor Anderberg

(DiMaggio and Louch 1998)—to show that market exchange is far from impersonal, and often involves culturally rich social networks. In his early career, DiMaggio also conducted historical research that explores the systematic creation of a high culture in nineteenth-century America that was used by elites as a means of distinction. This “project” was initially undertaken by the founders of orchestras and museums—whom he calls “cultural capitalists”—and subsequently by the patrons of other dance, theater, and opera (see DiMaggio 1982). Mitchel Abolafia also has been a key figure in the culture approach. His work is especially interesting, not least because he was undertaking ethnographic research into financial markets somewhat before what has come to be known as the social studies of finance (discussed in this Introduction in relation to performativity) became established. In Making Markets (1996)—based on extensive fieldwork that started in 1979—Abolafia explores the “market subcultures” that have been organized around trading in stocks, bonds, and commodities. Abolafia’s approach draws on the notion of social construction: strikingly, he argues that “[r]ational maximizing is not a fundamental human drive or instinct, but rather a socially and culturally defined strategy derived from a repertoire of strategies that is interpreted in each market subculture” (1996: 8). There are some intriguing theoretical connections between the cultural approach to economic sociology as characterized above and the “antiutilitarian” perspective that has been developed through the Revue du Mauss, largely (but by no means exclusively) in France. Of particular interest here is the work of Philippe Steiner, who has published on both Mauss (Steiner 2001) and Durkheim (Steiner 2010, and Chapter 11 of this volume), as well as a critical engagement with Zelizer’s work that draws closely on the ideas of Polanyi (Steiner 2008). His most recent work on the sociology of organ transplantation uses a symbolic exchange framework derived from the anthropological literature on gift exchange (Steiner 2003).

The Organization Approach Organizations have been a topic for sociological investigation for a long time, since before the initiation of the new economic sociology. There is a distinct and important sociological genealogy here, going back through the theory of the firm, and industrial sociology. But although many of the organizations previously studied by sociologists were economic in nature, this was not specifically acknowledged and organizations were not necessarily studied for the insights they might provide for the sociology of economic life. With the development of new economic sociology, organization studies changed somewhat. From having focused largely on the internal coordination of organizations, it 18

Introduction

switched to a focus on the relations between organizations, and the plurality of organizational structures (Convert and Heilbron 2007: 41). Taken as a whole, the major contribution of organization studies has been to incorporate power, interests, and meaning into the sociological analysis of how organizations operate, and how they change. This branch of economic sociology can be further sub-divided into three distinct angles, focusing on resource dependency, population ecology, and “new” institutionalism (Swedberg 2003a: 40–1). Resource dependency refers primarily to investigation of the ways in which organizations depend on and interact with their environment. Population ecology refers to the study of organizational life cycles. New institutionalism deals with cultural aspects of organizations, and show “ . . . how institutional environment and cultural beliefs shape their [organizations’] behaviour” (Nee 2005: 49). In some accounts of the organizational approach, the only scholars mentioned are the so-called “neoinstitutionalists” (see Trigilia 2002; Convert and Heilbron 2007) who, according to Swedberg, use the term “institution” to mean “pretty much anything . . . including a dance and a handshake” (2006: 12). This broad view of institutions is important because it directs attention to people’s need for and orientation to meaning. By emphasizing this, neoinstitutionalists seek to demonstrate that economic efficiency is not the sole mechanism behind organizational survival, as functionalist explanations tend to suggest. Rather, the regular and predictable order that guarantees organizational reproduction comes from meaningful institutionalized scripts (Dobbin 2005: 27). See Nee (2005, and Chapter 6 of this volume) for a review of the new institutionalist economic sociology, and its relations to new institutionalism in organizational analysis and new institutional economics. The genealogy of neoinstitutionalism can be traced back through works by Meyer and Rowan (1977) and Powell and DiMaggio (DiMaggio and Powell 1983; Powell and DiMaggio 1991). Neoinstitutionalists tend to emphasize the cognitive dimension of organizations, that it so say, the role that is played by informal rules, shared meaning frames, and rituals in defining identities and interests within the organizations under investigation (Trigilia 2002: 230). This perspective thus proposes another solution to the under- and oversocialized conceptions of actors from that found in Granovetter’s network embeddedness. Fligstein’s The Transformation of Corporate Control (1990) provides a good example of neoinstitutionalism in operation. Fligstein argues that the emergence of the largest corporations in American society was driven not by efficiency, but rather by the need of firms’ owners to control competition. The book outlines several ways in which this control is exercised, such as direct control, control through manufacturing capacity, sales and marketing control, and the finance conception of control. Crucial here is the notion of the “organizational field,” which functions first and foremost to produce 19

Patrik Aspers, Nigel Dodd, and Ellinor Anderberg

stability. Set up primarily for the benefit of its most powerful members, the field is based on a “shared conception of legitimate action” and works in conjunction with a prevailing “conception of control,” which is a totalizing worldview that causes actors “to interpret every situation from a given perspective” (1990: 6, 10). More recently, Fligstein (with McAdam) has argued that a “new” new institutionalism is needed, which gives more prominence to actors’ role in the dynamic and ever-changing quality of organizations (Fligstein and McAdam 2012).

The Performativity Approach The concept of performativity has been particularly influential in the social studies of finance, although studies using the idea are also found in other areas, such as the more broadly conceived sociology of markets and evaluation studies. The initial “incursion” of actor network theory (A.N.T.) into economic sociology was made in 1998, with a series of papers (including contributions from Zelizer, Stark, and Granovetter) edited by Michel Callon and published as The Laws of the Markets (Callon 1998a). Callon’s Introduction to that volume centers around the claim that economics “performs, shapes and formats the economy, rather than observing how it functions” (Callon 1998b: 2). The statement has given rise to a good deal of debate, in relation not only to its claim about the relationship between economic knowledge and economic life, but also for the breadth of its definition of economics (Callon’s inclusive definition includes not only accounting but also marketing and advertising). Two celebrated studies on the performativity thesis are Garcia-Parpet’s “The social construction of a perfect market” (Garcia-Parpet 2007, originally published 1986 in French), and MacKenzie and Millo’s “Constructing a market, performing a theory” (MacKenzie and Millo 2003). Before his intervention in economic sociology, Michel Callon was well-known for his adaption of A.N.T., as pursued in the work of Bruno Latour and John Law. Actor network theory is a very broad term, the precise meaning and scope of which has been increasingly contested. Originating in science studies—Latour and Woolgar’s Laboratory Life (Latour and Woolgar 1986) is a seminal text—A.N.T. focuses on the complex and dynamic interface between human and technological agency. Besides economic sociology, A.N.T. has been extensively used in studies of medicine, politics and power, science, scientometrics, and technology. Its use within economic sociology is the subject of the volume edited by Swedberg and Pinch, Living in a Material World (Swedberg and Pinch 2008). The specific notion of performativity that Callon used to claim that economics “performs” the economy can be traced back to the sociology of science—of course, the term also features in the work of John Austin (1962), John Searle (1979), and Judith Butler (1990)—and particularly the work of 20

Introduction

Barry Barnes (1983, 1988). In the context of scientific knowledge, performativity implies that the act of making a statement about the world—theorizing it, for example, or using a concept, a model, or a procedure—may have an effect on that world, principally shaping it in accordance with the statement. The potential for translating the idea into economic sociology clearly occurred to Callon, and has been carried through most persuasively (and painstakingly) in Donald MacKenzie’s study of the role of finance theory in the stock market crash of 1987 and the long-term capital management crisis of 1998 (MacKenzie 2006). MacKenzie has played a prominent role in the rapid growth of the sub-field within economic sociology known as the social studies of finance. This area has been developed with a level of self-consciousness and organization that is perhaps reminiscent of the earlier development of new economic sociology. Broadly speaking, the label refers to work by sociologists, anthropologists, human geographers, and others on social, political, and technical factors that have shaped the contemporary financial practices and the operation of financial markets. The area is strongly represented in Europe, with clusters of scholars based in Sciences Po, Edinburgh, and the L.S.E. Another important figure in this sub-field, whose work spans the sociology of science as well as social studies of finance, is Karin Knorr. Arguably, however, her work on epistemic cultures (Knorr Cetina 1999) and global microstructures in financial markets (Knorr Cetina and Breugger 2002) owes more to social constructionism and the sociology of culture than to A.N.T. We have presented these traditions in a way that is much in line with the received view of new economic sociology. Much important work is done using the four traditions. We see potential, however, in the works that can combine these approaches, not for its own sake of course, but to generate new insights. We see potential in combinations of existing approaches, or the introduction of new approaches. Fligstein’s work (2012), Padgett and Powell (2012) and Stark (2009) and Nee (2005) are some recent examples of the combination of different traditions. We see a similar attempt to combine traditions in the use of forms of “pragmatism,” for example, Boltanksi and Thévenot (2006) and Beckert (2002), and phenomenology (Aspers 2006). The positive outcome depends on its capacity to take on new questions and offer explanations and understanding of the complexity of the world. In addition to this we briefly discuss challenges faced by economic sociologists. To the extent that future works can fruitfully draw on existing theory and address these challenges, we think that economic sociology will prosper.

Boundaries, Challenges, and Future Development The four approaches mentioned constitute the field of economic sociology, and it is primarily against this backdrop we shall see the contributions of this 21

Patrik Aspers, Nigel Dodd, and Ellinor Anderberg

volume. Let it be clear that the sketch of a backdrop we have presented leaves out many contributions that a review of economic sociology text would have included, for example, the growing field of valuation studies (Aspers and Beckert 2011; Beckert and Musselin 2013; Stark 2009), and of course works in the general field of sociology, occasionally called theory of society, that take the economy into account, or study it in some works, represented by people like Pierre Bourdieu and Niklas Luhmann. Regardless of approach, economic sociologists face several challenges, of which some are identical to the problems faced by all sociologists. The alleged distinction between economy and society is often central in research, but murky, and it has created several more or less pseudo problems for sociologists. The distinction can be traced to Weber, and the implicit assumption is that there is first something that is “economic” and that this only occasionally is “social.” We quoted Trigilia, who sees this as the main task of economic sociology to investigate the links between economic and social phenomena. But what economic actions or behavior are not social? What happens if sociologists start with the assumption that all actions are social? Could we then not employ the full sociological arsenal of theory and methodology to address economic-sociological problems? A second challenge is the way discussion of institutions and culture are kept apart. In economic sociology there is one cultural school and one institutional (or neoinstitutional) school. Conceptually, however, culture and institutions are often seen as being closely related. Anthropologists tend to speak of culture as the source of meaning, but would it not be possible to consider culture as the essentially grown order that serves as bedrock, also for the more specific analyses of institutions—formal and informal? If more attempts were made theoretically to overcome the gulf between cultural and institutional researchers, and if the complexity could be reduced, this would be likely to benefit the entire field, and more energy could be given to substantive problems. A third challenge to economic sociology is to re-install economic issues at the center of social analysis. This, in one way, would be to position economic issues as they were positioned in the era of classical economic sociology. Our argument is that the successful development of economic sociology gives reasons for transcending its domain and engages general sociology. Network methodology, of course, is a salient example of how findings can be used to study almost anything, but there are many more examples of both thinkers, and specific theories or tools, to be exported from the domain of economic sociology. Some economic sociologists have indeed not only attempted, but also succeeded to situate economic issues in a broader frame of analysis, most notably Harrison White with his general theory of identity and control (White 2008). In this volume we see this 22

Introduction

attempt, for example, in the chapters of Laurent Thévenot (8), Nina Bandelj (9), and Patrik Aspers (10). A fourth challenge is to not repeatedly rebuild the old trenches in which sociologists and economists have been stuck. Although economic sociologists have always cited economists, in particularly classical economists, they have maintained a view of mainstream economics almost entirely built up of overly simple assumptions of economic man and deductive reasoning. Much contemporary economic thinking, however, like game theory, behavioral economics, evolutionary economics, and economic psychology, point at other issues, at least use other methods, and to some extent also assumptions other than the mainstream economic assumptions that economic sociology is discussing. Game theory work, like parts of sociology, uses small numbers. Strategic action involving a few actors is perhaps the type of case for which game theory lends its approach well also for sociological reasoning. Behavioral economics rests to some extent on laboratory experiments, which are rarely done by economic sociologists. Behavioral economics is, however, clearly more empirical than most other strands of economics. It is perhaps hard to see a complete theory being built up by behavioral data, but results could nonetheless be used by economic sociological theory builders. Evolutionary economics has a long tradition, and stands on a “biological” foundation; it has to some extent been adjacent to economic sociology since the birth of new economic sociology. We do not necessarily claim that these approaches could boost economic sociology. Our main point is that economics has changed since the dawn of new economic sociology, and economic sociologists must be aware of this and relate to the new landscape. We also see several economic traditions that enable cross-fertilization with economic sociology, such as institutional economics and post-Keynesian economics. In conclusion, we have in this introduction pointed at findings, strategies, and challenges to economic sociologists. Our emphasis on theory, theory development, and the general knowledge and general sociology corresponding to theory is a plea for how to re-think economic sociology. One volume cannot address all challenges, but the chapters included address one or more of the themes we outline as important for economic sociology in the decades to come.

Outline of the Book Chapter 1 by Richard Swedberg, “Theorizing Economic Sociology,” accompanies our Introduction. Although it stands on its own, it nonetheless sets a tone for the rest of the volume by stressing the role of theory as a sociological practice in its own right. The main message that Swedberg gives economic 23

Patrik Aspers, Nigel Dodd, and Ellinor Anderberg

sociologists is to take the development of theory seriously, primarily by thinking systematically about “how to theorize.” To do this he offers a short review of the literature on theorizing, the main focus, however, is on theoretical practice. Swedberg discusses the role of creativity in theorizing, and proposes theorizing as a process, which may start with observation of the phenomenon, naming and developing concepts, and finding patterns, and ends with explanations. The first part of the volume, called “Creating Economic Futures” consists of three chapters. These chapters deal with the domain modes of temporality and future-directedness of contemporary capitalism, with a focus on the monetary and financial sector. This sector, in which money and financial markets are key elements, has increasingly become pivotal to capitalism’s dynamic nature, and is at the heart of its economic crises, speculation, “innovation” of financial instruments, and the general financialization of capitalistic economies. Temporality, and above all the future-looking perspective of contemporary advanced capitalism is at the fore of the contributions here. Expectancy of the future, either in terms of imaginations, different and new and socially progressive forms of money, or the handling of the future by means of securities are discussed. Chapter 2 by Jens Beckert, called “Re-imagining Capitalist Dynamics: Fictional Expectations and the Openness of Economic Futures,” argues that we must investigate the role of expectations as they explain action and coordinate the future. More fundamentally, Beckert sees these expectations as central to the dynamism of contemporary capitalism. His chapter offers a major contribution to existing theories of capitalism, which brings up issues like division of labor, and growth of factors of production, by stressing the role of temporality. Beckert identifies four elements of capitalist dynamics: money and credit, investment, innovation, and consumption. The future is uncertain and the central idea is that expectations of a future world different from our current, are driving actors. The concrete interest can, for example, be the interest of social mobility or consumption of specific objects. In Chapter 3, Nigel Dodd also studies a key institution in capitalism, money. His chapter relates to Beckert’s, by suggesting that all forms of money imply specific images not only of the reality of economic life as it currently exists but various imagined futures. Dodd focuses especially on forms of money—from Bitcoin, through time banks and other complementary currencies, to the Euro—that are held up by their architects as socially progressive. Money is thereby seen as a vehicle of social improvement: for example, as a means for addressing social and economic injustice, for countering economic exclusion and social inequality, for enhancing political freedom, or for realizing more concrete ends such as national unity or an integrated and peaceful Europe. Dodd’s approach is theoretically interesting because it directly counters the 24

Introduction

view—prevalent, especially, in classical sociological treatments of money— that money is a socially corrosive medium of exchange. Dodd’s argument, on the contrary, is that all monies contain a utopian strain. Karin Knorr Cetina’s chapter, “What is a Financial Market? Global Markets as Media-Institutional Forms,” is a detailed account of financial markets. There is a resemblance to the early texts by Max Weber on the stock exchanges, although Knorr Cetina builds up a theoretical foundation for understanding financial markets. She has studied these markets for years, and combines a detailed empirical description of what people do and what is happening with a theoretical account of what these markets are. Perhaps Knorr Cetina’s most significant theoretical achievement has been to bring a microsociological focus to large-scale financial systems, as her work on global microstructures testifies. Building on that work here, she now seeks to develop a broader-based view of financial markets that accounts for their highly specific characteristics. The chapter gives us insights into contemporary financial capitalism that complement those discussed by Beckert and Dodd. In the second part of the book, “Consolidating Economic Structures,” we take a closer look at institutions and values of the economy. In this part, authors address aspects that structure economic life, such as law, norms, and power. The coordination of economic activities requires institutions and conventions. Trust is not only a condition, but also the outcome, of social interaction. The chapters in this part of the book show that when institutions are brought together with positions and power resources, it is possible to analyze both small- and large-scale economic phenomena. Taken together, they offer theoretical contributions to central economic sociological phenomenon. Bruce Carruthers’ contribution, “Economy and Law: Old Paradigms and New Markets,” looks at the central role that is played by law, both for the constitution and governance of contemporary capitalism. More specifically, Carruthers uses a Weberian approach, and looks at derivative markets and studies how both private and public regulation have occurred. A second important development is global regulation. The chapter continues the discussion in the first part of the book, of financialization and financial markets. The focus of Carruthers is the legal framework of one of these markets. One finding is that globalization makes it possible to localize trade at the intersection, or between, different national institutional frameworks. In Chapter 6, “Economic Institutions from Networks,” Victor Nee and Sonja Opper analyze the role of institutions in an industrial network of suppliers and distributors in an industrial district in the Yangzi delta region, China. The chapter combines insights from economic sociology and economics, and examines the link between institutions and networks, by stressing the institutional setting of networks. It is shown that norms of reciprocity reduce risk of interaction within the industrial district that is geographically concentrated. The 25

Patrik Aspers, Nigel Dodd, and Ellinor Anderberg

norms of the district are reproduced by being practiced by use of the actors connected by ties of cooperation. The authors suggest that capitalist efficiency can be an emergent property. In the chapter, “The Fourth Dimension of Power: The Social Construction of Interest in the New Economic Sociology,” Frank Dobbin and Jiwook Jung zoom in on power. Their contribution, however, shows how economic sociologists have used social constructivist theories, and in doing so, have reintegrated issues of power, structure and meaning. Their chapter and the following chapter by Laurent Thévenot, concentrate on general claims by drawing on existing theoretical and empirical work. Dobbin and Jung review existing literature, and in doing so they draw on sociology in general. The central message of the chapter is that economic sociologists have already integrated power and structure in their theories, and that there is great promise in continuing to do this. Laurent Thévenot, in his chapter, “Certifying the World: Power Infrastructures and Practices in Economies of Conventional Forms,” revisiting agency and valuation in a critical perspective, continues the discussion of Dobbin and Jung on power. The chapter presents the French School of Convention, of which Thévenot himself is a leading thinker. The chapter positions the convention school in relation to other traditions of economic sociology, such as actor network theory and new institutionalism. The central theme of the chapter is valuation. He discusses formation of values in markets and organizations, and argues that we should take into account the plurality of valuable engagement with the world. It is argued that power and profit results from the transmutation of valuations. The third part of the book, enacting economic relations addresses interaction forms in the economy. The chapters are engaged with relations, and look at how relations are enacted and are central for the shaping of being. The approaches see the enactment and the formation of relations as constitutive of actors. Both human beings and organizations are considered. Practice and interaction are cornerstones in the explanations of action. In the section, analyses are presented of markets and gift exchange. In Chapter 9, “Thinking about Social Relations in Economy as Relational Work,” Nina Bandelj focuses on economic interaction. Bandelj expands Zelizer’s discussion of relational work, which she argues is an inherent part of negotiating economic relations. She suggests that we should integrate in our analyses of economic processes attention to structure, power and culture, put more emphasis on emotions, and, finally, stress the role of practical action. Her arguments are put forward against a re-examination of the notion of embeddedness. In Patrik Aspers’ chapter, the notion of identity is used to understand economic action in a concrete aesthetic market, the market for models. It is 26

Introduction

shown how those who want to become models, and also those who already are somewhat established, have to work for free before eventually becoming models. Using the ontology of Martin Heidegger, Aspers shows that their actions must be understood both with respect to the “structural identities” that are largely ascribed to people, and with respect to the identity that is called preferred. It is shown that people want to become models to the extent that they are ready to work for free. The chapter offers a general approach that uses identity to analyze economic action. Philippe Steiner also looks at relations in his chapter, “The Organizational Gift and Sociological Approaches to Exchange.” He investigates gift-giving in the organ transplantation process. Steiner reviews existing literature on gifts, and analyzes and theorizes the role of organizations that operate between donors and donees. Steiner extends the research on gifts by clearly bringing in organizations in ties of reciprocity that characterize the gift system. His theoretical contribution of organizational gifts is presented against the backdrop of a review of existing work on gift-giving in sociology. In Chapter 12, Neil Fligstein ends the volume with his concluding comments. He analyzes the development of new economic sociology as a form of social movement. In the early phase economic sociology was a term that was open. Fligstein’s main point is to analyze how this movement, and its initial formation, both has facilitated the spread of ideas and blocked scientific development. Fligstein suggests that the different research programs that make up what is today new economic sociology would benefit from more friction between them. Research programs would then be forced to engage with one another, in particular when studying empirical problems. This, according to Fligstein, will further innovation and new ideas in the field of economic sociology. Re-imagining economic sociology requires both clear ideas from different perspectives and the interaction of these ideas. This volume presents several perspectives, but it is clear that more can be made to put them into play with one another.

References Abolafia, Mitchel Y. and Martin Kilduff (1988) Enacting market crisis: the social construction of a speculative bubble, Administrative Science Quarterly 33, 177–93. Aglietta, Michel (1976) Régulation et crises du capitalisme. Calmann-Lévy. Adler, Patricia A. and Peter Adler, (eds) (1984) The Social Dynamics of Financial Markets. JAI Press. Aspers, Patrik (2006) Markets in Fashion, A Phenomenological Approach. London: Routledge. Aspers, Patrik and Jens Beckert (2011) Introduction. In: J. Beckert and P. Aspers (eds), The Worth of Goods. Oxford: Oxford University Press.

27

Patrik Aspers, Nigel Dodd, and Ellinor Anderberg Austin, John (1962) How To Do Things With Words. Oxford: Clarendon Press. Baker, Wayne E. (1984) The Social Structure of a National Securities Market. The American Journal of Sociology, 89, 775–811. Bandelj, Nina (2009) Emotions in Economic Action and Interaction. Theory and Society 38, 347–66. Barbalet, Jack (2001) Emotion, Social Theory, and Social Structure, A Macrosociological Approach. Cambridge: Cambridge University Press. Barnes, Barry (1983) Social life as bootstrapped induction, Sociology 17, 524–45. Barnes, Barry (1988) The Nature of Power. Cambridge: Polity Press. Beckert, J. (2000) Economic Sociology in Germany, Economic Sociology: European Electronic Newsletter 1(2), 2–7. Beckert, J. (2002) Beyond the Market, The Social Foundations of Economic Efficiency. Princeton: Princeton University Press. Beckert, J. (2009) The great transformation of embeddedness; Karl Polanyi and the new economic sociology. In: Hann, C. and K. Hart. Market and society; The great transformation today. Cambridge: Cambridge University Press. Beckert, Jens and Christine Musselin (2013) Constructing Quality: The Classification of Goods in Markets. Oxford: Oxford University Press. Berezin, Mabel (2009) Exploring Emotions and the Economy: New Contributions from Sociological Theory. Theory and Society 38, 335–46. Boltanski, Luc and Laurent Thévenot (2006) On Justification: Economies of Worth, Princeton, NJ: Princeton University Press. Bourdieu, Pierre (1984) Distinctions: A Social Critique of the Judgement of Taste. Cambridge, MA: Harvard University Press. Bourdieu, Pierre (1993) The Fields of Cultural Production, Essays on Art and Literature. Cambridge: Polity Press. Bourdieu, Pierre (2005) The Social Structures of the Economy. Cambridge: Polity Press. Burt, Ronald S. (1992) Structural Holes. Cambridge, MA: Harvard University Press. Burt, Ronald S. and Debbie S. Carlton (1989) Another Look at the Network Boundaries of American Markets. The American Journal of Sociology 95, 723–53. Butler, Judith (1990) Gender Trouble. New York: Routledge. Callon, Michel (ed.) (1998a) The Laws of the Markets. Oxford: Blackwell. Callon, Michel (1998b) Introduction: the embeddedness of economic markets in economics. In: Michel Callon (ed.), The Laws of the Markets. Oxford: Blackwell, 1–57. Convert, B. and J. Heilbron (2007) Where did the New economic sociology come from? Theory and Society 36(1), 31–54. Diaz-Bone, R. (2011) The methodological standpoint of the ‘économie des conventions’. Historical Social Research 36(4), 43–63. Dobbin, F. (1993) The social construction of the Great Depression: Industrial Policy during the 1930s in the United States, Britain and France, Theory and Society 22: 1–56. Dobbin, F. (2005) Comparative and historical approaches to economic sociology. In: Smelser, N., and R. Swedberg (eds), The Handbook of Economic Sociology. 2nd edn. Princeton, NJ: Princeton University Press, 26–48. DiMaggio, Paul (1982) Cultural entrepreneurship in nineteenth-century Boston: the creation of an organizational base for high culture in America. Media, Culture and Society 4, 33–50.

28

Introduction DiMaggio, Paul (2001) Conclusion: The Futures of Business Organization and Paradoxes of Change. In: P. DiMaggio (ed.) The Twenty-First Century Firm. Princeton, NJ: Princeton University Press, 210–44. DiMaggio, Paul J. and Hugh Louch (1998) Socially embedded consumer transactions: for what kinds of purchases do people most often use networks? American Sociological Review 63(5), 619–37. DiMaggio, Paul J. and Walter W. Powell (1983) The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields. American Journal of Sociology 48(2), 147–60. Dodd, Nigel (1994) The Sociology of Money. Cambridge: Polity Press. Dodd, Nigel (2014) The Social Life of Money. Princeton, NJ: Princeton University Press. Fligstein, Neil (1990) The Transformation of Corporate Control. Cambridge, MA: Harvard University Press. Fligstein, Neil (2002) Agreements, disagreements, and opportunities in the ‘New sociology of markets.’ In: Guillén, M.F., R. Collins, P. England, and M. Meyer (eds) The New Economic Sociology; Developments in an Emerging Field. New York: Russell Sage. Fligstein, Neil and Doug McAdam (2012) A Theory of Fields. Princeton: Princeton University Press. Garcia-Parpet, M.-F. (2007) The social construction of a perfect market. In: MacKenzie, Donald, Fabien Muniesa and Lucia Siu (eds), Princeton, NJ: Princeton University Press, 20–53. Gerlach, M.L. (1992) Alliance Capitalism: The Social Organization of Japanese Business. Berkeley: University of California Press. Giddens, Anthony (1984) The Constitution of Society. Cambridge: Polity Press. Granovetter, Mark (1973) The strength of weak ties, American Journal of Sociology 78(6), 1360–80. Granovetter, Mark (1974) Getting a Job, A Study of Contacts and Careers. Cambridge, MA: Harvard University Press. Granovetter, Mark (1985) Economic action and social structure; the problem of embeddedness. American Journal of Sociology 91(3), 481–510. Granovetter, Mark (1992) Economic institutions as social constructions: a framework for analysis, Acta Sociologica 35, 3–11. Granovetter, Mark (2002) A theoretical agenda for economic sociology. In: Guillén, M.F., R. Collins, P. England, and M. Meyer (eds), The New Economic Sociology; Developments in an Emerging Field. New York: Russell Sage. Granovetter, M. and R. Swedberg (eds) (2011) The Sociology of Economic Life. Third edn. Boulder: Westview Guillén, M.F., R. Collins, P. England, and M. Meyer (eds) (2002) The New Economic Sociology; Developments in an Emerging Field. New York: Russell Sage. Hacking, Ian (2000) The Social Construction of What? Cambridge, MA: Harvard University Press. Heimer, Carol A. (1985) Reactive Risk and Rational Action: Managing Moral Hazard in Insurance Contracts. Berkeley: University of California Press. Hirsch, P., S. Michaels, and R. Friedman (1990) Clean models vs. dirty hands: why economics is different from sociology. In: Zukin, S. and P. DiMaggio (eds), Structures

29

Patrik Aspers, Nigel Dodd, and Ellinor Anderberg of Capital; The Social Organization of the Economy. Cambridge: Cambridge University Press. Hirsch, Paul and John Goldthorpe (eds) (1978) The Political Economy of Inflation. Oxford: Martin Robertson. Ingham, Geoffrey (2004) The Nature of Money. Cambridge: Polity Press. Illouz, Eva (2008) Saving the Modern Soul. Therapy, Emotions, and the Culture of Self-Help. Berkeley: University of California Press. Kanter, Rosebeth Moss (1983) The Change Masters: Corporate Entrepreneurs at Work. London: Unwin Hyman. Karpik Lucien (2010) Valuing the Unique: The Economics of Singularities. Princeton, Princeton University Press. Knorr Cetina, Karin (1999) Epistemic Cultures: How the Sciences Make Knowledge. Cambridge, MA: Harvard University Press. Knorr Cetina, Karin and Urs Breugger (2002) Global microstructures: the virtual societies of financial markets, American Journal of Sociology 107(4), 905–50. Krippner, G. and A.S. Alvarez (2007) Embeddedness and the Intellectual Projects of Economic Sociology. Annual Review of Sociology 33, 219–40. Krippner, G. et al. (2004) Polanyi Symposium: a conversation on embeddedness, SocioEconomic Review 2(1). Latour, Bruno and Steve Woolgar (1986) Laboratory Life: The Construction of Scientific Facts. Princeton, NJ: Princeton University Press. Luckmann, Thomas and Peter L. Berger (1991) The Social Construction of Reality: A Treatise in the Sociology of Knowledge. London: Penguin. Luhmann, Niklas (1988) Die Wirtschaft der Gesellschaft. Frankfurt am Main: Suhrkamp. Lie, J. (1997) Sociology of markets. Annual Review of Sociology 23, 341–60. Mackenzie, D. and Y. Millo (2003) Constructing a market, performing a theory: the historical sociology of a financial derivatives exchange. American Journal of Sociology 109(1), 107–45. MacKenzie, Donald (2006) An Engine, Not a Camera: How Financial Models Shape Markets. Cambridge, MA: MIT Press. Makler, Harry M., Alberto Martinelli, and Neil J. Smelser (eds) (1982) The New International Economy. Sage. Malinowski, Bronislaw (1922) Argonauts of the Western Pacific, An Account of Native Enterprise and Adventure in the Archipelagoes of Melanesian New Guinea. London: Routledge. Mann, Michael (2012) The Sources of Social Power. 4 vols. Cambridge: Cambridge University Press. Meyer, John W. and Brian Rowan (1977) Institutionalized Organizations: Formal Structure as Myth and Ceremony. American Journal of Sociology 83, 340–63. Mizruchi, Mark S. and Lisa C. Fein (1999) The social construction of organizational knowledge: a study of the uses of coercive, mimetic, and normative isomorphism. Administrative Science Quarterly 44, 653–83. de Munck, B. (2011) Guilds, product quality and intrinsic value; Towards a history of conventions? Historical Social Research 36(4), 103–24.

30

Introduction Nee, V. (2005) The New Institutionalism in Economics and Sociology. In: Smelser. N. and R. Swedberg (eds), The Handbook of Economic Sociology. Princeton: Princeton University Press. Padgett, John and Walter Powell (2012) The Emergence of Organizations and Markets, Princeton, NJ: Princeton University Press. Parsons, Talcott (1961) The Structure of Social Action. 2nd edn. Glencoe, Il.: The Free Press. Parsons, Talcott and Neil Smelser (1956) Economy and Society. Glencoe, IL.: The Free Press Perrow, Charles (1993) Small firm networks. In: Swedberg, R. (ed.), Explorations in Economic Sociology. New York: Russell Sage Foundation, 277–402. Polanyi, Karl (1957) The Great Transformation. Boston: Beacon Press. Powell, W.W., K.W. Koput, and L. Smith-Doerr (1996) Interorganizational collaboration and the locus of innovation: networks of learning in biotechnology. Administrative Science Quarterly 41, 116–45. Powell, Walter W. and Paul J. DiMaggio (1991) The New Institutionalism and Organizational Analysis. Chicago: University of Chicago Press. Salais, R. and L. Thévenot (1986) Le travail. marchés, règles, conventions. Paris: Economica. Searle, John (1979) Expression and Meaning: Studies in the theory of speech acts. Cambridge: Cambridge University Press. Simmel, Georg (1923) Soziologie, Untersuchungen über die Formen der Vergesellschaftung. München und Leipzig: Duncker und Humblot. Simmel, Georg (2004) The Philosophy of Money. London: Routledge. Smart, Barry (2003) Economy, Culture and Society: A Sociological Critique of Neo-Liberalism. Buckingham: Open University Press. Smelser, N. and R. Swedberg (2005) The Handbook of Economic Sociology, second edn. Princeton: Princeton University Press. Smith, Charles W. (1989) Auctions: The Social Construction of Value. Berkeley: University of California Press. Stark, David (2009) The Sense of Dissonance: Accounts of Worth in Economic Life. Princeton, NJ: Princeton University Press. Steiner, P. (2001) Mauss, Simiand et le programme durkheimien. Revue française de sociologie 42(4), 695–718. Steiner, P. (2003) Gifts of Blood and Organs: the Market and ‘Fictitious’ Commodities, Revue française de sociologie 44(5), 147–62. Steiner, P. (2008) Who is right about the modern economy: Polanyi, Zelizer, or both? Theory and Society 38, 97–110. Steiner, P. (2010) Durkheim and the Birth of Economic Sociology. Princeton: Princeton University Press. Stinchcombe, Arthur L. (1983) Economic Sociology. Academic Press. Swedberg, R., U. Himmelstrand, and G. Brulin (1990) The paradigm of economic sociology. In Zukin, S. and P. DiMaggio (eds), Structures of Capital; The Social Organization of the Economy. Cambridge: Cambridge University Press, 57–86. Swedberg, Richard (1987) Economic Sociology: Past and Present. Current Sociology 35, 1–122.

31

Patrik Aspers, Nigel Dodd, and Ellinor Anderberg Swedberg, Richard (1990) Economics and Sociology. On Redefining their Boundaries: Conversations with Economists and Sociologists. Princeton NJ: Princeton University Press. Swedberg, Richard (1997) New Economic Sociology; What has been accomplished, what is ahead? Acta Sociologica 40, 161–82. Swedberg, Richard (2000) Max Weber and the Idea of Economic Sociology. Princeton: Princeton University Press. Swedberg, Richard (2003a) Principles of Economic Sociology. Princeton, NJ: Princeton University Press. Swedberg, Richard (2003b) The case for an economic sociology of law. Theory and Society 32, 1–37. Swedberg, Richard (2004) The toolkit of economic sociology. CSES Working paper No 22, Department of Sociology, Cornell University. Swedberg, Richard (2006) The toolkit of economic sociology, SOCIUS Working Papers no. 4/2006, Centro de Investigação em Sociologia Económica e das Organizações, Lisboa. Swedberg, Richard (2013) The financial crisis in the US 2008–2009: Losing and Restoring Confidence. Socio-Economic Review 11, 501–23. Swedberg, Richard and Trevor Pinch (2008) (eds) Living in a Material World: Economic Sociology Meets Science and Technology Studies. Cambridge, MA: Harvard University Press. Trigilia, C. (2002) Economic Sociology: State, Market, and Society in Modern Capitalism. Oxford: Blackwell. Trigilia, C. (2006) Economic sociology. In: Beckert and Zafirovski (eds), International Encyclopedia of Economic Sociology. London: Routledge. Weber, Max (1946) From Max Weber: Essays in Sociology, H. Gerth and C. Wright Mills (eds). London: Routledge. Weber, Max (1978) Economy and Society. Berkeley: University of California Press. Weber, Max (1999) Essays in Economic Sociology. Princeton, NJ: Princeton University Press. White, Harrison (1970) Chains of Opportunity, System Models of Mobility in Organizations. Cambridge, MA: Harvard University Press. White, Harrison (1981) Where do Markets Come From? The American Journal of Sociology 87, 517–47. White, Harrison (2002) Markets From Networks. Princeton, NJ: Princeton University Press. White, Harrison (2008) Identity and Control, How Social Formations Emerge. Princeton: Princeton University Press. White, Harrison, Scott A. Boorman, and Ronald L. Breiger (1976) Social Structure from Multi Networks. I. Blockmodels of Roles and Positions The American Journal of Sociology 81(4), 730–80. Whitley, Richard D. (1991) The Social Construction of Business Systems in East Asia, Organisation Studies 12(1), 1–28. Zelizer, V. (1979) Morals and Markets. Transaction Publishers. Zelizer, V. (1985) Pricing the Priceless Child: The Changing Social Value of Children. New York: Basic Books. Zelizer, V. (2002) Enter culture. In: Guillén, M., R. Collins, P. England, and M. Meyer, (eds), The New Economic Sociology; Developments in an Emerging Field. New York: Russell Sage.

32

Introduction Zelizer, V. (2011) Economic Lives; How Culture Shapes the Economy. Princeton: Princeton University. Zelizer, V. (2012) How I Became a Relational Economic Sociologist and What Does That Mean? Politics and Society 40(2), 145–74. Zukin, S. and P. DiMaggio (1990) Introduction. In Zukin, S. and P. DiMaggio (eds), Structures of Capital; The Social Organization of the Economy. Cambridge: Cambridge University Press.

33

1 Theorizing in Economic Sociology Richard Swedberg

This volume contains a number of interesting and creative suggestions for how to re-imagine economic sociology.1 The authors of the different chapters go about their task in mainly two ways. They either take on new and interesting topics, using existing theories, or they look at old topics in new and innovative ways. In this chapter I will suggest another way of re-imagining and improving economic sociology, which is more indirect but which addresses the topic in a more wholesale manner. This is to focus on how you theorize in economic sociology, especially how you theorize in a creative and practical way. Although it is true that good sociology consists of roughly equal amounts of good theory, good methods, and good data, there exist some reasons for singling out the theory part. As part of the sociological profession, there are no obstacles to economic sociologists being well trained in how to gather data, and how to analyze these with the help of existing methods. There exist good courses which students can take in these topics, at both undergraduate and graduate levels. The situation is different when it comes to theory. There are no courses available in sociological theory to help students to develop practical skills for producing and handling theory in a competent and innovative manner. This is one of the reasons, and perhaps the most important one, why today’s theory has not kept up with methods. The result is an imbalance between theory and methods, with sociologists spending very little time on theory and a huge amount of time on methods.

1 For helpful comments, I thank the editors of this book as well as three anonymous reviewers from Oxford University Press.

Theorizing in Economic Sociology

Being part of sociology, economic sociology also suffers from this situation. If you want to re-imagine economic sociology in a fundamental manner, in other words, you have to confront the issue of how to produce new and better theory. In recent years, I have suggested how to proceed in this situation, insofar as sociology in general is concerned (Swedberg 2012, 2014a, b). Rather than focusing on theory itself, and teaching theory in the usual manner, I suggest that we look at the practical ways in which to proceed in order to produce interesting and creative theory when working with empirical material. The main focus according to this viewpoint is on what happens before a theory is producing; therefore I refer to this approach as theorizing. In this chapter I will apply these ideas to economic sociology, as a way of reimagining economic sociology. I will first say something about theorizing in general and enumerate the various steps you need to take when you engage in theorizing. I will then show what happens when you apply this approach to economic sociology.

From Theory to Theorizing There are currently two major starting points for research in sociology. You can either start from a theory and engage in so-called theory-driven research, or, as is more common, you start from some general hunch or idea you have. Both ways of proceeding make it hard to come up with something new in terms of theory. Selecting your research topic based on a preexisting theory has a tendency to severely limit the ways in which you can explore the topic in which you are interested, and also how to handle the data involved. In addition, theorydriven research tends to use standardized data and has little interest in ethnographic and related kinds of data. For both of these reasons, the theory-driven approach makes it difficult to theorize in a creative way. Starting out your research in a more conventional manner, that is, by relying on some hunch or idea that you happen to have, also can make it hard to theorize. Typically, you end up with data that go well beyond the initial hunch or idea. And this creates the following dilemma: you either have to squeeze the data you end up with into the original idea; or you go with the data and drop the original idea. Both are difficult to unite with good theorizing. How then to proceed? My suggestion is that you need to have access to more and deeper knowledge of the topic before you develop your original idea or hunch. You need to hold off on your early hunches and ideas until you know more about the topic you want to research. Once you know more, you are in a much better position to develop a theory that is close to the existing situation. 35

Richard Swedberg Table 1.1. The two parts of the research process or inquiry in social science: the prestudy and the main study Phase # 1:

Phase # 2:

Prestudy or early theorizing Observe and focus in on something interesting or surprising to study Build out the theory (name the phenomenon; develop concepts, analogies, types, and so on to capture the process, pattern, etc., involved) Complete the tentative theory through an explanation Main study or the phase of major research and justification Draw up the research design based on the research question Execute the research design and theorize again Write up the results

My suggestion for how to get this extra knowledge is to add a stage to the conventional research process that I call the prestudy (Table 1.1). It is similar in some ways to pilot or exploratory studies, but it also differs from these. For one thing, its main purpose is theoretical. Secondly, the prestudy is conceived to be an integral part of the research process as a whole. Its purpose is to come up with some good ideas, which later will be properly researched and tested in the main study (Table 1.1).2 To come up with a good theory, you also need to learn how to build a theory and train yourself in this type of enterprise. When you theorize in the prestudy, you can then draw on this knowledge and, as a result, become better at theorizing. The ways in which you theorize during the prestudy are not very different from the ways in which you theorize during the main study. They include the following steps or ways of proceeding: (1) observing; (2) naming the phenomenon, developing concepts, and perhaps constructing a typology; (3) using analogies, metaphors, and patterns; and (4) coming up with an explanation (abduction). Before describing each of these steps, there are two general points I would like to make, First, although there exists some work on concepts, analogies, and so on by social scientists, cognitive scientists have been much more interested in these topics, and it is important for social scientists also to be aware of that literature for good introductions (see, e.g. Frankish and Ramsey 2012; Holyoak and Morrison 2012; Reisberg 2013). Second, each step in the theorizing process not only has a value in itself, but also a heuristic function. This means that it both drives the theorizing process forward and can help to throw new light on the topic that is being researched. 2 In The Art of Social Theory I discuss why I have chosen the term “prestudy.” Herbert Blumer had similar views even if he did not single out the theoretical element and also used a different terminology (see especially Blumer 1954).

36

Theorizing in Economic Sociology

When you, for example, try to find a new name for a phenomenon or when you try develop a concept, you may also discover new aspects of the phenomenon under study. The same goes for using analogies, metaphors, and the like. As the main purpose of the prestudy is precisely to come up with new ideas, it is important to emphasize this heuristic function of the individual steps in the theorizing process.

Step 1: Observing When you want to theorize in a creative way in sociology you have to start with observation. This goes for qualitative as well as for quantitative studies. If this is not done, as Durkheim and others have argued, you will end up by taking your early and immature notions (prénotions or preconceptions) for the truth and what you want to prove (e.g. Durkheim 1964; Bourdieu et al. 1991). This is a case when a little bit of knowledge is a dangerous thing. First, you should dig up enough new knowledge to erase your preconceptions as far as possible. This can be done by paying close attention to the existing empirical facts of the phenomenon, be these in the form of descriptive statistics or some type of qualitative knowledge. Once your preconceptions are gone, you need to figure out what is actually going on. The type of knowledge needed at this point is often of the suggestive type; and the reason for this is that you want to get a sense of what the phenomenon is really about. Note that any type of knowledge about the phenomenon is acceptable and useful at this stage. This means everything from what you can find in some archive to dreams, poetry, interviews, newspapers, and more. And, again, the reason for proceeding in this way is that you want to discover new aspects of the phenomenon in question. As it is not necessary to carry out a systematic study of a phenomenon to come up with new ideas about it, no such study needs to be carried out at this stage. Note, however, that by proceeding in this way the probability of making errors is sharply increased. These errors will presumably be caught in the main study, when the new ideas will be confronted and tested with systematic knowledge. The earlier these errors can be caught, however, the better. To some extent this can be done during the prestudy by drawing on the insights of TverskyKahneman and others on the type of errors people typically make when they are faced with uncertainty (anchoring bias, availability bias, and so on). Through its links to general sociology, economic sociology has inherited a useful tradition of how to approach reality in an empirical way. Sociologists have done field work since the 1920s and have used increasingly advanced 37

Richard Swedberg

forms of statistics since the Second World War. During the last decade or so, sociologists also have become more interested in ethnographic forms of work. In terms of methods, economic sociologists have more or less followed the general development in sociology. Weber, for example, did no field work as opposed to the industrial sociologists from a few decades later. Today’s economic sociologists use everything from the most sophisticated quantitative methods to the most advanced forms of qualitative research. One example in this volume of an economic sociologist who has let empirical observation guide his theorizing can be found in the chapter by Aspers (Chapter 10). Many of his theoretical points about identity come straight from his research on fashion and photography. Note that economic sociology is in an advantageous situation when it comes to observation, compared with mainstream economics (e.g. Maas 2011; Maas and Morgan 2011). Neoclassical economists have a century-long tradition of prioritizing theory at the expense of empirical work (see, e.g. Simon and Bartel 1986; Figlio 1994; McCloskey 1994; Prasch 2007). Mainstream economists still refer approvingly to Milton Friedman’s argument that the best theory is the one that is based on assumptions that are “wildly inaccurate,” as compared with what goes on in reality (Friedman 1953:14). It is also still the case that when economists use empirical data in their analyses, often they prefer official statistics to field work and producing the data themselves (e.g. Piore 1979; Helper 2000; Angrist and Pischke 2010). These are serious handicaps for the many mainstream economists who have just started to realize that they are on the wrong track with their heritage of deductive theorizing. However, there do exist economists who do serious empirical work. According to Paul Krugman, for example, The profession [of economics] has shifted towards nitty-gritty empirical investigation using lots of data. Unless you have a brand-new insight, the best you can do is to find evidence that hasn’t been exploited. Maybe that will suggest new theoretical insights, but the starting point is the data (Krugman 2010).

Some economists agree with Krugman’s assessment, but seem less hopeful about the current situation. According to Robert Shiller, “there’s [still] an attitude in the profession that collecting data is for lesser people. That it’s like janitor work; it would dirty your hands” (Shiller 2013). When economic sociologists make their initial observations, it is also advisable that they stay away from economic theory. To a large extent, modern economic theory is the outgrowth of preconceptions among academics and was created with no or little contact with empirical reality. However, it is clear that economic theory has to be brought in before the process of inquiry is 38

Theorizing in Economic Sociology

over. But at the stage of discovery the chance of harm is very much present, just as it would be to start out exclusively from sociological theory. Economic reality is still largely unexplored by social science; and one reason for this is that economists have produced abstract and non-empirical work for nearly a century. The decision by mainstream economists to remove institutions from their research agenda in the late 1800s, and not to reintroduce these until a few decades ago, was especially unfortunate. Still, this development does open up the space for economic sociologists.

Step 2: Naming the Phenomenon, Developing Concepts, Perhaps Constructing a Typology Once the preconceptions are gone and some penetrating observations have been made, naming the phenomenon becomes important, to provide it with an identity. Modern sociologists have not been very interested in this issue, which is a pity a using a new name helps to isolate what is being studied and to set it off from other phenomena. The process of naming, it should be added, can also be used for heuristic purposes, in the sense that every word has a number of associations that can be looked at for possible leads and insights. Reflecting the general situation in modern sociology, today’s economic sociologists have not expressed much interest in naming. Nonetheless, they have introduced several new names, some more successful than others. The name of “motherhood penalty,” for example, is clear and easy to understand (e.g. Correll et al. 2007). But this term does not indicate that what is at issue is a phenomenon in the economy, namely the reluctance of employers to hire mothers. “Making out” is perhaps a less successful term than motherhood penalty. The reason for this is that it gives associations to something very different from what its author had in mind, namely the attempt by workers to kill time by treating their job as a game (Burawoy 1979: 84). As an example of much better term, one can mention “fictional expectations” by Jens Beckert, which is counterposed to “rational expectations” in economics (Chapter 2). In an attempt to figure out what will happen in the future—what to expect—it is necessary to engage in some fiction; and the idea that you can map out future action in a perfectly rational way is illusory. Once a name has been assigned to a phenomenon, it typically needs to be turned into one or several concepts (for the role of concepts in social science, see, e.g. Goertz 2006). What exactly takes place when a concept is formed is not very well understood currently, but it can perhaps best be described as an elimination of details in combination with a move towards generalization. Weber’s favored type of social science concept was the ideal type, which he describes as an attempt to analytically accentuate the central traits of some 39

Richard Swedberg

phenomenon. Weber is careful to point out that it especially helps the social scientist to get a handle on the phenomenon at an early stage. He also says that the ideal type has a decidedly heuristic quality. To be effective in the main study, concepts also need to be operationalized and indicators located. This is a point at which theory and methods meet, and where both also need each other. During the research process you typically oscillate between theory and methods; and this is especially true for the movement from concept to indicator (e.g. Swedberg forthcoming). Economic sociologists have not been particularly interested in concepts nor the process of concept formation. Still, many economic sociologists can probably identify with Melville Dalton, who once summarized his experience when it came to handling concepts in the following way: [When I worked on Men who Manage] (1) I struggled among the mixture of helpful and inadequate concepts I brought in from my academic training, as (2) I also searched for more flexible and—as it seemed to me—more relevant concepts. From this mulling, I settled on such unconventional specimen as ‘axis of reward-right’, ‘out-of-role’, ‘role-front’, ‘theft-intelligencer’, and so forth (Melville 1967: 74).

Today’s economic sociologists have, however, discussed one concept with quite a bit of passion, and that is embeddedness. As this is the most famous concept in modern economic sociology, something should be said about this debate. According to Mark Granovetter, he came up with the idea of embeddedness as a result of intuition; he also invested it with a meaning different from that of its originator, Karl Polanyi (Krippner et al. 2004). Granovetter did not, however, elaborate much on what he meant by this concept. While many attempts have been made to use the concept of embeddedness and develop it further, Granovetter himself has stated that he views it as a very general and a heuristic concept (Krippner et al. 2004: 133). Embeddedness, in brief, indicates the direction in which the researcher should look, rather than what he or she will find. The concept of embeddedness, however, has also caused a problem in the transition from concept to indicator or, more generally, the process through which a concept is operationalized. There exists a strong tendency at this stage in modern sociology to replace the concept with a variable, something which means that the concept itself is forgotten and with it, also the link to a theoretical tradition. In Chapter 9, Nina Bandelj addresses this issue when she criticizes the transformation of embeddedness into a variable without any links to the original concept, that is, simply into an empirical measure of more or less “embeddedness.” When you proceed in this manner, you fail to capture the basic content of the concept, namely that all economic actions are embedded 40

Theorizing in Economic Sociology

in social relations. Economic actions can be embedded in different ways, but not be more or less embedded. It is often helpful to develop typologies at this stage of the prestudy as preconceptions tend to bunch together phenomena that should be kept apart from an analytic viewpoint. According to many textbooks, typologies should only be used when these can be justified on empirical grounds. This, however, is not the case in the prestudy, where the main point is to come up with new ideas (e.g. Bailey 1973). For example, use of a 2  2 table can be helpful at this point, as it forces you to think through some types you otherwise might not. A number of useful typologies in economic sociology can be found in Weber’s chapter on economic sociology in Economy and Society (Weber 1978). Many of these typologies were constructed with the help of historical material, such as housekeeping versus profit-making, and Weber’s typology of capitalism (rational capitalism-political capitalism-traditional capitalism). As a more recent example of a useful typology, see Patrik Aspers’ status markets and standard markets (Aspers 2009). A number of interesting typologies can also be found in the literature on varieties of capitalism, such as liberal market economies and coordinated market economies (Hall and Soskice 2001).

Step 3: Using Analogies, Metaphors, and Patterns Analogies, metaphors, and patterns may not represent necessary steps in the process of theorizing, in the sense that they do not absolutely have to be used once you have observed a phenomenon, named the phenomenon, and created one or several concepts and perhaps a typology. Still, they deserve to be tried out, not least for heuristic purposes. Most of what we know about analogies, metaphors, and patterns comes from cognitive science (e.g. Holyoak and Morrison 2012; Reisberg 2013). Also literary science has a tradition of looking at metaphors, while suspicion or lack of interest is more characteristic for the social sciences. This does not mean that metaphors are not used by social scientists, only that social scientists typically use them but do not pay much attention to them. People constantly use analogies, according to cognitive scientists, and the main reason is that they make it possible for people to handle new facts and new situations. They essentially accomplish this by illuminating one phenomenon with the help of another. In the terminology of cognitive science, the knowledge of a “source” is “mapped” onto “the target,” which thereby becomes easier to understand. 41

Richard Swedberg

There exist simple as well as complex forms of analogies, just as these can focus on the surface of a phenomenon, on its structure or on a whole system. It is sometimes also helpful to use one analogy after another, for example when the problem that needs to be solved is extra difficult (“bridging analogies,” Nersessian 2008). Most cognitive scientists view metaphors as belonging to the family of analogies, and therefore believe that they do not need a separate analysis. There do, however, exist some reasons for discussing metaphors in their own right, and one of these is that they operate in a somewhat different way from analogies. To say, for example, that you understand one type of animal’s brain by looking at that of another is an analogy. To say that the human brain is like a computer is a metaphor. There also exist some interesting works in philosophy and literary science on metaphors. One often cited theory is that of philosopher Max Black, who has suggested that a metaphor should not simply be viewed as a way of projecting the meaning of one phenomenon onto that of another (“the substitution view”). A real metaphor operates in a different way, namely by changing the meaning of both phenomena that are used in a metaphor (“the interaction view,” Black 1962). At first sight, patterns may seem quite different from analogies and metaphors. But all of these are similar in that they can be used to analyze some phenomenon that has been observed and which needs to be explained. Patterns are either visual or non-visual; they can also entail repetition or not. In many cases, just mapping out the pattern of some phenomenon can be very helpful (e.g. Jefferies 2012). Like people in general, economic sociologists use analogies all the time. To make sense of some new way of buying and selling, for example, they may use the idea of a market or gift exchange as an analogy. In trying to make sense of a financial crisis, they may compare it with the Depression, and so on. It can be argued, as Dodd does in Chapter 3, that money operates as a kind of super-analogy, in that the value of any good can be related to that of the others with the help of money. This may well be another way of expressing one of Simmel’s central ideas in Philosophy of Money, namely that money makes all things equal (Simmel 1978; see also Dodd 1994). It would also seem that the idea of commensuration is close to that of analogy (Espeland and Stevens 1998). An analogy can be false, something you find out when you confront it with facts. It can also sometimes be useful to undo some existing analogy or metaphor that is false, such as Krugman does in his well-known article “A Country is Not a Company” (Krugman 1996). That the line between an analogy and a metaphor is somewhat fluent can also be illustrated by the coming-into-being of a famous term in both 42

Theorizing in Economic Sociology

sociology and economic sociology. When Parsons was translating The Protestant Ethic in the late 1920s, he came across the following analogy. The Puritans, according to Weber, viewed the act of becoming rich as a sign of God’s benevolence, but they also wanted to stay faithful to God and not become servants of Mammon. They wanted to live in such a way that they could rid themselves of their riches, one Puritan said, as easily as you can remove a cloak from your shoulders. But this is not what happened historically, according to Weber; and soon the Puritans found that the cloak around their shoulders had, as it were, turned into an iron casing. Weber’s analogy is handsome and suggestive; and the reader gets a sense of how being rich may change a person, even if he or she does not want this to happen. Now, Parsons famously translated “iron casing” in a very free way, namely as “iron cage.” In the process, he also transformed what is a subtle analogy into a rather clumsy metaphor: living in a capitalist society is like living in a cage. Modern economic sociologists also have struggled with metaphors, in more or less inelegant ways. One example of this involves the main metaphor of modern economic sociology, namely embeddedness. And here the frustration has been huge. What exactly is meant by this term? Is being embedded the same as being enmeshed? Is the economy embedded in society, and what exactly does this mean? Does it perhaps mean that the economy and the society are fundamentally different (and that the economy is therefore not “social”)? According to one author who has tracked Polanyi’s use of the term embeddedness, Polanyi only used it incidentally (Barber 1995). According to another author, who insists on the centrality of the term embeddedness to Polanyi’s work, the author of The Great Transformation probably got the word embeddedness from mining. In other words, the economy was so embedded in English society before the Industrial Revolution that it literally had to be broken out of society, just as coal has to be broken out of stone when it is mined (Block 2001: xxiv). The analysis in Donald MacKenzie’s monograph on the rise of options trading in the United States is similarly centered around a metaphor. Actually, MacKenzie uses two metaphors, as is clear from the title of his book: An Engine, Not a Camera: How Financial Models Shape Markets. The two metaphors nicely illuminate one another and also help to cast some light on MacKenzie’s main thesis, namely that economic models of finance do not just reflect reality but also operate on it and change it (e.g. MacKenzie 2006: 259). This is a more complex idea than the usual version of performativity, namely that the economic actors “perform” some economic theorem when they buy, sell, and so on. Before leaving the topic of metaphors, it should be mentioned that some years ago there was a debate among economists about the role of metaphors in economic theory. This debate was started by Deirdre McCloskey, who was 43

Richard Swedberg

later joined by a few other rebellious economists (McCloskey 1983, 1986). The main inspiration for the debate came from literary theory, and the main point that McCloskey et al. wanted to make was that economists often use metaphors, and that, consequently, they are not as scientific as they think. One positive result of this debate was that the omnipresence of metaphors in economic language was pointed out: Bubbles, bears, bulls, bliss points, sunspots, cobwebs, and dirty floats all dot the economic landscape. Our most ‘rigorous’ scientific expressions are unabashedly metaphorical. When speaking of , , , , , , and , we do not intend a literal identification with a machine (Klamer 2004).

After a few years, however, the debate about metaphors in economic theory died out. The reaction of mainstream economists was cool: “we now know that we use metaphors—so what?” (e.g. Solow 1988). Still, the debate did lead to the production of some interesting pieces of scholarship on the role of metaphors in economic theory (e.g. Klamer and Leonard 1994, Mirowski 1994). The idea of Arjo Klamer and Thomas Leonard that certain metaphors can operate as heuristic tools when you study economic life, is also helpful (“heuristic metaphors”; Klamer and Leonard 1994: 32–4). Using metaphors, in other words, can help you to discover new aspects of economic life. When it comes to patterns and their use in economic sociology (or in economics), there is very little to be said. Like many social scientists, economic sociologists routinely use the term “patterns.” They find patterns in their data; they try to lay these bare; and they try to explain them, typically through some social mechanism. Little is known on what exactly is meant by the term “patterns”, however, and this deserves much more attention, not least as a way of preparing economic sociologists for their work with large data (see, e.g. Eagle et al. 2010).

Step 4: Coming Up with an Explanation The explanation is often seen as the very centerpiece of scientific analyses. One example of this attitude can be found in the work of Charles S. Peirce, who used the term abduction as more or less synonymous with coming up with an explanation (e.g. Swedberg 2014b). The topic of explanation can be difficult for two reasons. One is that you cannot discuss explanation without also talking about causality, which is a notoriously hard topic. The other is that to present a convincing explanation in a social science analysis is very demanding from a methodological point of view. 44

Theorizing in Economic Sociology

However, neither of these two difficulties, which must be faced squarely in the main study, are of much importance to the prestudy. What matters here is primarily to come up with a good idea for how explain something; and it is precisely the emphasis on the practical process of coming up with an explanation that makes Peirce’s work on abduction so attractive (see Swedberg 2014a). Two ways in which the social scientist can become good at explaining are the following. First, you need to become familiar with many different types of explanation. This makes it easier to come up with one of your own. Students sometimes believe that there only exists one way of explaining things, but, typically, there are number of these in any one science. Different sciences also tend to have their own preferred ways of explaining things, and it is useful to be familiar with how things are explained in a number of different sciences besides sociology, say biology, archaeology, and law. Armed with a knowledge of many different ways of explaining things, the theorizer can learn quite a bit about his or her topic just by running through a number of these. Not only can this help him or her to find a good explanation, but also it can draw attention to different aspects of the topic. Explanations can be established in many ways: through the use of statistics, models, comparisons, and experiments. Counterfactuals are also helpful, and so is a functionalist perspective. All of these have been used or can be used in economic sociology. Statistical explanations are often used in economic sociology as elsewhere in sociology. One recent area in which this type of explanation has proven very useful is in public health. In recent years, sociological studies of the relationship between economic crises and public health have started to appear in medical as well as sociological journals (e.g. Stuckler and Basu 2013). When unemployment rises, so will suicide, alcohol-related deaths, mental illnesses, and so on. To this, it can be added that financial crises are often followed by cuts in welfare expenditures, including expenditures on health care. Many studies in economic sociology use comparisons to explain, both when it comes to contemporary topics and historical ones (e.g. Dobbin 1994, Beckert 2007). One advantage with proceeding in this way is that it allows for the use of both quantitative and qualitative data. To abstract and argue “as if” with the help of a model is also a common way of explaining, for example in networks studies. Networks lend themselves nicely to modeling, as, typically, they focus on a single aspect of some phenomenon, say if two people are on the same board of a corporation, if they know each other, and so on. That models can be used in network studies, may also be one reason for an increasing number of this type of study being done by economists (e.g. Goyal 2011). Modeling represents the most popular way for economists to approach and explain a topic. A study of articles that appeared in the highly ranked Journal of 45

Richard Swedberg

Economic Theory shows, however, that these models can also become an end in themselves and have little to say about important empirical questions (Klein and Romero 2007; Klein 2014). Sociologists do not use experiments very often, in contrast especially with psychologists. This is a pity as many interesting and non-conventional economic topics can be studied with the help of this method, as shown by behavioral economists. But it is also true that behavioral economists tend to universalize their findings and neglect the social dimension of their topics. There exist, in other words, good reasons for economic sociologists to start using experiments. As part of this enterprise, they may want to try out field experiments, a method that has recently become popular with mainstream economists as well as progressive development economists (e.g. Levitt and List 2008; Parker 2010). Finally, something should be said about two other ways of explaining things that have found little use in modern economic sociology: functionalist explanations and counterfactuals. There exist at least two good reasons why economic sociologists might want to use a functionalist argument. One is Weber’s argument that while a functionalist explanation is “highly dangerous,” it is also “indispensable” for coming up with new ideas (Weber 1978: 15). There exists, in other words, a heuristic quality to functionalism. The second reason is Frank Knight’s argument that in any society the economy fills a number of “functions,” meaning by this that it has to operate in a certain way if a society is to continue to exist (Knight 1967). This idea has been further developed by Talcott Parsons in his notion that the economic sub-system has to fulfill certain functions if society is to survive. Counterfactuals come in many different versions, but one that is often discussed is of a statistical type (e.g. Morgan and Winship 2007). Counterfactuals also can be used in many other ways, some of which may be able to help to advance economic sociology. Take, for example, Robert Fogel’s famous study of what the U.S. economy would have looked like if there had been no railroads in the nineteenth century (Fogel 1964). More generally, the notion of counterfactuals lends itself to many imaginative uses.

Preparing for Theorizing So far in this chapter I have argued that to theorize well, the economic sociologist should start out by observing, and then go through a number of different steps until an explanation has been produced. By proceeding in this way, more of a place can be allotted to creativity than if the study is carried out in a conventional manner. 46

Theorizing in Economic Sociology

But executing a study in this alternative way—by starting with a prestudy and then, if the prestudy is positive, proceed to the main study—is only an option if the sociologist has prepared carefully for theorizing. More precisely, the sociologist has to be trained in general sociology as well as in economic sociology. Most economic sociologists start out by training in sociology in general, of which part of their education involves two things also essential to theorizing well in economic sociology. The first is to develop a sociological eye or to look at the world from a sociological perspective in a nearly instinctual way. It is clear why you need this for theorizing in economic sociology, so this requires no further comment. The second is to be familiar with a good number of sociological concepts and theories. It is useful to have such concepts and theories in mind when you first look at a phenomenon and try to get a handle on it. The concepts do not need to have been deeply assimilated; they just need to be available so you have something to start with. Another advantage to knowing such concepts is that these can be used when writing up the analysis and relating findings to sociological tradition. Both of these points need to be stressed, not least to make clear that the perspective of theorizing that is discussed in this chapter differs from grounded theory (Glaser and Strauss 1967). According to grounded theory, the sociologist is encouraged to analyze society directly based on observations—but the fact that you also need to know what sociology is and have a number of sociological concepts at your disposal is not properly noted and worked out. Another point that should be mentioned at this stage is discussed in Chapter 7 by Frank Dobbin and Jiwook Jung. They argue that sociology today is split into many semi-autonomous areas, and that each of these has appropriated some part of the sociological heritage but also left out many theories and concepts. It is therefore important, they say, that if you want to study economic power, for example, you should be aware that most studies of power are based on the notion of interest and do not take meaning structures into account. Armed with a capacity to look at reality from a sociological perspective plus being familiar with a number of theories and concepts, what else do you need to know when you transition from being a sociologist in general to being an economic sociologist? This is a question that, to my mind, today’s economic sociologists need to discuss among themselves. In the meantime, I suggest that it would be helpful if economic sociologists were trained in two areas: first, economic sociologists need to develop a deep sense for what an economy is. So far, there exists next to no discussion of this topic in economic sociology; and as a result there is quite a bit of confusion among economic sociologists, as indicated, for example, by the endless debate about embeddedness (Swedberg 2009). Should the economy be equated with the market, as is 47

Richard Swedberg

sometimes done in mainstream economics? Or should it instead be equated with the household, as was the case for many centuries before the advent of modern economics? Is the state an organic part of the economy, as argued in political economy? Or should it be seen as exogenous to the economy, as in mainstream economics? Is the economy part of society as a whole? If so, is it a sub-system of society? Finally, is the economy social, economic or perhaps both? Working through such questions will help in development of a knowledge of what constitutes the economy. Second, knowledge of different theories and concepts in economic sociology is, to my mind, an essential prerequisite to theorize well in economic sociology. And again, just as with the case of theories and concepts in sociology in general, this knowledge does not have to be particularly deep. It is enough that to be familiar with them, so that you can remember and draw on them when you are in the middle of an analysis, trying to figure things out. This last argument, of course, is based on the assumption that we know what theories and concepts exist in economic sociology; and this may not always be the case today. This chapter is not the place for an inventory of this type, but it is clear that if you go through the works of Marx, Weber, and Polanyi you can easily locate a good number of useful theories and concepts. And the same goes for the works of today’s economic sociologists, as illustrated by the preliminary list of theories and concepts that I have put together in Appendix 1.

Concluding Remarks There exist different ways of approaching the topic of how to re-imagine economic sociology. For example, you can come up with new topics to analyze with existing theories, and you can apply new theories to old topics. In this chapter I have argued that there also exists another and more wholesale way, namely drawing attention to the way that you theorize in economic sociology. In trying to show how this can be done in a practical way, I have drawn on my own ideas for how to theorize, especially as developed in The Art of Social Theory (Swedberg 2014a). These ideas are tentative, in the sense that they build primarily on my own thinking as well as on my experience of teaching classes in theorizing. To get a better handle on the topic of how to theorize well in sociology and social science, we clearly need a collective discussion and the insights of many people. The same, no doubt, is true for economic sociology. So far discussion of theory in economic sociology has been of the traditional type. The ideas of, say, Bourdieu on the economy have been confronted with those of a Harrison 48

Theorizing in Economic Sociology

White or a Granovetter. Although this type of exercise is often helpful and has its own merits, it needs to be complemented with much better knowledge of how you go about theorizing in a practical way. Is there some way of theorizing in economic sociology that is ultimately better or preferable? The answer to this question is a qualified “yes” in my view. Although it is possible to accomplish interesting and important studies in economic sociology by carrying out a theory-driven type of analysis or, alternatively, a purely empirical and non-theoretical type of study, these two ways of proceeding carry less promise for the future in my mind. The alternative that I advocate can be summarized as follows: theorizing understood as a practical process that can be learned and taught as efficiently as methods are being taught today; and that is primarily based on social observation and informed by a deep sense of what sociology is.

APPENDIX 1 Some Concepts and Theories in Economic Sociology To theorize well, it is useful to know a number of concepts and theories that you can draw on when working on some phenomenon. What follows is a sample of these, taken from classical economic sociology and modern economic sociology. Two important places where many key concepts in economic sociology are presented and discussed are chapter 2 (“Sociological Categories of Economic Action”) in Economy and Society by Max Weber and Primitive, Archaic and Modern Economies by Karl Polanyi (ed. George Dalton). appropriation (Weber) business group (Granovetter) capital (Marx et al.)—accumulation of capital—primitive accumulation (Marx)— capitals (human, social, cultural, and more—Bourdieu et al.) capitalism (Marx)—rational capitalism, political capitalism, adventurers’ capitalism, cosmos of capitalism, spirit of capitalism (Weber)—new spirit of capitalism (Chiapello and Boltanski)—varieties of capitalism (e.g. liberal market economies versus coordinated market economies—Hall and Soskice)—world-system [of capitalism] (core, semi-periphery, periphery—Wallerstein)—investor capitalism (Useem)—disorganized capitalism (Offe) class—ruling class, working class, class fraction, class struggle, class consciousness: class in itself, class for itself (Marx)—class as life chances (Weber)—contradictory class location (Wright)—big classes and small classes (Grusky-Weeden) commodity (Marx)—fictitious commodities (land, labor, money—Polanyi)—decommodification (Esping-Anderson) conception of control [in a corporation] (e.g. finance conception of control and the shareholder value conception of control—Fligstein) consumption—conspicuous consumption (Veblen)—means of consumption (Ritzer)—prosumption (Ritzer)—secret consumption (Goffman)

49

Richard Swedberg corpocracy (Block) culture—economic culture (Weber)—capitalist culture (Weber)—cultural wealth of nations (Bandelj and Wherry) dependency theory (Cardoso et al.) distinction (Bourdieu) division of labor—organic solidarity and mechanical solidarity (Durkheim)—economic, technical and social division of labor (Weber)—gendered division of labor double ethic (Weber) double movement (Polanyi) economic, formal and substantive (Polanyi) economic anomie (Durkheim) economic circle (Simmel) economic ethic (Weber) economic field (Bourdieu) economic habitus (Bourdieu) economic phenomena—economically relevant phenomena—economically conditioned phenomena (Weber) economic opportunities (Weber)—opportunity structure (Merton) economic power (as opposed to political power)—powers of control and disposition (Weber)—power resources (e.g. economic resources—Korpi) economic social action (Weber)—rational and traditional economic action (Weber) economic subsystem (Parsons and Smelser) economic socialization economistic fallacy (Polanyi) economic traditionalism (Weber) embeddedness and disembeddedness (Polanyi, Granovetter)—over- and underembeddedness (Uzzi) emotions—commercial passions (Tocqueville)—economically important sentiments (Simmel) entrepreneurship—forced entrepreneurship—ethnic entrepreneurship—entrepreneurial group (Ruef )—emergent entrepreneurship fictional expectations vs. rational expectations (Beckert) financial hegemony (Mintz and Schwartz)—financialization (Krippner et al.) forms of integration: reciprocity-redistribution-exchange (Polanyi) household—householding versus profit-making (Weber)—household work industrial district (Marshall et al.) informal economy (Hart) interest—class interest (Marx)—the principle of self-interest properly understood (Tocqueville)—ideal interests and material interests (Weber)—passionate interests (Latour and Lépinay) interlocking directorates (Mizruchi et al.)—broken ties (among members of corporate boards—Palmer) making out (Burawoy) market (e.g. Weber, Polanyi)—market struggle (Weber)—the self-regulating market and market elements (supply crowd, demand crowd or both—Polanyi)—market

50

Theorizing in Economic Sociology signaling (Spence, White)—external versus internal markets (Swedberg)—market devices (Preda et al.)—status markets and standard markets (Aspers)—market work and market professionals (Cochoy and Dubuisson-Quellier) money (e.g. Weber, Polanyi)—market money and administrative money (Weber)– allpurpose money versus special purpose money (Polanyi)—special monies (Zelizer)— credit-money (Ingham) motherhood penalty (Correll et al.) natural economic laws (Dobbin) networks—within networks exchange (DiMaggio and Louch)—tertius gaudens (Simmel, Burt) occupation—occupational prestige—occupational career; license and mandate (Hughes)—occupational segregation (by gender, race) open and closed economic relations (Weber) performativity (Callon)—counterperformativity (McKenzie) precarious employment (Bourdieu) profession (Hughes et al.)—professionalization—jurisdiction of a profession (Abbott) rationality—formal [economic] rationality and substantive [economic] rationality (Weber) scopic media (Knorr Cetina) social construction of the economy (Granovetter et al.) social economics/Sozialökonomik (Weber, Schumpeter)- socio-economics (Etzioni and others) status (Weber)—status contradiction, status dilemma (Hughes)—status attainment (Blau, Duncan)—master status (Hughes) theodicy of good fortune (Weber) trade—administered trade, gift trade and market trade (Polanyi) value—use value and exchange value (Marx)—valuation (Beckert, Aspers)—worth (Stark) wealth versus capital (Weber) work—wage labor (Marx)—vocation (Weber)—restriction of production (Roy et al.)—dirty work and respectable work (Hughes)—mistakes at work (Hughes)—emotional work (Hochschild)—time bind (Hochschild)—caring labor (Folbre)—market work versus household work—second shift (at home, after work—Hochschild)—deskilling of work (Braverman)—relational work (Zelizer)— empty labor (Paulson)—free work (Aspers) Zelizer circuit

References Angrist, Joshua and Jörn-Stffen Pischke (2010) The Credibility Revolution in Empirical Economics: How Better Research Design in Taking the Con out of Econometrics. Journal of Economic Perspectives 24(2), 3–30. Aspers, Patrik (2009) Knowledge and Valuation in Markets. Theory and Society 39(2), 111–31.

51

Richard Swedberg Bailey, Kenneth (1973) Constructing Monothetic and Polythetic Typologies by the Heuristic Method. Sociological Inquiry 14(Summer), 291–308. Barber, Bernard (1995) All Economies Are ‘Embedded’: The Career of a Concept and Beyond. Social Research 62(2), 387–413. Beckert, Jens (2007) Inherited Wealth. Princeton: Princeton University Press. Black, Max (1962) Models and Metaphors: Studies in Language and Philosophy. Ithaca: Cornell University Press. Block, Fred (2001) Introduction. In: Karl Polanyi, The Great Transformation. Boston: Beacon Press, xviii–xxxviii. Blumer, Herbert (1954) What is Wrong with Social Theory? American Sociological Review 19(1), 3–10. Bourdieu, Pierre, Jean-Claude Chamboredon, and Jean-Claude Passeron (1991) Sociology as a Craft: Epistemological Preliminaries. New York: Walter de Gruyter. Burawoy, Michael (1979) Manufacturing Consent: Changes in the Labor Process under Monopoly Capitalism. Chicago: University of Chicago Press. Correll, Shelley, Stephen Benard, and In Paik (2007) Getting a Job: Is There a Motherhood Penalty? American Journal of Sociology 111(5), 1297–339. Dalton Melville (1967) Preconceptions and Methods in Men Who Manage. In: Philip Hammond (ed.), Sociologists at Work. New York: Doubleday, 58–110. Dobbin, Frank (1994) Forging Industrial Policy: The United States, Britain and France in the Railroad Age. Cambridge: Cambridge University Press. Dodd, Nigel (1994) The Sociology of Money: Economics, Reason and Contemporary Society. Cambridge: Polity Press. Durkheim, Emile (1964) The Rules of Sociological Method. Trans. S. Solvay, J. Mueller. New York: The Free Press. Eagle, Nathan, Michael Macy, and Rob Claxton (2010) Network Diversity and Economic Development. Science 328, 1029–31. Espeland, Wendy and Mitchell Stevens (1998) Commensuration as a Social Process. Annual Review of Sociology 22(1), 313–31. Figlio, David (1994) Trends in the Publication of Empirical Economics. Journal of Economic Perspectives 8(3), 179–87. Fogel, Robert (1964) Railroads and American Economic Growth: Essays in Econometric History. Baltimore: Johns Hopkins Press. Frankish, Keith and William Ramsey (eds) (2012) The Cambridge Handbook of Cognitive Science. Cambridge: Cambridge University Press. Friedman, Milton (1953) Essays in Positivist Economics. Chicago: University of Chicago Press. Glaser, Barney and Anselm Strauss (1967) The Discovery of Grounded Theory: Strategies for Qualitative Research. Chicago: Aldine Publishing Company. Goertz, Gary (2006) Social Science Concepts: A User’s Guide. Princeton: Princeton University Press. Goyal, Sanjeev (2011) Social Networks in Economics. In: John Scott and Peter Carrington (eds), The SAGE Handbook of Network Analysis. Los Angeles: SAGE, 67–79. Hall, Peter and David Soskice (eds) (2001) Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. New York: Oxford University Press.

52

Theorizing in Economic Sociology Helper, Susan (2000) Economists and Field Research: ‘You Can Observe a Lot Just by Watching.’ American Economic Review (Papers and Proceedings) 90(2), 228–32. Holyoak, Keith and Robert Morrison (eds) (2012) The Oxford Handbook of Thinking and Reasoning. New York: Oxford University Press. Jefferies, Janis (2012) Pattern, Patterning. In: Celia Lury and Nina Wakeford (eds), Inventive Methods: The Happening of the Social. London: Routledge, 125–35. Klamer, Arjo (2004) Visualizing the Economy. Social Research 71(2), 151–62. Klamer, Arjo and Thomas Leonard (1994) So What’s an Economic Metaphor? In: Philip Mirowski (ed.), Natural Images in Economic Thought: “Markets Read in Tooth and Claw.” New York: Cambridge University Press, 20–51. Klein, Daniel (2014) Three Frank Questions to Discipline Your Theorizing. In: Richard Swedberg (ed), Theorizing in Social Science. Palo Alto: Stanford University Press, 106–30. Klein, Daniel and Pedro Romero (2007) Model Building versus Theorizing: The Paucity of Theory. Journal of Economic Theory. Econ Journal Watch 4(2), 241–70. Knight, Frank (1967) The Economic Organization. New York: Augustus M. Kelley. Krippner, Greta et al. (2004) Polanyi Symposium: A Conversation on Embeddedness. Socio-Economic Review 2, 109–35. Krugman, Paul (1996) A Country is Not a Company. Harvard Business Review JanuaryFebruary, 40–4, 48–51. Krugman, Paul (2010) ‘Not So Dismal’ [Interview with Paul Krugman by Maryann Busso]. Bloomberg Markets October, 7(10), 132. Levitt, Steven and John List (2008) Field Experiments in Economics: The Past, Present, and Future. NBER Working Paper Series Nr. 14356. http://www.nber.org/papers/ w14356 (accessed October 25, 2013). Maas, Harro (2011) Sorting Things Out: The Economist as an Armchair Observer. In: Lorraine Daston and Elizabeth Lunbeck (eds), Histories of Scientific Observation. Chicago: University of Chicago Press, 206–29. Maas, Harro and Mary Morgan (eds) (2011) Observing the Economy: Historical Perspectives. History of Political Economy 44(Supplement), 1–249. MacKenzie, Donald (2006) An Engine, Not a Camera: How Financial Models Shape Markets. Cambridge: The MIT Press. McCloskey, Deirdre (1983) The Rhetoric of Economics, Journal of Economic Literature 31 (June), 482–517. McCloskey, Deirdre (1986) The Rhetoric of Economics. New York: The Harvester Press. McCloskey, Deirdre (1994) Why Don’t Economists Believe Empirical Findings?, Eastern Economic Journal 20(3), 357–60. Mirowski, Philip (ed.) (1994) Natural Images in Economic Thought: “Markets Read in Tooth and Claw.” New York: Cambridge University Press. Morgan, Steve and Chris Winship (2007) Counterfactuals and Causal Inference: Methods and Principles for Social Research. Cambridge: Cambridge University Press. Nersessian, Nancy (2008) Creating Scientific Concepts. Cambridge, MA: The MIT Press. Parker, Ian (2010) The Poverty Lab: Transforming Development Economics, One Experiment at a Time. New Yorker, May 17. http://www.newyorker.com/report ing/2010/05/17/100517fa_fact_parker?printable=true¤tPage=all (accessed November 1, 2013).

53

Richard Swedberg Piore, Micahel (1979) Qualitative Research Techniques in Economics. Administrative Science Quarterly 24, 560–69. Prasch, Robert (2007) Professor Lester and the Neoclassicals: The ‘Marginalist Controversy’ and the Postwar Academic Debate over Minimum Wage Legislation. Journal of Economic Perspectives 41(3), 809–25. Reisberg, Daniel (ed.) (2013) The Oxford Handbook of Cognitive Psychology. New York: Oxford University Press. Shiller, Robert (2013) Robert Shiller: A Skeptic and a Nobel Winner’ [Interview by Jeff Sommer]. New York Times, October 19. http://www.nytimes.com/2013/10/20/ business/robert-shiller-a-skeptic-and-a-nobel-winner.html (accessed October 29, 2013). Simmel, Georg (1978) The Philosophy of Money. London: Routledge. Simon, Herbert and Richard Bartel (1986) The Failure of Armchair Economics. Challenge 29(5), 18–25. Solow, Robert (1988) Comments from Inside Economics. In: Arjo Klamer, Deirdre McCloskey, and Robert Solow (eds), The Consequence of Economic Rhetoric. New York: Cambridge University Press, 31–7. Stuckler, David and Sanjay Basu (2013) The Body Economic: Why Austerity Kills. New York: Basic Books. Swedberg, Richard (2009) The Centrality of Materiality: Economic Theorizing from Xenophon to Home Economics and Beyond. In: (ed. with Trevor Pinch) Living in a Material World: Economic Sociology Meets Science and Technology Studies. Cambridge: The MIT Press, 2009, 57–87. Swedberg, Richard (2012) Theorizing in Sociology and Social Science: Turning to the Context of Discovery. Theory and Society 41, 1–40. Swedberg, Richard (2014a) The Art of Social Theory. Princeton: Princeton University Press. Swedberg, Richard (ed.) (2014b) Theorizing in Social Science: The Context of Discovery. Palo Alto: Stanford University Press. Swedberg, Richard (Forthcoming) The Uses of Concepts in Sociology: From Theory to Methods and Back. Forthcoming in Working Papers in Theorizing, Cornell University. Weber, Max (1978) Economy and Society: An Outline of Interpretive Sociology. 2 vols. Berkeley: University of California Press.

54

Part I Creating Economic Futures

2 Re-imagining Capitalist Dynamics Fictional Expectations and the Openness of Economic Futures Jens Beckert

How can we explain the dynamics of capitalist economies? For most of history, economic wealth developed slowly with only minor fluctuations. It was not until capitalism’s expansion in the late eighteenth century that the economy took on the kind of dramatic dynamism that we have witnessed since. National product rose at rates that were previously unknown, initially limited to just a few countries, but now with an ever greater reach. At the same time, this growth has been accompanied by spectacular, endogenously induced economic crises. The question of what has caused this unprecedented dynamism in the economy is one of the most extensively discussed issues in the social sciences. Economists, sociologists, and historians have attempted not only to explain how capitalism has unfolded, but also how economic growth is initiated and expanded (Braudel [1979]1985; Weber [1927] 2003; Marx [1867]1977; Schumpeter [1911]1934; Smith [1776]1976). Their findings have focused on technological progress, institutional change, the division of labor, functional differentiation, population growth, increased factors of production, cultural transformation, and other factors. One aspect at the heart of capitalism’s dynamics, however, has received only sparse attention: the “temporal order” of capitalism. By temporal order, I mean the prevailing cognitive orientation of actors to the time horizons of their economic activities (Bourdieu 1979). In this chapter, I focus on the temporal order of capitalism and argue that the unfolding of capitalism has been accompanied by the emergence of a profoundly different temporal

Jens Beckert

order—and that this temporal order is actually constitutive for capitalism’s dynamics. In a nutshell, I argue that in contrast to traditional economic systems, capitalism institutionalizes an organization of economic activity in which actors orient themselves toward an open and unforeseeable future. Such a future represents both: promises of unlimited possibilities for actors as well as a permanent threat to their economic status. At the micro level, this temporal order manifests itself in imagined futures that may or may not come about. At the macro level, the actions induced by the actors’ temporal orientation produce growth as well as sporadic crises, and thus the restless dynamics of capitalism. This chapter begins by commenting on how temporal orders have shifted with modernity’s development. It then discusses how a sociological approach to the economy can make use of the insights gained from the analysis of this shift. The terms “expectation” and “uncertainty” are of major significance here. In the final section, the chapter indicates how this approach relates to an analysis of four central “constituents” of capitalism: money and credit, investment, innovation, and consumption.

The Temporal Order of Capitalism Any examination of historical shifts in temporal orientations will inevitably reference the works of historian Reinhart Koselleck and sociologist Niklas Luhmann. One of Koselleck’s (2004) main research questions is how perceptions of time changed in different epochs of European history. He shows how views of the future have systematically shifted across a period spanning the Middle Ages, the early modern era, and the Enlightenment. In summary, Koselleck argues that the Middle Ages perceived the future as having an historical endpoint, evident in the apocalyptic prophesying of the time. The early modern period began to understand the future as open, but only within boundaries determined by the existing social and political order. Actors began to perceive the future via prognoses, which led to the practice of calculating the outcomes of political decisions. Visions of the future as transcending traditional perspectives did not emerge until the Enlightenment period, with the future then being imagined as an entirely new world. Koselleck argues that the Enlightenment’s theories of history in effect merged prophesying with political prognoses and calculation. This took place against a background of accelerated social change in the eighteenth and early nineteenth centuries. From then on, the future was perceived as being open, different from the present, and uncertain; theories of history were able to give expression to this openness, articulating the idea that the future could

58

Re-imagining Capitalist Dynamics

be distinct from the present—as the past was also seen as essentially different from the present. A future that was different became evident in theories of history that often proclaimed the arrival of a utopia. Hegel, Marx, and Comte are just three notable examples of authors whose theories anticipated such future processes of societal transformation and their “cognitive containment” in utopian end states. Koselleck’s work in the 1970s on the transformation of temporal orders coincides with sociological approaches being formulated at about the same time. Niklas Luhmann (1976) examined the topic of temporality almost in parallel to Koselleck and largely agreed with his diagnosis. Traditional societies, according to Luhmann, see themselves as living in a perpetual or even eternal present. This perception of the future as a continuation of the present shifted in the eighteenth century with the development of bourgeois society. The future from then on was seen as a “storehouse of possibilities” (Luhmann 1976: 131) containing “emergent properties” and unrealized possibilities. The future became an open future. We experience “our future as a generalized horizon of surplus possibilities that have to be reduced as we approach them” (Luhmann 1976: 141). The openness of the future is simultaneously perceived as a loss of control. As one of Luhmann’s students, Elena Esposito, wrote: “The indefinite future is a space of promises and hopes, but it is also a space of possible damage and anguish” (Esposito 2011: 32). Luhmann—like Koselleck—notes that probability theory and ideas about political utopias developed in parallel to the shift in perceptions of the future. Alongside perceptions of an open future was the development of the term “risk.” Risk circumscribes a broad societal phenomenon that emerged only with the modern era. Although dangers stemming from uncontrollable natural or political events had always existed, deliberately extending courses of human action into uncharted territories constituted a new form of insecurity regarding the future, and a new experience of risk. Risk became a relevant concept once courses of action came to be based on projections of a counterfactual future—projections that may not come to fruition, and where the resulting damage is attributed to decision-making and not to fate (Esposito 2011: 32). Like the concept of the future as an open space, the concept of risk is therefore also historically rooted. It appeared in the sixteenth and seventeenth centuries in the context of Western explorations of the world (Giddens 1999: 1). It originally referred quite literally to sailing into uncharted waters. Risk and the notion of an open future conceptually belong together. “Risk refers to hazards that are actively assessed in relation to future possibilities. It only comes into wide usage in a society that is future-oriented—which sees the future precisely as a territory to be conquered or colonized” (Giddens 1999: 1).

59

Jens Beckert

Economic Detraditionalization Koselleck, Luhmann, and Giddens all observed the shifts in temporal orientation that occurred in the early modern and Enlightenment periods. But their analyses were mainly concerned with describing the development of modern society in general, using examples of political rather than economic action to put forward their arguments. But how do perceptions of an open and uncertain future relate to the development of the capitalist economy? To answer this question, it is helpful to consider the work of Pierre Bourdieu. In the 1950s, Bourdieu examined transformation processes in the social and economic order of the Kabyle people in French-controlled Algeria. His ethnographic descriptions and statistical analyses are among the best work Bourdieu ever wrote. At the heart of these analyses stand observations on changes in the temporal order within Kabylian society (Bourdieu 1979). Like Koselleck and Luhmann, Bourdieu also observed how perceptions of an open future developed. Instead of the future being perceived as a continuation of the present—as had been the case in the traditional Kabylian social order—it came to be experienced as an interminable breakdown of the existing order. Bourdieu, however, brought an additional element by seeing this development as being directly related to the spread of capitalism. The modernization that Bourdieu describes is, therefore, first and foremost a capitalist one. Economic transactions came increasingly under the control of money and markets, weakening the traditional Kabylian social order. Money and market exchange brought about attitudes based on calculation and future profits that contradicted and undermined a traditional economy built on solidarity and the “logic of honor.” Bourdieu was not arguing that the traditional Kabylian economy was “future blind.” Kabylian farmers were acutely aware of the need for future planning. However, their concern was for what Bourdieu described as “direct goods,”—that is, goods to satisfy concrete needs. Provision had to be made for failed harvests or illness so as to ensure the family’s survival as well as its social status. In Marx’s terminology, this is an example of an economy organized around “simple reproduction.” The capitalist economy, by contrast, operates on a logic of accumulating money, the quintessential “indirect good.” With the use of money came a perception of a future that was distant and abstract, one that was based on calculation and forming “an absent, imaginary vanishing point” (Bourdieu 1979: 7). Bourdieu’s interest lay in the conflicts within Kabylian society, conflicts that were triggered by differing forms of economic thinking and new practices, which were ultimately destroying the traditional social order. A similar detraditionalization conflict and the clash between traditional and modern capitalist forms of the economy have also been extensively documented in the 60

Re-imagining Capitalist Dynamics

European process of industrialization (Swedberg 2003; Thompson 1967; Weber 1922). In all these conflicts, destruction of traditional time orders played a crucial role. Max Weber ([1927]2003), for example, described how in the nineteenth century, Silesian peasants failed to respond to incentives aimed at raising their productivity. Employers attempted to motivate them to work longer work hours and with greater discipline by offering higher wages; however, rather than putting in longer hours to enjoy higher living standards in the future, the laborers decided to work less. Contrary to the expectations of landowners (and economists), “it was futile to double the wages of an agricultural laborer in Silesia who mowed a certain tract of land on a contract, in the hope of inducing him to increase his exertions. He would simply have reduced by half the work expended” (Weber [1927]2003: 355). We find many examples of this kind of traditionalist reaction to capitalist incentive structures, which—even in developed capitalist societies—have not yet run their course and are a frequent source of social and economic conflict.

Institutional Preconditions for an Open Economic Future The discussion here is not primarily about the lines of conflict that emerge in processes of detraditionalization, nor is it my intention to criticize the breakdown of traditional ways of life through capitalist calculation and the use of money. My aim is rather to highlight the shift in temporal orientation as being at the core of capitalism’s unfolding dynamic. Detraditionalization of economic relations in the emerging capitalist order means that actors—whether they are companies, entrepreneurs, investors, employees, or consumers—must orient their activities towards an open and uncertain future. The ways in which this temporal reorientation has asserted itself in the capitalist economy can be historically traced. Actors have to leave their traditional temporal orientations behind and allow themselves be enticed into making decisions on the basis of an imagined, distant, and abstract future state of the world. Accepting such a temporal order promises (but by no means guarantees) unprecedented opportunities for profit and higher social status for the economically successful, but it also harbors unknown risks for actors to lose what they have in terms of economic wealth and social status. Preconditions of an institutional and personal nature are required for actors to be disposed to the future in this way. Institutionally, the increasing organization of economic exchange via competitive markets and the growing assertion of money as a medium of exchange compel economic relations to become detraditionalized. The compulsion to actively look towards a changed future emerges importantly from the mechanism of competition. An economy in which every actor constantly anticipates being ousted by his competitors 61

Jens Beckert

pressures actors into proactively altering products, the organization of production, or their own competencies to maintain their future competitiveness. Such proactiveness then requires all other actors in the market to respond in a similar way. In capitalism, you “have to force yourself to the front just to avoid dropping behind; this system of competitiveness—with its never-ending innovations—does not permit just maintaining the status quo, or does so only in niche markets” (Kocka 2013, my translation). Competitive markets enable actors to systematically compare the quality and price of goods and to depersonalize processes of exchange. Markets encourage rational calculation and impinge on the morality of traditional economies. This is especially evident in the development of labor markets, which make labor a commodity and override traditional forms of employment. A second institutional mechanism that compels a future-oriented approach going beyond simple reproduction comes about through the use of money as a medium of exchange. We can refer here first to the significance of “money of account” as an instrument of calculation—a significance which Weber, for example, clearly perceived. Money provides a metric that enables actors to categorize goods under purely economic terms. The extension of the monetary sphere undermines the motives of solidarity and a logic of honor prevailing in traditional economies. Money also frees actors from the limitations of barter, thereby facilitating the expansion of market relationships. Although markets are not necessarily dependent on money, money is required to organize the complex relationships of exchange in modern economies. All capitalist markets are markets that utilize money. Furthermore, money detaches economic endeavor from concrete needs—that is, from Bourdieu’s “direct goods.” As Georg Simmel ([1907]1978) recognized and astutely described, the desire to accumulate money knows no bounds. Christoph Deutschmann (1999; 2009) incorporated this analytical insight into his theory of the capitalist dynamic by referring to capitalism as a “utopia of absolute wealth.” An economy in which money functions as a store of value provides an institutional basis for growth dynamics that have little to do with meeting concrete needs. Profit, rather than the gratification of needs, is the objective of capitalist economic activity. Under capitalism, money eliminates the question of “haven’t we got enough?” At the same time, any investment is inherently linked to the future. And money, as long as it remains valuable, secures a right to own goods that are still to be created at some future point. Money also provides a further mechanism to steer economic activity in the direction of dynamic change. In capitalist economies, money is primarily generated through lending. Schumpeter ([1911]1934) was entirely correct in seeing the specifics of capitalism residing in financing through credit. But credit, according to Schumpeter, is a right to own goods at a point in time when a “normal claim” (Schumpeter [1911]1934: 214) to these goods does not 62

Re-imagining Capitalist Dynamics

(yet) exist. This claim can be met only with the future production and sale of the goods promised at the outset. Success is only achieved if the value of the goods sold on the market is higher than the invested value so that the credit plus interest can be repaid. Capitalism as a credit-based economy is therefore dependent on growth. Credit compels a calculative orientation towards a future that is different from the present.

Imagined Futures I mentioned that the future-oriented temporal order of capitalism requires both institutional and personal preconditions. Competition and money have been referred to as institutional preconditions. However, the dynamism of a social system emerges not through structural mechanisms as such, but through the activity of agents. The clashes described by Bourdieu and social historians between the modern—meaning capitalist here—and traditional economic orders reveal that the early development of capitalism encountered severe problems because of the temporal disposition of actors who resisted its operational logic. But what does the capitalist dynamic demand from actors? Generally speaking, it is the human capacity to imagine future states of the world that are different from the present and a willingness to act in a way that is oriented toward such imagined futures (Beckert 2013). This can be illustrated based on the action theory of Alfred Schutz. According to Schutz (1962), action takes place on the basis of projections that he describes as “projects.” For Schutz, a project is a plan—a potential way of acting that actors believe will deliver specific yields. Before performing an action, actors use projections to take themselves into an imagined future in which the action will have been completed. In this sense, projecting is anticipating “in the future perfect tense” (Schutz 1962: 20). The ability to imagine future states of the world is universal to human beings. It neither emerged with capitalism nor is it restricted to economic phenomena. The prophesied apocalypses of the Middle Ages or religious belief in an afterlife are also imagined futures. However, they are imagined worlds of a religious nature. The claim here is that a capitalist economy can develop only when significant numbers of people act in ways that are oriented toward an open economic future—an imagined future of limitless possibilities, both for wealth acquisition and for new types of risk. Wealth acquisition and risk are related: financial assets can be instruments for speculation, an insurance against the unforeseeable risks of an open future, and are also perpetually at risk from competition and inflation. Although such a temporal orientation also can be found in precapitalist societies, for instance in the figure of the adventurer, it remains exceptional and does not shape the economic order. It 63

Jens Beckert

is in capitalism that the orientation toward unknown future opportunities becomes a dominating and institutionally enforced cultural norm that is ineluctable. Under such conditions, respite is nowhere to be found. There is a constant need for fresh economic projections concerning new opportunities and potential risks. Capitalism requires that actors reject traditional temporal dispositions and develop a cognitive awareness of a future that is both open and uncertain. Capitalism’s dynamism can be understood only by taking into account both institutional change and the shifting action orientations of actors.

Expectations This, then, places actor expectations at the forefront in explaining economic activity and the dynamics of capitalism. Explaining capitalist dynamics by focusing only on prevailing structures and historical developments ignores the significance of actors’ perceptions of the social world. Despite this shortcoming, structuralist approaches are commonplace in the social sciences. The notable exception to this is economics. Up until the early twentieth century, economics was mainly an historical discipline. Since then, however, explanatory models that focus on actors’ expectations have moved to center stage. Economists view rationally calculating actors as making decisions on the basis of anticipated future pay-offs that become discounted to their present value. It is the expectations of future states of the world, therefore, that explain present-day decision-making. This explanatory model, in the form of the theory of rational expectations, has become the dominant microfoundation of modern macroeconomics. This stands in stark contrast to sociology: “While sociologists see present events as a final outcome emerging from the past, economists reason backwards from the future: Decisions are explained by the present value of expected future rewards” (Abbott 2005: 406). The argument presented here concurs with economic theory in seeing the future as playing a major role in explaining the present. To be precise, of course, it is expectations to the future that play such a role. Despite this correspondence with economics in the significance I assign to the future, the approach I pursue criticizes economics for having an erroneous description of expectations that limits the understanding of capitalist dynamics. The rational expectations model assumes that economic actors make decisions based on all available information and are therefore able, at least on average, to accurately predict the future from a present point in time. Errors in actor estimations are randomly distributed and are thus insignificant for average outcomes. To explain decision-making in this way not only assumes that actors are efficient in processing information, and are not, for instance, 64

Re-imagining Capitalist Dynamics

following a herd instinct, but also that statistical extrapolation of future events is indeed possible from the past. The idea of seeing the future as being at least probabilistically foreknowable was criticized within economic theory as early as the 1920s and 1930s. Most prominently, this can be seen in Frank Knight’s ([1921]1985) distinction between risk and uncertainty. Here, events are differentiated according to whether they are predictable through probability calculus, or whether they possess a uniqueness that denies such prediction. Knight characterizes the former as risky and the latter as uncertain. It is only in situations characterized by risk that future outcomes can be (probabilistically) calculated from the observation of past occurrences. Economists and economic actors alike have often conflated the categories of risk and uncertainty (Hodgson 2011). This has serious consequences. In the aftermath of the financial crisis of 2008, for instance, the bank of England’s chief economist, Andy Haldane, argued that the crisis was a result of a conflation of risk and uncertainty that had been taking place in financial markets for some time. Knight is in no way the only economist who claimed that the future is unforeseeable. Most prominent among those who share this view was John Maynard Keynes ([1936]1964), who fully concurred with Knight on this issue, although his reference point was his teacher Alfred Marshall. In a well-known passage from chapter 12 of his General Theory, Keynes writes: “The considerations upon which expectations of prospective yields are based are partly existing facts which we can assume to be known more or less for certain, and partly future events which can only be forecasted with more or less confidence” (Keynes [1936]1964: 147). For Keynes, the reason for the indeterminacy of expectations is the uncertainty of the future. Expectations, Keynes asserts, “cannot be uniquely correct, since our existing knowledge does not provide a sufficient basis for a calculated mathematical expectation. In point of fact all sorts of considerations enter into the market valuation which are in no way relevant to the prospective yield” (Keynes [1936]1964: 152). Once the idea of rationally forecasting the fundamental value of assets is given up, it is clear that market valuations then depend on expectations which cannot be determined through the efficient use of the available information, as in rational expectations theory, but are instead contingent on the actors’ interpretation of the state of the world. But on what basis do actors actually make their decisions? Keynes himself indicates three lines of response to this question. First, actors can base their decisions on the assumption that the “existing state of affairs will continue indefinitely, except in so far as we have specific reasons to expect a change” (Keynes [1936]1964: 152). Note that this is simply a conventional form of behavior, not one based on actual knowledge of future states of the world. Second, Keynes suggests that actors base their decisions on emotions, which he captures in the notion of “animal spirits.” 65

Jens Beckert

Under conditions of uncertainty, emotions prevent actors from retreating into a state of inactivity. “[I]ndividual initiative will only be adequate when reasonable calculation is supplemented and supported by animal spirits, so that the thought of ultimate loss which often overtakes pioneers, as experience undoubtedly tells us and them, is put aside as a healthy man puts aside the expectation of death” (Keynes [1936]1964: 162). Finally, on the stock market, the individual investor bases his decisions not on information (however inadequate) regarding the fundamental value of assets, but rather on his expectations regarding the expectations of other investors. Hence, investment decisions in markets are guided by the projection of short-term market opinion. Here, Keynes uses the metaphor of a beauty contest in which the prize is awarded to the person whose choice corresponds most closely to the average opinion of all the competitors. Expectations play a key role in Keynes’ theory because he sees investment and consumption decisions as evolving largely from changes in expectations. These, in turn, influence the business cycle, that is, capitalist dynamics. The Keynesian economist George Shackle developed these ideas further, and made future uncertainty central to the concept of expectations. Because the “content of time-to-come is not merely unknown but nonexistent, and the notion of foreknowledge of human affairs is vacuous” (Shackle 1983: 33), any theory that proceeds from the knowability of the future is misguided. For Shackle, however, more so than for Keynes, the contingency of expectations because of uncertainty is not a threat to stability and a cause of economic crisis, but rather a presupposition for creative changes in the economy through choices based on imaginaries of future states of the world. Choice, according to Shackle, takes place “amongst imagined experiences” (Shackle 1964: 12). The fundamentals of capitalism’s dynamics exist in the relationship between the human ability to imagine and the incalculability of outcomes. In a universe of ultimately creative thought, imaginations have an originating force and cannot be based on probabilities, because “probabilities can only be meaningfully assigned to the items of a complete list of contingencies” (Shackle 1964: 13).

Fictional Expectations So how can expectations be characterized if we can’t understand them as a preview of a future present? I suggest describing expectations under conditions of uncertainty as “fictional expectations.” By this, I mean that expectations are images actors form regarding future states of the world, causal relations, and the ways they see their decisions impacting on outcomes. These imaginaries of future situations and causal relations provide orientation in decision-making despite the incalculability of outcomes. Under conditions of uncertainty, expectations cannot be (probabilistic) forecasts of the future. Imagined futures, however, are also not outright utopias (see Chapter 3 of this 66

Re-imagining Capitalist Dynamics

volume by Dodd), but rather are projections that take into account the information and the hopes, fears, and beliefs of actors. This takes uncertainty as understood by Frank Knight and John Maynard Keynes seriously. Expectations are seen as being central to economic activity, but they are not subject to objectification in an economic model as they are in rational expectations theory. “Fictionality” must, at the same time, be distinguished from “falsehood” or “fantasy,” although these meanings are indeed also conveyed within the term. In the economy, actors certainly do try to anticipate future developments as well as they possibly can. Under conditions of uncertainty, however, these anticipations correspond only by chance to actual future states of the world. Expectations cannot be predictions of the future: they are mere imaginations of future states—imaginations upon which actors base their behavior “as if” these expectations actually did describe future states and causal relations (Beckert 2013). Actors are motivated by an imagined future and organize their activities accordingly. Fictional expectations are representations of a future world, the truthfulness of which cannot be known. Using Niklas Luhmann’s terms (1996), these representations involve a “doubling of reality” which forms the basis for decision-making and the coordination of economic action. What do fictional expectations have to do with capitalist dynamics? The mechanisms of competition and money demand that actors constantly operate in reference to an uncertain future. Surviving and making profits in the future requires investment and innovation and the acceptance and lending of money—and it requires that consumers perceive new products as possessing utility or conveying social prestige. At the same time, the outcomes associated with concrete decisions are uncertain. Capitalism can develop only when the willingness to act prevails, despite the incalculability of the future. The basis for this is expectations, which are necessarily fictional in the sense described here. Keynes warned at the same time against the assumption that the willingness to take risks in the expectation of future profit or increased social status is a foregone conclusion. Capitalism is constantly at risk that the uncertain future will paralyze actors, leading to the underemployment of production factors, and thus resulting in economic crises. Here, the term “crisis” means nothing more than a collapse of expectations for future opportunities and a foreshortening of future perspectives. Keynes termed the resulting inactivity of actors “liquidity preference,” which can be understood as the unwillingness of investors to engage in investments that would expose their wealth to unforeseeable risks. Operating against the danger of paralysis are the “animal spirits,” a somewhat imprecise and psychologizing term that nevertheless expresses quite well the fragility of the expectations that compel action and drive capitalism forward. 67

Jens Beckert

Imagined futures, because of their fragile nature, require constant encouragement in the face of the inevitable uncertainty surrounding the outcomes of action. The improbability of meeting this challenge is clearly evident in the multitude of failed investments and innovations, the devaluing of financial assets in times of financial crises, and consumer dissatisfaction with products they had desired at the point of purchase. Viewed from this perspective, capitalism’s extraordinary power—and at the same time its Achilles’ heel—is its ability to motivate actors to take risks despite the uncertainty of achieving desired outcomes and the likeliness of disappointment. For this, actors need to convince themselves—and be convinced by others—that their decisions, despite all the uncertainty, will deliver positive outcomes. Fictional expectations are crucial both for producing the willingness to act under conditions of uncertainty and for coordinating action. They cannot emerge in an institutional, cultural, or political vacuum. The social basis of expectations is to be found within the economy’s institutional structuring, in norms and cognitive frameworks, in social networks, and within the power structures in which market actors find themselves. Capitalism’s institutions— be they accounting rules or the state’s protection of property rights—can be analyzed according to their contribution to those expectations that encourage action by widening temporal perspectives, encouraging and demanding creative responses, as well as fostering a willingness to take risk (see Chapter 5 of this volume by Carruthers, and Chapter 6 by Nee and Oppers). Explaining capitalist dynamics therefore requires that we take structural factors into account, albeit with reference to their impact on social action. Long-term credit, for instance, is more likely to be granted where property rights are effectively protected. Financial investments are more likely if actors have access to calculative tools that allow them to proceed as if they could anticipate the future value of assets and the risks associated with an investment. Human capital investments are encouraged by a social structure that makes plausible the hope of social mobility through education and training. Consumers are more willing to purchase a new product if they can return it in case of malfunction or disappointment. Fictional expectations require—in addition to their institutional basis— consideration of their political dimension. The contingent nature of expectations makes them open to interest-based politics. If decisions have distributive consequences, and if decisions are based on expectations, then actors have an interest in the expectations of other actors. Influencing expectations has become a central task of both political regulation and business, and is a major part of discourses on business and the economy. One example of the politics of expectations for macroeconomic policy-making is the central bank reports on the state of the economy and their suggestions for future monetary policies (Holmes 2009). An example from business is the marketing activities of firms. 68

Re-imagining Capitalist Dynamics

Through the instrument of marketing, economically powerful firms shape the imaginaries of consumers. This communicative creation of value is an important part of the politics of expectations. The analysis of how expectations are influenced by powerful actors in the economy can be seen as a crucial contribution by economic sociology to political economy.

Four Constituents of Capitalist Dynamics The way in which fictional expectations relate to capitalist dynamics can be elaborated by examining four central “constituents” of capitalism, which I describe in the following text. Expectations and the dynamics of capitalism interrelate when economic growth arises from activities based on imaginaries of opportunities in the future, or when economic crises are triggered by economic projections that result in paralysis. To provoke decisions, the imagined future must be credible; it must convince actors as a likely future scenario. The four constituents I discuss briefly here are money and credit, investment, innovation, and consumption.1

Money and Credit The centrality of money to the workings of capitalist markets has already been mentioned. In modern economies, the value of money is not underwritten by a valuable commodity (such as gold), but is merely fiat money created partly by the state but mainly by private banks as part of the process of lending. Such money is nothing more than the expectation that an intrinsically worthless token can, at some future time point, be exchanged for goods of worth within the currency area in which the token is accepted as a means of payment. The value of money derives from the expectations concerning its liquidity and stability. The economic historian Philip Mirowski (1991: 580) accurately referred to these expectations as the “fiction of a monetary invariant.” Invariant does not mean that the value of money must remain absolutely constant, but rather that the devaluation of money through inflation is predictable and rather slow. However, such predictability is a fiction because monetary stability depends on the actual commitment of central banks to low inflation, on banking regulation, and on macroeconomic development in the future, all of which are uncertain (Ganßmann 2012: 230ff.). As the history of monetary crises shows, unexpected devaluation of money is a recurring phenomenon. Nevertheless, in a money economy, actors must act as if the value of money 1 For a detailed discussion of these constituents, see my forthcoming book Imagined Futures: Fictional Expectations and Capitalist Dynamics (Harvard University Press 2016).

69

Jens Beckert

were predictable to accept money as means of payment and abstain from wage and price increases beyond actual inflation. Because the future is open, the expectation of the stability of money requires, as Georg Simmel argued, an element of “supra-theoretical belief” or “social-psychological quasi-religious faith” (Simmel [1907]1978: 179). Such subjection to forces that are neither predictable nor controllable probably finds its clearest expression on American bank notes: “In God We Trust.” Money is valuable only as long as the belief in its stability prevails. The contingent nature of this expectation poses a constant and latent threat to the monetary system and accounts for the massive communicative effort by governments, central banks, politicians, economists, and statisticians to make money appear stable. One of central banks’ foremost tasks is to manage expectations in the economy regarding monetary stability. They do this using not only the instruments of monetary policy, but also those of communication. They can issue forecasts or hold press conferences to declare publicly their assessment of the economic situation, the outlook for the future, and policy decisions they are considering (Holmes 2014). The stability of money is thus created discursively in the economy itself through the formation and reinforcement of its credibility. Credit is intrinsically linked to money and is another indispensable constituent of capitalist economic growth. Through credit, an investor obtains purchasing power in the present against a promise—the promise to repay the principal at a specified point in time, together with an additional sum called interest. Schumpeter ([1911]1934: 95) even defined capitalism as a system of indebtedness. Credit relations depend on expectations. For credit relations to come into existence, the creditor must hold the expectation that he will be repaid the loan plus the agreed interest at the point in time stipulated in the contract. Hence, credit relations are anchored in the credibility of the borrower’s promise to repay the loan, which has its basis in an assessment of the debtor’s trustworthiness (see also Carruthers and Stinchcombe 1999). What makes credit so interesting from a sociological perspective is the expectation that a debtor—whether a private person, an organization, or the state—will indeed live up to the promise to repay the loan, can never be fully rationally calculated because the future cannot be foreseen. As the ability and willingness of the debtor to repay the loan are ultimately uncertain, the expectations of creditors are fictional in the sense that they are based on beliefs (credere) in the risks associated with the credit. Hence, if capitalist expansion depends on credit, capitalist societies must succeed in creating an expectation in the owners of capital that the promise entailed in the credit relation will indeed be honored. Viewed from an historical perspective, the ability to expand credit relations by expanding expectations of trustworthiness has been one of the most 70

Re-imagining Capitalist Dynamics

important—but often unnoticed—preconditions for the unfolding of capitalism. The development of modern credit and monetary systems depends on the emergence of institutional trust devices. However, institutional safeguards have not resulted in disappearance of uncertainty in credit relations. Despite institutional safeguards such as credit ratings, malfeasance remains a threat to creditors, as can be seen in such spectacular instances of fraud as the bankruptcy of Enron or the Ponzi scheme run by Bernard Madoff. An even greater source of vulnerability is the unpredictability of the debtor’s economic success. Debtors may be fully committed to repaying their loans, but the market may turn against them so that consequently they are unable to repay their debts. Future economic developments cannot be foreseen, either by debtors or by investors. Credit decisions, like any other investment decision, are therefore based on what John Maynard Keynes called the state of confidence. This, however, is nothing but the expectations of creditors regarding the debtors’ creditworthiness. If entrepreneurs have pessimistic expectations regarding the economic outlook, they will reduce their borrowing. At the same time, the owners of financial wealth will develop a preference for liquidity and charge higher rates of interest to debtors in precisely those situations in which firms or the state need additional liquidity (Keynes [1936]1964). By withholding capital from its employment in the production process, economic output is reduced. Fictional expectations determine the level of investment and lie at the root of business cycles and financial bubbles.

Investment Investments are another central pillar of capitalism. Investments can be made in plant and equipment, in financial securities, or in human capital. In capitalism, the goal of investments is profit, in the case of human capital investments it is income, job security, and job satisfaction. Economic textbooks describe investment as a process of complex mathematical calculation. Capital budgeting is a highly developed field of corporate finance, which uses sophisticated methods to calculate investments’ potential benefits and risks (Demange and Laroque 2006; ter Horst 2009). Techniques of capital budgeting calculate the net present value of an investment, making assumptions about future cash flows and risks associated with the investment. Theories of capitalism emphasize the rational character of investment processes as one of the cornerstones of the development of modern capitalism. This suggests that investment outcomes can be predicted and that alternative investment options can be weighed against each other. However, the multitude of both failed investments as well as those with gains far exceeding expectations—for example Google or Facebook—reveal the inadequacy of seeing investment outcomes as wholly calculable. 71

Jens Beckert

Studies of the practices involved in investment decisions show a much more complex picture. Businesses do, of course, make great efforts to calculate the returns on their investments. But, ultimately, their decisions tend to be a mix of calculation and intuition, accompanied by “fictional expectations.” An example of this is firms’ decisions to relocate. Geny Piotti (2009) examined how German companies reached decisions about relocating to China in the early 2000s. They had high expectations that were often disappointed. When questioned about the original motivations behind their decisions, the managers referred to the general euphoria about China as a land of opportunity, which one manager compared with the American Gold Rush. Investments made by venture capital investors are another good illustration of the fictionality of expectations associated with capital investments. Venture capitalists become either creditors or part-owners of companies that normally do not have a fully developed and marketable product. Accurately assigning value to such a company—deciding whether it will succeed in the market, assessing the worth of a share in its equity and calculating its future earnings, and so on—is impossible (Giraudeau 2012: 213; Shapin 2008: 269ff). As future cash flows simply cannot be known, it makes no sense to sum them up and discount them to their present net value. Investing in newly founded companies is inherently unpredictable and thus involves fictional expectations. Although investment professionals estimate the value of firms as precisely as possible using reports, formal and informal meetings, and market analyses, “these numbers are subject to significant assumptions and judgment and so are inherently subjective” (Nama and Lowe 2013: 33). Successful investments in startups are far outnumbered by failures, but even established firms are often “unable to make very rational calculations about one project, . . . because they lack the information necessary for rational behavior and because they lack the time and the inclination to get it or to use very complex methods of assessment” (Freeman 1974: 253). In financial markets, investments are commitments to an expectation regarding the future price of a security. This expectation is contingent, and may turn out to be wrong, thus leading to losses for the investor. The expectation on which the investment is based is fictional. This corresponds to the reasoning brought forward by Karin Knorr Cetina in Chapter 4 of this volume. In financial markets, the transaction starts a relationship with the counterparty that lasts until the asset is sold again. Thus, the investor becomes dependent on the counterparty’s uncertain future. Knorr Cetina uses the notion of “promissory engagements” to characterize the relationships among contracting parties in financial markets. The party receiving funds— either as credit or as equity—does so through a promise of future profits, which will allow it to repay the loan with interest or increase the price of its shares. And the party granting the funds, which Knorr Cetina calls the 72

Re-imagining Capitalist Dynamics

promise receiver, “buys into” this promise. Like the notion of fictional expectations, the concept of promises highlights the future’s non-calculability. Promises are “contingent upon the future turning out as envisaged” (Knorr Cetina, Chapter 4 of this volume: 106) and are based on imagination and persuasion, narrative in nature, and evoke epistemic imaginaries.

Innovation Innovation is the third central constituent of capitalism. According to Schumpeter, capitalism is a dynamic economic system precisely because of its processes of creative destruction. His analysis of innovation in his Theory of Economic Development ([1912]2006) is well worth closer examination. Schumpeter writes that new combinations initially exist only in the consciousness of the entrepreneur. Although most actors are trapped in their routines, some actors “with more acute intelligence and a more active imagination envisage countless new combinations” (Schumpeter [1912]2006: 163).2 Hence, innovations begin with imaginaries that lead the entrepreneur to “adapt his economic activities accordingly” (Schumpeter [1912]2006: 165). The entrepreneur will, based on the imaginary of a new combination of factors, change the assessed value of the goods on offer in the market and change demand for products. At the outset, innovative activity is motivated by a utopian vision, which shows a pretended future reality. The late Steve Jobs is the exemplification par excellence of the creation of successful innovations through the communication of imaginaries, captivating the computer industry and large consumer groups. Rationally calculating innovations is impossible because of the open nature of the future. Most innovations fail, and the history of predicting future technologies is a history of unfulfilled hopes. But in a capitalist economy, actors—including organizations—have to be persuaded to attempt new combinations in spite of the uncertainty surrounding innovation. Such willingness has a structural basis and requires the communicative constitution of conviction. Christoph Deutschmann (2009) indicated that modern, normative orientations such as the quest for equality and meritocracy—however insufficiently put into practice—enable individual social mobility, making it possible for actors to imagine a better life by achieving economic success. Social advancement is an important motive for entrepreneurs to pursue practices that deviate from the norm. This recalls the need for detraditionalization as a precondition for the capitalist dynamic. At the same time, innovation processes and the surrounding discourses generate 2 Because this part of Schumpeter’s book was not included in the English translation from 1934, I quote from the German edition and have translated the quotes myself.

73

Jens Beckert

messages of hope for a better world. These are expressed in innovation paradigms that evoke visions of future benefits to entice actors away from risk aversion and inactivity. The iconography around Steve Jobs’ public appearances whenever Apple introduced a new product can be analyzed to see how fictional expectations become established discursively. The aesthetic reductionism typical of these performances created an aura of the sacred in which new Apple products were presented as saviors.

Consumption The fourth constituent of capitalism to be discussed here is consumption. The current dominance of supply-side economics makes it easy to overlook capitalism’s dynamic ultimately being dependent on customers’ purchasing new products. Keynes, as well as Daniel Bell (1976), made this clear from very different perspectives. Private consumption accounts for two-thirds of economic performance in the American economy. But why do consumers continually demand new products? Once their basic needs have been satisfied, they could just decide to work less. This, however, would bring a capitalist economy to a standstill. Capitalism must succeed in continuously motivating consumption (Beckert 2011). Within this process, fictional expectations are significant in two aspects. First, they generate positive associations to products prior to their actual purchase. For example, the automobile industry creates symbolic associations with transcendent values through advertising and through the fantasy worlds depicted in automotive journalism. Automobiles promise, among other things, freedom, security, power, independence, and a way to experience the great outdoors. Such symbolic links to the transcendental are playing an ever-greater role in motivating consumption in the saturated economies of developed capitalism. These expectations are fictional because they concern associations prior to the purchase of a product that evoke an excess of expectations for future gratification to actually motivate the purchase. Possibly the most extreme example of this kind of evocation through anticipation is the lottery (Beckert and Lutter 2009). This product gratifies the consumer by evoking the chance of a new life. Second, customer expectations are fictional in the sense that a product initially acquires value narratively through interpretations of its materiality. Where does the dynamic for the need to consume emerge? This is important for an explanation of capitalism’s dynamic. Only with continuous demand for new products can profits be generated to keep the system moving forward. Georg Simmel referred here to two crucial mechanisms. The first is the trickledown effect, whereby the imitation of consumption decisions devalues a product’s properties of distinction, which social groups use to establish identity. Therefore, to maintain social distinctions, newer and different kinds of 74

Re-imagining Capitalist Dynamics

consumption are required constantly. Second, Simmel observed that the act of buying in itself leads to devaluation of an object. Value, according to Simmel, emerges at a distance between the subject and object, and disappears once this distance has been breached. We desire objects . . . in terms of [their] distance as something not-yet-enjoyed, the subjective aspect of this condition being desire. . . . The object thus formed, which is characterized by its separation from the subject, who at the same time establishes it and seeks to overcome it by his desire, is for us a value. The moment of enjoyment itself, when the separation of subject and object is effaced, consumes the value. Value is only reinstated as contrast, as an object separated from the subject. (Simmel [1907]1978: 66)

Capitalism’s dynamic within consumption is therefore also based on actors’ expectations of a future world different from the present. It is a dynamic that intensifies with increased social competition emerging from the breakdown of social barriers and the loosening of traditional restrictions on individual social mobility. At the same time, it is a dynamic that is propelled forward by the tools of marketing. Consumption is fragile, and the extent of this fragility is evident not only from the increasing share of production costs taken up by marketing, but also by the need of businesses to penetrate ever deeper into consumer identities—for example, through the accumulation of personal information from consumers’ Internet usage.

Conclusion The approach to capitalist dynamics I have shown here has two aspects. First, that a theory of capitalist dynamics is incomplete when based only on macro phenomena such as technological progress, the division of labor, institutional change, or the growth of factors of production. What needs to be explained is how these aspects are related to social action. Ultimately, it is what actors do that gives a social system its dynamism. A theory of capitalist dynamics therefore requires a micro basis. My second argument is that expectations should be seen as central to the explanation of economic outcomes. Contemporary economic theory is doing this. However, its model of a calculative preview of the future via rational expectations is questionable. The future is open, non-linear, and informed by the type of uncertainties referred to by Frank Knight. Under such conditions, expectations can be nothing other than “fictional” they “pretend” future states of the world. If the future is not rationally calculable, these fictional expectations are contingent. And this is what makes expectations such an interesting topic for economic sociology. When expectations are contingent, but also relevant to 75

Jens Beckert

distribution because decisions and outcomes depend on them, then capitalist competition is essentially a battle to establish and alter expectations. This applies equally to financial markets, to the entrepreneur wishing to relocate production to China, and to the firm wanting to sell its new smartphone. Such expectations are not individually determined, but rather are the outcome of political, cultural, and social conditions and processes. In short, expectations emerge within a capitalist economy as a process of construction of meaning informed by cultural traits, institutions, and social power, a process which at the same time is at the heart of market struggles. Focusing on the significance of expectations for economic outcomes provides an intriguing research agenda for economic sociology.3 It requires us not only to identify how expectations impact decisions, but also to develop an understanding of the social, cultural, and political origins of expectations as well as their changes. Equally, it holds true that focusing on expectations forces sociologists to re-examine their explanatory models. Present-day action is not to be understood just as the ultimate outcome of past events, but rather as an outcome of perceptions of the future: not only does “history matter”— “the future matters” as well.

References Abbott, Andrew (2005) Process and Temporality in Sociology. The Idea of Outcome in U.S. Sociology. In: George Steinmetz (ed.), The Politics of Method in the Human Sciences. Durham: Duke University Press, 393–426. Beckert, Jens (2011) The Transcending Power of Goods. In: Jens Beckert and Patrik Aspers (eds), The Worth of Goods: Valuation and Pricing in the Economy. Oxford: Oxford University Press, 106–28. Beckert, Jens (2013) Imagined Futures: Fictional Expectations in the Economy. Theory and Society 42, 219–40. Beckert, Jens and Mark Lutter (2009) The Inequality of Fair Play: Lottery Gambling and Social Stratification in Germany. European Sociological Review 25, 475–88. Bell, Daniel (1976) The Cultural Contradictions of Capitalism. New York: Basic Books. Bourdieu, Pierre (1979) Algeria 1960. Cambridge, MA: Cambridge University Press. Braudel, Fernand ([1979]1985) Civilization and Capitalism, 15th–18th Century. London: Fontana. Carruthers, Bruce G. and Arthur L. Stinchcombe (1999) The Social Structure of Liquidity: Flexibility, Markets and States. Theory and Society 28, 353–82. Demange, Gabrielle and Guy Laroque (2006) Finance and the Economics of Uncertainty. Malden, MA: Blackwell Publishing. 3 Of course, from the perspective of general sociology the notion of fictional expectations lends itself to a much broader research program investigating the role of imagined futures in the family, in politics, in religion, in law, etc.

76

Re-imagining Capitalist Dynamics Deutschmann, Christoph (1999) Die Verheißung des absoluten Reichtums: Zur religiösen Natur des Kapitalismus. Frankfurt a.M.: Campus. Deutschmann, Christoph (2009) Soziologie kapitalistischer Dynamik. MPIfG Working Paper 09/5. Cologne: Max Planck Institute for the Study of Societies. Esposito, Elena (2011) The Future of Futures: The Time of Money in Financing and Society. Cheltenham: Edward Elgar. Freeman, Christopher (1974) The Economics of Industrial Innovation. Harmondsworth: Penguin Books. Ganßmann, Heiner (2012) Geld und die Rationalität wirtschaftlichen Handelns. In: Anita Engels/Lisa Knoll (eds), Wirtschaftliche Rationalität: Soziologische Perspektiven. Wiesbaden: Springer, 221–39. Giddens, Anthony (1999) Risk. Second BBC Reith Lecture. BBC Online Network. . Giraudeau, Martin (2012) Imagining (the Future) Business. How to Make Firms with Plans? In: François-Régis Puyou, et al. (eds.), Imagining Organizations. Performative Imagery in Business and Beyond. New York, NY: Routledge, 213–29. Hodgson, Geoffrey M. (2011) The Eclipse of the Uncertainty Concept in Mainstream Economics. Journal of Economic Issues 45, 159–75. Holmes, Douglas (2014) The Economy of Words. Communicative Imperatives in Central Banks. Chicago: University of Chicago Press. Holmes, Douglas R. (2009) Economy of Words. Cultural Anthropology 24, 381–419. Keynes, John Maynard ([1936]1964) The General Theory of Employment, Interest, and Money. London: MacMillan. Knight, Frank H. ([1921]1985) Risk, Uncertainty, and Profit. Chicago: University of Chicago Press. Kocka, Jürgen (2013) Geschichte des Kapitalismus. München: C.H. Beck. Koselleck, Reinhart (2004) Futures Past: On the Semantics of Historical Time. New York: Columbia University Press. Luhmann, Niklas (1976) The Future Cannot Begin: Temporal Structures in Modern Society. Social Research 43, 130–52. Luhmann, Niklas (1996) Die Realität der Massenmedien. 2. ed. Opladen: Westdeutscher Verlag. Marx, Karl ([1867]1977) Das Kapital. Kritik der politischen Ökonomie. Vol. 1. 12. ed. Berlin: Dietz. Mirowski, Philip (1991) Postmodernism and the Social Theory of Value. Journal of Post Keynesian Economics 13, 565–82. Nama, Yesh and Alan Lowe (2013) Due-diligence of Private Equity Funds: A Practice Based View. Birmingham: Aston Business School. Piotti, Geny (2009) German Companies Engaging in China: Decision-Making Processes at Home and Management Practices in Chinese Subsidiaries. MPIfG Working Paper 09/14. Cologne: Max Planck Institute for the Study of Societies. Schumpeter, Joseph ([1911]1934) Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle. Cambridge, MA: Harvard University Press.

77

Jens Beckert Schumpeter, Joseph ([1912]2006) Theorie der wirtschaftlichen Entwicklung. Berlin: Duncker & Humblot. Schutz, Alfred (1962) Collected Papers I: The Problem of Social Reality. The Hague: Martinus Nijhoff. Shackle, George Lennox Sharman (1964) General Thought-Schemes and the Economist. Woolwich Economic Paper 2. Woolwich, NJ: Woolwich Polycentric Press. Shackle, George L.S. (1983) The Bounds of Unknowledge. In: Jack Wiseman (ed.), Beyond Positive Economics. Proceedings of Section F (Economics) of the British Association for the Advancement of Science, York, 1981. London: MacMillan, 28–37. Shapin, Steven (2008) The Scientific Life. Chicago, IL: The University of Chicago Press. Simmel, Georg ([1907]1978) The Philosophy of Money. London: Routledge. Smith, Adam ([1776]1976) The Wealth of Nations. Chicago: University of Chicago Press. Swedberg, Richard (2003) Principles of Economic Sociology. Princeton: Princeton University Press. ter Horst, Klaus (2009) Investition. 2. aktualisierte Auflage. ed. Stuttgart: Kohlhammer. Thompson, E.P. (1967) Time, Work-Discipline, and Industrial Capitalism. Past and Present 38, 56–97. Weber, Max (1922) Wirtschaft und Gesellschaft: Grundriss der Sozialökonomik, III Abteilung. Tübingen: Mohr. Weber, Max ([1927]2003) General Economic History. 8. ed. New Brunswick, NJ: Transaction Publishers.

78

3 Utopianism and the Future of Money Nigel Dodd

Introduction This chapter examines the social and monetary theories behind nine distinct visions of utopian money. I argue that rather than being seen as an exceptional feature of monetary thought, social utopianism should in fact be viewed as central to the theory of money. Insofar as there is a tradition of utopian thought that relates to money, it usually takes the form of abolitionism, indeed there is a line of famous monetary abolitionists stretching back to Plato through modern anarchism, Proudhon and More. The utopianism I will be exploring in this chapter is of a very different hue. In this tradition of monetary thought, utopia is defined not by money’s absence, but rather its radical transformation: the problem is not that money exists at all, but rather that it has been badly designed. What makes these ideas sociologically intriguing is that their authors link the improvement of money with the betterment of society. By utopia, I refer to an idea that does not correspond exactly to empirical reality. This can be read from the etymology of the word “utopia”: ou (not) topos (place), or the place that does not exist. In the sociological literature, this idea is expressed in the Weberian ideal-type. Ideal-types are not descriptive: Weber called them “one-sided exaggerations” of reality, which would be used as tools of comparison. Arguably the clearest example of the heuristic approach to money can be found in the work of Simmel, who refers to a pure concept of money (Simmel 2004: 119, 121, 127, 129, 167, 168) and to perfect money (Simmel 2004: 128, 221, 235, 277, 349, 485). These are formulations of the same underlying idea: correct, pure, or perfect concepts in Simmel’s work are fictions, and closely resemble what Vaihinger calls “as-if” concepts. This is a connection explored by Kaern (1983, 1990), and touched on by Poggi

Nigel Dodd

(1993: 172). Jens Beckert, who writes about fictional expectations in this volume (Chapter 2), draws on Vaihinger to flesh out his own notion of the role of fictions in economic science (Beckert 2013). The form of utopianism on which I focus in this chapter is of an explicitly normative kind, although, as I have argued elsewhere (Dodd 2012, 2014), there are connections between the conceptual utopianism to which I refer and images of money as a vehicle for achieving the good society. Let me emphasize the link between monetary and social reform. These are not merely “technical” schemes for making money more efficient, stable, or long lasting. They are schemes that imagine how money might be used to improve our social world. My aim is to map out the kinds of utopianism that these forms of money entail, and to argue that we can gain important comparative insights into money when it is viewed through the prism of utopianism. Monetary reformers are often cast as eccentrics. Bill Maurer, for example, has coined the affectionate term money nutter “to capture the frenetic activity around money, currency, payment, value storage, and exchange that chases after and possesses an anthropologist of money like myself, especially in times such as these” (Maurer 2011: 5). Less warmly, John Kay uses the term monetary crank to describe people “who espouse schemes for securing peace and prosperity by reforming the world’s money” (“Fair value is not the same as market price,” Financial Times, 16 April 2013). In this chapter, I move away from this tendency to view utopianism in monetary thought and practice merely as eccentricity, and therefore as marginal to the theorization, production, and governance of money. On the contrary, I argue that utopianism can be seen as an inherent feature of all money: from major currencies such as the euro, to new and alternative monetary forms such as LETS, time banks, social credit, peer-to-peer lending, and electronic currencies such as Bitcoin. To illustrate my point, I have selected nine conceptions of monetary reform from a varied field. Each involves a distinct combination of aims and ideals, and in an attempt to systematize the social and monetary theories behind them, I will draw attention to six key features of each one (see Table 3.1): first, the critique of existing money that it implies; second, its underlying definition of money; third, its level of implementation (i.e. local, national, etc.); fourth, its level and mode of governance; fifth, its method of creating money; and sixth, the utopian aims that inform the scheme in question. This is by no means an exhaustive survey of monetary utopianism, but merely a discussion of examples that seem most relevant to today’s changing monetary landscape. What I aim to do in the space available is give a brief survey of what these features are, and what social benefits monetary reform is alleged to bring in each case.

80

Table 3.1. Utopian monies Ecological money (Douthwaite)

Cryptocurrency— The euro (Monet Bitcoin et. al.) (Nakamoto)

Under supply Allows states Leads to financial impoverishes too much instability power and workers influence over individuals

Demands perpetual growth, which is unsustainable

Abuse of trust (by Nationalistic, inefficient issuing authorities, and via double spending)

Medium of exchange

Debt

Debt

Medium of exchange

Means of exchange, store of value, debt, unit of account

Medium of exchange

Means of exchange, store of value, debt, unit of account

National

National

National

National

Multiple

Global

Regional

Workers

State

State Private (non-profit, non-stock) organization

Multiple

Cryptography (block chain)

Transnational and national hybrid

“Debt-free credit” and national dividend— endogenous and exogenous

Fiat— Privately issued debt exogenous (“valuns”)— endogenous

Fiat (e.g. energy backed coupons), credit (banks) and personal (community)— endogenous and exogenous

Peer to peer payments network— exogenous

Fractional reserve— endogenous

Labor money/ time dollars (Ruskin)

Rotting money (Gesell)

People’s bank (Proudhon)

Social credit (Douglas)

Critique of existing money

Under and over payment: injustice

Encourages hoarding

Money is capital, interest is theft

Underlying definition of money

Promise to labor

Medium of exchange

Level of implementation Governance of proposed money

Local National community Local State organizers

Creation of proposed money

Privately issued credit

Fiat—exogenous Credit (exchange notes)— endogenous

Utopian aims of proposed money

Social justice— fair wage

Social Egalitarianism— Social justice—fair “free” money justice— anticapitalism prices

Private enterprise money (Riegel)

Freedom, peace, justice, prosperity

100% money (Fisher et. al.)

Trust free money, Social justice— Balanced and stable money sustainable less debt, less monetary ecology powerful banks, more stable “real” economy

Social Europe, free movement and trade, peace

Nigel Dodd

Ruskin’s Labor Money Labor money is one of the oldest and most powerful attempts to unleash the utopian spirit from inside money. Historically, the idea has appeared in a number of guises, including the labor voucher that was advocated by Robert Owen and Josiah Warren during the early nineteenth century, and more recently, the Time Dollar as conceived by Edgar Cahn. Ruskin’s case for labor money rests on his characterization of money itself as an expression of right, not a means of circulation. Money is not wealth as such, but rather a sign of entitlement to it (Ruskin 1928: 168). What matters to money is not what it contains, but what it can acquire. And what it can acquire, specifically, is power over labor (Ruskin 1928: 169). The “final and best” definition of money, Ruskin argues, is as “a documentary promise ratified and guaranteed by the nation to give or find a certain quantity of labour in demand” (Ruskin 1997: 185 n.). In short, money gives its possessor power over others. When money circulates, it is not value or goods, but people, who are manipulated by those who have it. Ruskin argues that injustice arises in the use of money to acquire labor in two ways: whenever the worker is under-paid, and over-paid. Lying between these is the right or just payment, which Ruskin measures in terms of “giving time for time” (Ruskin 1997: 195). Abstractly, a just wage “will consist in a sum of money which will at any time procure for him at least as much labour as he has given” (Ruskin 1997: 196). Inevitably, complexities arise, such as the problem of determining the monetary value of skill, whether defined by experience, intellect, or passion. But the basic principle of giving time for time, Ruskin argues, is perfectly sound, and people should therefore strive to follow it, even if all they actually achieve is a practically serviceable approximation. By doing so, Ruskin argues, the power of wealth will automatically be diminished, partly because it mitigates against its concentration in the hands of a few, and also because it “gives each subordinated person fair and sufficient means of rising in the social scale,” hence removing the “worst disabilities of poverty” (Ruskin 1997: 199–200). In theory, time-based currencies lie on one side of Simmel’s distinction between absolute and relative equality. Ruskin’s insistence on what is “natural” and “just” in paying fixed rates for labor would be labeled as utopian by Simmel, but in a negative way. In his terms, labor money extends the principle of absolute equality to such a degree that it destroys the principle of relative equality. In practice, many such schemes have sought compromise, for example by awarding double rates for work that is in short supply. In addition, it should be said that time-based currencies are pursued for more varied reasons, not just equality, for example Time Dollars have been used quite effectively to foster community networks, putting those who are out of paid 82

Utopianism and the Future of Money

employment in touch with and working for each other (Seyfang 2004). As this suggests, and as Simmel himself remarked, monetary reforms are best looked at as piecemeal ways of addressing much larger problems, where wholesale solutions to such problems are likely to be flawed, and to fail. Potentially, they are part of a larger repertoire of monetary reforms. Therefore it remains to be established what else such a repertoire might contain.

Gesell’s Rotting Money Our next utopian, Silvo Gesell (1862–1930), was a theoretical economist, as well as a social activist, whose major work, The Natural Economic Order (1906, 2007 cited here) contained long and detailed sections on “free” money; or as he put it, “money as it should be.” He defined free money as “an instrument of exchange and nothing else,” whose sole test of usefulness was the “degree of security, rapidity and cheapness with which goods are exchanged.” Good money as Gesell understood it should secure, accelerate, and cheapen the exchange of goods. By contrast, the introduction of the gold standard to Germany had been a “disaster” because it had “over improved” money, considering it only from the point of view of its holder. Gesell’s proposal was disarmingly simple: make money less attractive to hold on to. Money, he argued, should age, just like commodities. The latter, he observed, have a definite material relationship with time: they rot, decay, break, and rust. Money must have the same properties: it, too, must go out of date like a newspaper, rot like potatoes, rust like iron, and evaporate like ether. If it does not, the relationship between money one side, and goods on the other, will always be asymmetrical—and insofar as people prefer money to goods, they are more likely to hoard it. Gesell concludes that money ought to be made worse as a commodity if it is to be improved as a medium of exchange. The gold standard achieved precisely the opposite. The practice of deliberately reducing money’s value over time unless stamped is known as demurrage, although Gesell himself never used this term. The idea is to charge a fee for not using money within a specified time: for hoarding. Although Gesell’s scheme was intended for national currency, the practice has been widely adopted within alternative currency schemes, and was a feature of Fisher’s stamp scrip as well as Keynes’s bancor. Demurrage was taken up in a number of schemes during the Great Depression, albeit not at the level of state currency. In Germany, Austria, Switzerland, and France, and in a number of American towns, demurrage-based “emergency money” was issued. Rates of depreciation varied, although the precise level appeared to make little difference to whether a specific scheme succeeded or failed. The central measure of perceived success in most cases was whether the velocity of 83

Nigel Dodd

money increased, stimulating the local economy. The results were mixed. Godschalk lists four American schemes—in Santa Cruz, California; Okmulgee, Oklahoma; Mason City, Iowa; and Carmel, California—in which money’s velocity does appear to have increased significantly as a result of demurrage (Godschalk 2012). Demurrage subsequently returned on a widespread scale with the expansion of the LETS movement during the 1990s; it was used in the Austrian Waldviertler system, Regiogeld in Germany, Abeille in France, and the Stroud Pound in the United Kingdom. In Germany, the Bavarian Chiemgauer applies demurrage to cashless currency via a negative interest rate. Again, these monies often have a velocity of circulation that is notably higher than that of mainstream currencies (as measured by M1) such as the euro (Gelleri 2009; Godschalk 2012).

Proudhon’s Bank Most key problems with money and credit systems as constituted during the modern era, according an increasingly popular line of thought—it has been a key tenet of the Occupy movement, for example—derive from dependence arrangements that place core institutions (e.g. the state and/or banks) at the top of a hierarchy, responsible for issuing and regulating money. Critics of such a system advocate a horizontal arrangement. Proudhon’s proposal for a Bank of the People is a good example. His arguments are intriguing because they touch on one of the most prominent and controversial themes in contemporary discussions of financial regulation and monetary reform, namely, the issue of disintermediation. Proudhon proposed his scheme for two banks—a Bank of Exchange and a Bank of the People—in Solution of the Social Problem, completed 1 year after the 1848 revolutions in France. Broadly speaking, his aim was to hand control over economic relations to workers, not capitalists and financiers. The notion of social or mutual credit was at the core of his proposals. Proudhon envisaged the Bank of Exchange as a replacement for the existing central bank, the Bank of France. Proudhon’s argument was premised on the view that money is central to the property rights on which capitalism depends. Without money, he reasoned, there would be no means of extracting interest through borrowed capital. Proudhon’s proposal amounted not so much to abolishing money, however, but rather to bypassing it. If workers could borrow without paying interest—if credit was free—then there would be no market for interest-bearing capital. What was required, Proudhon argued, was a transformation in the understanding of what money essentially is: not capital, but a medium of exchange. Money is not something that needs to be amassed (as capital) because of what it earns (interest). Rather it needs simply to be used: 84

Utopianism and the Future of Money

that is to say, exchanged and passed on. Banks should therefore issue exchange notes (i.e. a coupon or mortgage note) rather than traditional bank notes. These exchange notes represent loans against property. The loan is set for a number of years, whereupon it becomes repayable to the bank by the original borrower. In the event of default, the property on which the note is secured can be sold, and the rights over it passed to the last holder of the note. The purpose of exchange notes is “to convert property itself into money; to free it, to mobilize it, to make it circulable like money” (Proudhon 1927: 90). The difference between Proudhon’s exchange notes and traditional bank notes is important. Whereas a bank note contains a guarantee that it can be redeemed in metallic currency, an exchange note is really just a credit note being passed around and accepted—this is key—at face value. Proudhon’s proposals were premised on a particular understanding of property, labor, and capital. Capital, he said, is unproductive. Rent and interest— and profit in general—are merely forms of theft (Proudhon 1927: 88). Mutual credit, he argued, would be the best means of abolishing rent and interest because it would make the whole idea of capital, and thus the capitalist himself, redundant. The contrast between traditional credit and mutual credit is crucial to this. In a system of interest-bearing property, credit involves a unilateral relationship between lender and borrower. The lender is essentially a parasite, to which the borrower (the laborer) has to pay “tribute” to use capital, which the worker ultimately owns. In a mutual system, with no intermediary lender extracting usury, credit is the giving of the product of one’s labor in consideration for the product of another’s future labor. In the interest-bearing system, there is only one debtor and one creditor. In the mutual system, “every creditor or mortgagee becomes a debtor in his turn” (Proudhon 1927: 85). In terms of contemporary debates about the future of money and banking, the key to Proudhon’s analysis therefore lies with the question of mediation. “Between the producer and the consumer, the current view places the capitalist; between product and product, it puts money; between the worker and the employer, that is to say, between labour and talent, it puts capital, property” (Proudhon 1927: 86). In contrast to the traditional bank, the mutualist association as Proudhon conceives it has no capital; it does not produce anything but exists for exchange alone; its membership is unlimited; it is perpetual (like humanity itself); it does not bind its members to each other (there is no joint liability but only general insurance); and it makes no profit because, after all, “labour produces everything out of nothing” (Proudhon 1927: 87–8). Proudhon describes this arrangement as a system of social economy based on two key principles: first, production without capital, and second, exchange without profit. Credit is thereby restored to its proper social function: it is no longer a tool of speculation whereby borrowers are forced to 85

Nigel Dodd

give up part of their product to the capitalist, but would be managed by the community of producers. Such, according to Proudhon, is the principle of mutualism.

Mutualism: Clifford Hugh Douglas After Proudhon, the next major advocate of the ideal of mutualism was Clifford Hugh Douglas, an Englishman who sought to apply engineering principles to the flow of money. He was just as ambitious as his French counterpart. In Economic Democracy (1920) and Social Credit (1924) (Douglas 1974, 1979), Douglas advanced an “engineer’s view of an ideal society” in which money featured centrally as the means by which the flaws of actually existing society could be corrected. Douglas’s proposals correspond to contemporaneous intellectual developments such as scientific management (Martin-Nelson 2007). Douglas likened the relationship between factory cost and money released as a conversion, analogous to the conversion of mechanical energy into electricity or heat. What was left over he described as dispersion, which in the present system was being charged to the consumer rather than set against the value of the product. The crucial thing, he said, to keep balance, was that producers should absorb the dispersion through lower prices, not consumers. This was not, for Douglas, a question of justice, but of basic engineering: there was insufficient money in circulation. Douglas’s proposals were provoked by the observation (which he made during the First World War) that wages were always insufficient to cover the costs of goods actually produced. Simply put, workers had insufficient purchasing power. Workers were suffering (as consumers) not because they were lazy or lacking in technical knowledge, but rather because the financial system was imposing artificial restrictions on the flow of money. He proposed overcoming this problem, and bridging the gap between goods produced and wages earned, with debt-free credit, as well as a price adjustment mechanism (which he called the Just Price) whereby prices would be reduced in line with the growing efficiency of production. As for debt-free credit, this would be created by means of a National Dividend: a minimum payment to all workers that was offered as an immutable right. The idea appears in the work of Erich Fromm (1976), and is similar to Swiss proposals for a guaranteed yearly stipend that were debated during 2014. There are some wider resonances between these varieties of mutualism— that of Proudhon and that of Douglas—and political philosophy, which are important to bear in mind when weighing up their significance to the idea of utopian money. Mutualism as Proudhon conceived it involves removing the state from the credit system. Proudhon resorted to anarchist principles as 86

Utopianism and the Future of Money

justification for his banks. Douglas, though, was a different political animal. Douglas envisaged the state as taking a central role in the future of money and credit, whereas in Proudhon’s schemes it was the state’s absence—above anything else—that should define the future of money. In this respect it was arguably Proudhon, not Douglas, who turned out to be most in tune with most monetary reformists throughout the twentieth century.

Edwin Riegel and Monetary Freedom An explanation of the possibilities that might be created for improving society though money once it has been freed from government and big banks can be found in the work of Edwin Riegel, who proposed private enterprise money as the foundation for a “non-political” monetary system (Riegel 1944). Riegel’s monetary theory rests on the distinction between objective and subjective ideas of money. The objective idea views money as an entity with an independent existence: it can be created by law, apart from trade, and can—or even should—therefore be issued by governments. The subjective idea views money as a relationship (or process) that “can spring only from trade” (Riegel 1978: chapter 2), for there has never been and can never be an issue of money “except by a buyer in the act of purchase” (Riegel 1944: chapter 2). Although this initially appears similar to Karl Menger’s (Menger 1892) argument that money originated from barter, it turns out to more closely resemble the concept of money as a form of privately issued debt. It is thus Alfred Mitchell-Innes—the poster grandfather of neo-chartalism and modern monetary theory as advocated by Randall Wray—who is the closest comparator here (Mitchell-Innes 1913, 1914; Wray 2004). Like Mitchell-Innes, Riegel describes money in terms of a “circle from issue to redemption” in which the “creditors (money holders) displace each other” (Riegel 1978: chapter 2). Riegel was part of a Private Enterprise Money Committee, which in 1944 produced the Monetary Freedom Declaration. The declaration condemned the “power in government to control the affairs of the people through the power to issue money,” and asserted that it is a sovereign right of every individual to issue their own private money through the interchange of goods and services. The declaration envisaged a non-profit, non-stock organization issuing money purely through trade using valuns, defined as tokens of mutual credit. Riegel’s ambitions extended far beyond the monetary sphere. The system would, the declaration said, raise wages to their highest possible level to maintain constant employment; prevent both inflation and deflation; abolish bureaucracy and government centralization; defeat fascism and communism; ensure freedom, prosperity, and democracy; and preserve peace. Beneath the 87

Nigel Dodd

declaration, as published, were listed various tributes to Riegel’s book: its criticisms of conventional monetary theory were “devastating” and “irrefutable” and proved that totalitarianism would be impossible if governments had no control over the monetary system; Riegel’s text was bound to be more influential than Marx’s Capital, moreover, not least because it exposes “how a political and coercive money system is bound to destroy free enterprise—to corrupt free citizens into subjects and slaves.” But unlike Proudhon’s Bank of the People, Riegel’s system never actually got off the ground. Riegel’s ideas are sometimes cited as important precursors for latter-day complementary schemes such as the LETS movement (Greco 2009: 5–6). This is a questionable claim. With LETS, there are important social considerations: money is seen as a means of community building. Such considerations are missing from Riegel’s analysis, which is rightly invoked by libertarians as an exemplar of “free market money” (Browne 1974: 27, 30, 379). While Riegel’s proposals were anti-statist, they also reveal an underlying commitment to an individualist account of money’s evolution and reproduction. This, too, contradicts many of today’s local currency movements. Thus, Riegel shares considerably more common ground with Hayek than with Proudhon.

Fisher’s 100 Percent Money Irving Fisher coined the term “100 per cent money” to refer to a scheme (known as the Chicago Plan, after the scheme’s strongest advocate, Henry Simons, an economics professor at the University of Chicago1) that was conceived in the midst of the Great Depression. Fisher, as already noted, also thought up the idea of “stamp scrip” at around the same time, which— like Gesell’s ideas—addresses the problem of keeping money in circulation. The motivation behind 100 percent money, by contrast, is to eliminate the financial instability that inevitably results (so its proponents argue) from the system of fractional reserve banking that allows private commercial banks to create money ab initio through lending. Fisher was a strong supporter of the scheme as well as its most succinct summarizer (Fisher 1935, 1936). In basic terms, the plan aims to separate the money and credit functions of the banking system, that is to distinguish the role of private banks in managing deposits, from their role in making loans. According to its advocates, the quantity of money and the quantity of credit would be independent of each 1 According to Philips (1994, see also Benes and Kumhof 2012: 17), the plan was originally conceived by Frederick Soddy in the UK (Soddy 1926), then picked up in the US by Frank Knight (Knight 1927), who presented the plan to Roosevelt (Knight 1933). Henry Simons wrote the second, more detailed memorandum to Roosevelt in November 1933 (Simons et al. 1933).

88

Utopianism and the Future of Money

other in such a system. This happens in two main ways: first, by guaranteeing that all deposits are backed 100 percent by money that has been issued by government; and, second, by ensuring that all bank loans are either created out of existing deposits, or through the borrowing of government-issued money from non-banks. In other words, the system is designed to safeguard the money supply by making sure that banks are unable to create money themselves merely by making loans (which is the main feature of fractional reserve banking). According to Fisher, the Chicago plan had four main advantages over the existing system. First, it would give governments greater control over the credit cycle, which under the existing system tends to be exaggerated when banks create too much credit during a boom, and contract it too quickly during a recession. Second, bank runs could not occur because all deposits are backed by government-issued money. Third, because governments issue “new” money (at zero interest) rather than having to borrow it from banks, the interest rate burden would be reduced: “irredeemable government-issued money represents equity in the commonwealth rather than debt” (Benes and Kumhof 2012: 4). Fourth, overall (public and private) debt levels would be likely to be reduced. This last point is crucial to understanding much of the appeal of the idea of 100 percent money, most especially in periods following a credit crisis, such as the Great Depression (when the plan was conceived), and the global financial crisis that began in 2008. In Britain, a monetary reform group, Positive Money, has been advocating a scheme based on the Chicago plan—known as “sovereign money”—on the grounds that a system of 100 percent backed money would have avoided the excesses of the credit cycle that led up to the crisis of 2008 (Positive Money, 2013: 7–10). So who would be responsible for creating money under this system? In the original Chicago plan, it was envisaged that government would take on responsibility for money creation, whereas the proposals put forward today by Positive Money refer to the Monetary Policy Committee of the Bank of England as the key body that decides how much money to create.2

2 The Positive Money proposals argue for a clear separation between the decision to create money and the decision to spend it: “it is important that politicians are not directly given control over money creation, because of the risk that political pressures could lead the government to abuse this power to create money. Therefore, the decision over how much new money to create should be taken, as it is now, by the Monetary Policy Committee (MPC) at the central bank in line with their democratically mandated targets. Likewise, the process should be designed so that the central bank is not able to gain influence over government policy. In practice this means that the MPC and the Bank of England should not have any say over what the new money should be used for (this is a decision to be taken solely by the government) whilst the government should have no say over how much money is created (which is a decision for the MPC)” (Positive Money 2013: 17). Quite how practicable such an arrangement would be in practice is open to debate, just as the true political independence of independent central banks is open to debate (Positive Money 2013: 36–7; see also Dodd 1994, chapter 5).

89

Nigel Dodd

Unsurprisingly in the face of opposition from the financial industry, the Chicago plan was never adopted, although it did play a major role in the 1935 Banking Act, which brought the Federal Deposit Insurance Corporation (which provides Federal guarantees for deposits if banks fail) into existence. Then, as now, the “populist” appeal of 100 percent money inevitably focuses on what it means for banks. Although fractional reserve banking has existed for a long time, indeed it predates the kinds of governmental monetary authorities to which we are now accustomed, there is remarkably little public understanding of how the system actually works. In the aftermath of the 2008 crisis, fractional reserve banking drew as much (if not more) criticism and moral condemnation as the “shadow” banking system that was more obviously implicated in subprime lending—and, in particular, the securitization of subprime loans.3 But it is the association between fractional reserve banking and debt per se that is arguably key to the appeal of 100 per cent money. Following any credit crisis, excessive debt tends to be regarded as symptomatic of a damaged life, particularly in the global North where large swathes of the population—as well as their governments—are mired in financial debt. Insofar as there is a utopian strain in 100 per cent money, then it is probably defined by the ideal of a debt-free existence—which, as Walter Benjamin might argue (Dodd 2013, 2014), would be tantamount to being released from a state of original sin.

Bitcoin Another scheme that would resonate with Hayek, author of Denationalisation of Money (Hayek 1976), is Bitcoin. This was the brainchild of Satoshi Nakamoto—a pseudonym for an unknown individual or group—who introduced the idea of Bitcoin in a 2008 paper (Nakamoto 2008). The idea has its roots, though, in early twentieth century cryptography, as well as in earlier schemes such as B-money and bit gold. Nakamoto characterized the Bitcoin scheme as a system for electronic transactions that did not rely on trust, a possibility that in his view specifically required the elimination of opportunities for double spending. Double spending exists as a problem in electronic payments systems because each owner of a coin has no means of knowing

3 As Krugman writes about the 100 percent money proposals and their allegation that fractional reserve banking and the 2008 crisis are linked: “This seems an oddly narrow view given the nature of the 2008 crisis, which involved very few runs on deposits but a massive run on shadow banking, especially overnight lending that in a fundamental sense fulfilled the functions of deposit banking but also created the same kind of risks” (“Is a banking ban the answer?” New York Times, 26 April 2014).

90

Utopianism and the Future of Money

whether or not the previous owner of the coin used it twice. The common solution had been to rely on a trusted authority, or mint, that would check every transaction. Nakamoto’s proposals sought to get rid of this central authority by using a block chain (shared by all computers or nodes within the network) through which the transaction history of each coin could be publicly known. Privacy would be maintained, meanwhile, by encrypting the public keys, ensuring that the history of every “coin” is anonymized. Bitcoin was launched in January 2009, using open source software, as a peer-to-peer payments network that combined the principles discussed in the previous paragraph: (Bit)coins were created within their network; their creation was strictly controlled without being governed by a central issuing authority. The network is programmed to ensure that the total number of Bitcoins in existence will never exceed 21 million: half of that total supply will have been generated by 2013. Bitcoins are created through dedicated rigs (PCs), which mine for new coins through a series of computations that require considerable computational power. The network is designed to produce a fixed number of Bitcoins per unit of time. Since its launch, the network has grown rapidly to become the most widely used alternative money system. Silk Road, an online marketplace for buying and selling drugs, has taken advantage of the untraceability of Bitcoins, in combination with the anonymizing tool, Tor. Having opened in February 2011, after 2 years the site was generating $1.7 billion of sales per month. For critics (as well as some supporters) of Bitcoin, Silk Road is the perfect storm, demonstrating the currency’s capacity to evade state regulation of criminal as well as financial activity. As such, Bitcoin has attracted a barrage of criticism. For example: “Because Bitcoins are totally independent and not regulated by authorities, it proved the perfect monetary instrument for an anonymous community which had a mutual interest in maintaining anonymity as well as an alternative underground store of value” (Financial Times, 3 April 2013). And: “below the ‘real’ economy of legal tender and federal reserves, Bitcoins fuel a shadow economy that connects students, drug dealers, gamblers, dictators and anyone else who wants to pay for something without being traced” (The Guardian, 4 March 2013). Few critics pointed out that the other monetary form that is uniquely well suited to secret transactions is cash. It is worth noting that even many supporters of Bitcoin are now playing down its prospects as a currency, preferring to emphasize the significance of the blockchain as a technological breakthrough, making it possible to establish a decentralized, trustworthy generic transaction store (see http://dpk.io/ blockchain). As a form of money, Bitcoin shares many of the flaws associated with gold, namely, its attractiveness to speculators and its inflexibility qua money. And yet Bitcoin is unlike gold in a number of crucial respects. One of 91

Nigel Dodd

the main reasons for its novelty is the open source software on which it is based. Strictly speaking, no individual or organization controls Bitcoin. There is a group of administrators, the Bitcoin Foundation, which is run on similar lines to the Linux Foundation. The Bitcoin “boom” that occurred during the early months of 2013 drew greater levels of publicity to the system than hitherto not least because it coincided with a series of events in the mainstream monetary and banking system: first, the Cypriot banking crisis, with the initial plan to “bail-in” small depositors, overriding deposit insurance; second, Russia’s call for a repatriation of offshore capital; and third, the Japanese currency debasement. Although it remains doubtful whether Bitcoin’s price rise was actually driven by these events, the coincidence was enough to fuel debate about the future of state money and mainstream banking, and the role of Bitcoin as an alternative currency that appeared to be free from political manipulation, and in relation to which general issues of “trust” (which had been shattered in Cyprus) did not appear to arise. For a while at least, monetary utopianism seemed to be catching on. Hoarding, though, remains a key issue with Bitcoin. Hoarded money is of limited usefulness qua money. The very feature of Bitcoin that renders it attractive as an open and democratic monetary system, that it is free from asymmetrical power structures—the software that controls exactly how many Bitcoins will be produced—undermines its operation as a form of money. Reflecting such concerns, a new variant of Bitcoin is under development, which exploits its perceived virtue of disintermediation while specifically seeking to avoid hoarding. This is Freicoin, which is essentially Bitcoin plus demurrage. The new currency is being promoted through the Freicoin Foundation, which is linked to Occupy Wall Street.

Ecological Money As we have seen, advocates of alternative monies often envisage a set of exchange relations in which money creates rather than erodes binding social ties. However, local association not only underwrites the value of such monies, but also restricts it. One major practical difficulty of such monies is their limited-purpose quality. Their value evaporates beyond the community, and their validity can be partial even within its borders. Such self-imposed limits of local monetary orders, although on one hand a source of richness and strength, tend to undermine their efficacy over time. Digital currencies may help to resolve this problem, although arguably at the expense of the rich social ties on which more local systems appear to thrive. The underlying tension here, in Simmelian terms, is between quality and quantity: between the depth of associations facilitated by local currencies on the one hand, and the breadth 92

Utopianism and the Future of Money

of the exchange relations which any given monetary form makes possible on the other. Peter North (2005) refers to this tension in terms of alignment of the moral and economic scale of local currencies. The obvious solution to such dilemmas is to develop not just one alternative form of money, but rather several: this could be a “realistic” utopia of a pragmatic and limited kind. The idea of having distinct currencies circulating alongside each other is hardly new; indeed one could say that it accurately describes the existing state of affairs throughout the history of money. Zelizer argues that multiplicity is an inherent feature of even apparently singular, monolithic monies such as national currencies. But the positive advocacy of monetary multiplicity is rarely found in the literature on monetary reform, which, as we have seen, tends to get hooked onto specific fears (e.g. stagnation or inflation) that generate formulaic and sometimes self-defeating solutions to complex problems. Richard Douthwaite proposed something along the lines of a multiple currency system in The Ecology of Money (Douthwaite 2006). In accordance with its environmentalist language, Douthwaite’s position is based on a certain kind of fear, namely, of the contribution that extant forms of money have been making to the emergence of our “unsustainable, unstable global monoculture.” Like the New Economics Foundation in the UK, Douthwaite argues that the monetary system as it is currently configured in advanced capitalist countries—with banks creating money as they create loans—supports an economic system that is underpinned by the belief (and corresponding policies) in perpetual growth. Given that interest payments are necessary to service the debts that money consists of, “the economy must grow continuously if it is not to collapse,” and continual growth is unsustainable. There is an analogous logic in David Harvey’s work (Harvey, 2010), and this was also the cornerstone of Fromm’s proposal for a humanistic utopia (Fromm, 1976). Douthwaite’s argument focuses on money creation, which, he states, is currently in the hands of three distinct groups in society: commercial institutions (or banks), governments, and users (i.e. communities, etc.). Contrary to monetary theorists such as Ingham and Wray who maintain that these different forms of money are essentially part of the same generic monetary system—defined by the unit of account that a government declares it will accept in payment of taxes—Douthwaite insists that these are distinct monetary forms that meet different needs and therefore fulfill different social functions. He identifies four such needs in particular: first, an international currency is required that can play the role that used to be performed by gold; second, there is a need for a national or regional currency that is related to the international currency; third, localized monies are required, which are voluntarily created by their users to mobilize resources left untapped by national or 93

Nigel Dodd

regional systems; and fourth, a secure long-term store of value is needed by those who want to hold their savings in a liquid form. Substantively, Douthwaite’s work stands out for the proposal he makes in relation to international money. Instead of using gold, a major currency or currency basket as the international reserve currency, he suggests adopting energy backed currency units. These would be like ration coupons, with a finite supply administered by a transnational body such as the IMF and allocated to governments on a per capita basis. These coupons could then be used to purchase energy emission rights, and distributed both to citizens and corporations domestically. This would be an “ecological” money because rather than the world’s monetary system (and its economies) being governed through the supply and demand of credit—whose environmental impact would just be seen as an externality—the relationship between economic activity and energy consumption would be directly expressed by (and could be controlled through) the flow of international money. The principle would be that economies can expand only to the extent that they become more energy efficient: a country using up too much of its energy quota would be like running up too much debt, with domestic “inflation” eventually forcing it to contract. Although the notion of ecological money is intriguing in its own right, perhaps of greater interest to Douthwaite’s argument is the prospect that energy units merely make up one tier of a four-tier monetary system in which each money is expected to answer a specific set of needs. The principle behind the idea is simple, and ought to be self-evident after even the most cursory encounter with the history of money. Throughout that history, distinct monies have circulated side-by-side, being created and used according to need. Even during the modern era, in which states supposedly monopolized the right to name money and to control its production and supply, supplementary monies have existed, and often thrived. Although user-controlled currencies such as LETS tokens or time dollars often fulfill an important counter-cyclical function—for example by enabling people to pay for goods and services even when their supplies of conventional money are depleted— this is hardly a good basis for holding them as a relatively liquid store of value. Indeed, as discussed earlier in this chapter, being held for any length of time is the kiss of death for such counter-cyclical currencies, which, as Gesell rightly pointed out, are better off being made to rot. There is something intuitively appealing about Douthwaite’s approach: if not to the idea of energy units, then certainly to the argument that any viable—and, even, utopian—monetary system should be a field of variation, consisting of a repertoire of different ways for organizing money. If only one particular aspect of money is allowed to hold sway at the expense of all others, 94

Utopianism and the Future of Money

it is inevitable that predictable and perfectly avoidable problems will arise: for example, sclerosis in the case of commodity-based money, and inflation in the case of credit money. Sociologically, too, we need to develop a more rounded understanding of the variable impact of different forms of money on society itself to get to grips with the fact that, contra Simmel, there is no such thing as perfect money.

The Euro Our final, and perhaps surprising, example of monetary utopianism is the euro. When the euro was introduced on 1 January 1999 it was the world’s second-largest reserve currency, after the US dollar. The Eurozone itself—often referred as “Euroland” in its earliest days, with a mixture of affection and irony—was probably the clearest (and certainly the biggest) example of a formally homogenous transnational monetary space. With no central political authority but only a central bank with a strict legal mandate to focus on only the technical efficiency of its currency, this was arguably deterritorialized money par excellence. Prior to the euro’s launch, there had been other monetary unions in the modern era, for example between Belgium and Luxemburg, a Latin Monetary Union, and a Scandinavian Monetary Union (Chown 2003). There are several monetary unions in Africa, and one has been planned for Gulf States. The Eurozone, however, is the largest and most ambitious monetary union attempted so far, its members the most economically advanced. It was unprecedented in size, accounting for 20 percent of the world’s output and 30 percent of its trade (Eichengreen 2008: 221). To some it was an anachronism, representing an outdated notion of Europe and a flawed theory of money (Goodhart 1997, 1998). It was also an elitist project, designed from the political center without considering regional variation; or insofar as such variation mattered, it was deliberately concealed. To others, the euro heralded a new world in which states were pooling monetary sovereignty, bringing into existence something that was unprecedented on such a scale: a currency that would be shared by people with different tax systems and governments, different languages, and distinct cultures (2001). The euro presaged a new form of monetary cosmopolitanism to which states and nations were increasingly irrelevant. National currencies can be utopian too, of course. This is not only implied by the symbolism on banknotes, but also in political sentiments such as those expressed by Helmut Kohl, Chancellor of Germany from 1982 to 1998, about the Deutschmark: “The D-Mark is our flag. It is the fundament of our post-war reconstruction. It is the essential part of our national pride” (Marsh 2009: 112). Habermas was highly critical of such a stance, arguing that a narrow form of “Deutschmark nationalism” was a major 95

Nigel Dodd

obstacle to open, rational and democratic discussion of German unification. He may equally—and, perhaps, more accurately—have referred to Deutschmark utopianism (see Habermas 1990). The euro has been subject to a good deal of criticism, both before it was established (see Dodd 2001) and, more recently, during the crisis that has been under way in the Eurozone since 2008–9. From the earliest stages of planning for European monetary integration, much was made by critics of the risks involved in operating a single monetary policy in the Eurozone. There were debates, for example, over whether the Eurozone would be a viable optimum currency area (Mundell 1961; Goodhart 1998). The majority of economists believed that it would not be, although the architect of the theory in question, Robert Mundell, seemed to be broadly in favor of the euro project (McKinnon 2000). Knapp once said that as soon as two states agree to pool their control over money, they are no longer separate states (Knapp 1924: 41). From a similar perspective, Randall Wray described the euro as “the world’s first modern experiment on a wide scale that would attempt to break the link between a government and its currency” (Wray 2006: 91). According to these definitions, when the original members of the Eurozone signed the Maastricht Treaty on 7 February 1992, they voluntarily surrendered a significant pillar of sovereignty, namely, the right to manage their own currencies. From the outset, however, the Eurozone was never a fully supranational entity, but rather a hybrid. There was a central bank for the Eurozone as a whole, but no equivalent Treasury. The Eurozone was sometimes compared with the US, which also has a national central bank together with separate states who raise their own taxes. But the analogy is flawed because, as witnessed during the crisis, the relationship between the central bank and separate states is more distant in the Eurozone than it is in the US. Whereas a US state in financial difficulty is likely to be bailed out by central government, this is not the case in the Eurozone, where financial support is heavily conditional and politically problematic. Since the euro crisis began in 2008–9, much has been made by its critics of the lack of fit between the Eurozone as a political and social community, as opposed to an economic and monetary space. Earlier debates about the Eurozone’s architecture, for example the ECB’s constitution and the stringency of its anti-inflationary stance, are now mirrored by arguments over its future, and especially over bailouts, with the same ideological protagonists lined up (publicly, at least) on each side. According to Swedberg, the euro project was organized around “the idea that you can create a European society through economic means” (2013: 2). Similarly for Habermas, the euro was conceived as the economic vanguard of a broader political (and even constitutional) project (Habermas 2012: 1–12). It is in this sense, especially, that we can understand the euro’s underlying utopian strain in theoretical (and not just rhetorical) 96

Utopianism and the Future of Money

terms.4 Swedberg argues that there are clear affinities between the ideas of Jean Monnet—which were key to construction of the EU in the 1950s—and those of Saint-Simon. The affinity that Swedberg has in mind is twofold. First, it concerns the project of unifying society via the economy: In which ideas will we find the organic bond that can unite people in a society? In the ideas of industry . . . All comes from industry, we therefore have to do everything for industry. (Saint-Simon 1977: 17, 165)

The second affinity that Swedberg finds between the ideas of Saint-Simon and money concerns Europe directly, and focuses on Saint-Simon’s 1814 pamphlet, For the Reorganization of the European Society in which he drew up a plan for a peaceful Europe in which industrialists would play a central role (SaintSimon 1977: 153–248; cf. Swedberg 1994). Echoing both ideas, we find in Monnet’s draft of the Schuman Declaration the idea that pooling coal and steel production would “immediately provoke the establishment of common bases for economic development as the first step in the federation of Europe” (Eichengreen 2007: 168). According to Swedberg, although there is no explicit evidence of a direct link between the ideas of Saint-Simon and Monnet, the affinities were striking to other important architects of European integration, such as Jacques Delors (Swedberg 2013: 8). And it is in the arguments of Delors, especially, that we find the role of economics in a utopian—that is peaceful and integrated—Europe being emphasized. He expressed this mainly in relation to the single market, which he argued “must not be thought of purely as an economic trading and commercial entity” (Delors 2013: 177). The key point here was that economic integration was being viewed as a means of achieving political integration—far less palatable to many European citizens— indirectly (Swedberg 2013: 11). As Krugman puts it: “The point is to deliver a series of economic integration plans that do double duty: they’re economically productive, but they also create de facto solidarity” (“The Euro and the European Project,” cited in Swedberg 2013: 13). As for the role of money in helping to create such a space, one of the clearest statements of such a goal was made by Angela Merkel when she described the euro as “much more than a currency. The monetary union is a union of fate. This is our historic task. If the Euro fails, then Europe will fail” (Marsh 2009: 264).

4 Other commentators have associated the euro with utopianism in a much more negative and polemical sense than Habermas or Swedberg. Writing in the UK’s Daily Telegraph newspaper, Ed West describes European monetary integration as a form of “neo-Christian utopianism” that echoes Alexandre Kojève’s notion of the end of history “whereby national boundaries and exclusive communities would wash away and a new world without borders would emerge” (“The euro delusion,” Daily Telegraph, 28 September 2011). From much the same political viewpoint, Margaret Thatcher in Statecraft (2002) called the EU itself a “classic Utopian project, a monument to the vanity of intellectuals, a programme whose inevitable destiny is failure: only the scale of the final damage is in doubt” (2002: 359).

97

Nigel Dodd

Critics of the euro are now arguing that the “unity” of the Eurozone is a delusion. As Swedberg puts it: “Each country was now on its own, and could at best only expect support from EU to the extent that this was necessary to stop the crisis from spreading” (2013: 18). But as Swedberg himself implies, such a reading is over-simplistic because it under-estimates the extent to which economic and monetary integration across the Eurozone has taken place, for better or for worse: the Eurozone cannot just be “undone” by disaggregating its constituent parts back into their original national units. Nor is there a political willingness to do so, particularly among the electorates of those countries worst affected by the crisis.5 Insofar as Eurozone integration has failed, it is mainly in financial rather than monetary terms. The Eurozone was built as a unified monetary space in the sense that there was common medium of exchange. But it was a fragmented financial space with complex and uneven characteristics: diverse banking systems and bond markets, and overlapping and contradictory public/private obligations for external financing.6 Still now, in the heat of the crisis when, short of disbanding the Eurozone altogether, only a form of sovereign debt mutualization appears to offer a solution to the imbalances that have been building up, the idea does not enjoy wide political support (but see De Grauwe and Mosen 2009; Soros 2009). Few member state governments, let alone their domestic electorates, seem willing to countenance any form of shared borrowing, whether in the form of common bonds, another form of debt mutualization, or a permanent common rescue fund. The utopian strain within the euro has been both highlighted and contested in the debate that has been taking place in Germany between Wolfgang Streeck and Jürgen Habermas. They broadly agree on their reading of the nature of the Eurozone crisis. In particular, Habermas (2011) has agreed with Streeck’s analysis (see Beckert and Streeck 2011) that the strategies employed by member-state governments to overcome the sovereign debt crisis—cutting state expenditure, increasing taxation, and negotiating debt reduction with creditors—are unsustainable. Likewise, he concurs with Streeck’s view (Streeck 2011) that the Eurozone crisis reveals deeper tensions between capitalism, as defined by the logic of finance, and democracy, as expressed by popular sovereignty. Finally, Habermas agrees with Streeck that the Eurozone has perpetuated a “neoliberal technocracy” that conflicts with fundamental principles 5 A Pew Research Centre survey conducted in March 2013 showed that in Greece, 69 per cent of those polled wanted to keep the euro, as opposed to 25 per cent who wanted to revert to their old national currency; the figures were similar in Spain (67/29), Germany (66/32), Italy (64/27), and France (63/37), although perhaps more noticeable here is that citizens in the strongest states appear more predisposed to exit than the others, see http://www.pewglobal.org/2013/05/13/thenew-sick-man-of-europe-the-european-union/, last accessed 15 June 2013. 6 Initially, of course, these fault lines were far from clear. For example, Eurozone member states were able to borrow at lower interest rates because creditors (mostly bondholders) were treating them as part of an homogeneous financial space.

98

Utopianism and the Future of Money

such as the fair distribution of revenue and property, secure living standards, and the maintenance of public services and collective assets. Despite these areas of agreement, the arguments of Streeck and Habermas diverge when it comes to assessing whether the aims towards which the euro was originally oriented—its utopianism, essentially—are still achievable, and worth pursuing. For Habermas, the Eurozone is flawed in execution, not in its aims. Only by moving on to implement the European project by extending its democratic institutions at the European level can the threat of neoliberalism— which Streeck wrongly associates with the Eurozone itself—be held in check. “Should one damage the project for the European Union that emerged after the war by abandoning the single currency? Or progress significantly with political union, especially in the Eurozone, to the extent of democratically legitimising the transfer of competences beyond national borders?” he asks. By contrast, Streeck argues for an abandonment of the project. The conflict of interest between Eurozone member states in the north and south is impossible to overcome as long as these states remain with a monetary union that is essentially forced, dividing them structurally into first- and second-class nations—or core and periphery. Paradoxically, if peace was the ultimate aim of European monetary integration, these divisions run the risk of generating overt conflict between those nations. He concludes: “How can it happen that someone like Jürgen Habermas should advise us to remain attached to such a monstrous creation, one that even its economic supporters believe can survive only through ‘reforms’ making it even more monstrous?” (cited in http:// www.resetdoc.org/story/00000022381).

Conclusion I have touched on a wide range of monetary reform issues in this chapter: from idealistic schemes (such as those of Proudhon and Simmel) that are designed to address fundamental problems of social inequality, to theories (such as those of Gesell and Ruskin) that focus mainly on our relationship with money, to a series of practical proposals for developing forms of money and credit that answer specific social, ethical, and political objectives. It is striking, however, that most monetary reform proposals are framed as much by apprehension as by aspiration. Proudhon and Douglas feared economic stagnation as much as they strove for the social benefits of mutualism, while Riegel and Nakamoto were as anxious about liberating money from the inflationary dangers of monopolistic institutions as they were encouraged by the political benefits of monetary freedom. In extremis, the architects of the euro feared war. On all sides, these arguments reverberate in present-day, post-crisis concerns 99

Nigel Dodd

about the harmful effects of monetary austerity and the social damage caused by large banks and the state agencies they have captured. There is no single solution to the problems money poses in today’s world because there is no single set of problems. Simmel warned against extreme solutions, choosing to prefer versions of political creeds such as liberalism and socialism that only ever operate as a counterpoint, never as an absolute set of guidelines to live by. Such “middle-range” pragmatism refuses to imagine that the perfect world is necessarily the antithesis of everything that worries us about the world we currently inhabit. In monetary terms, the Simmelian pragmatist would not argue for a debt-free existence; nor for a return to gold; nor for a world consisting only of state-free money; nor—even—for a world without banks. Rather, he or she would argue for a genuine monetary pluralism in which a full range of monies is available, circulating in networks that are free to all, for individuals to use according to need and circumstance.

References Beckert, J. (2013) Imagined futures: fictional expectations in the economy. Theory and Society 42 (3), 219–40. Beckert, J. and W. Streeck (2011) Die nächste Stufe der Krise. Frankfurter Allgemeine Zeitung, August 20, 2011, 29. Benes, J. and Kumhof, M. (2012) The Chicago Plan Revisited. IMF Working Paper 12/202. Washington DC.: International Monetary Fund. Browne, H. (1974) You Can Profit from a Monetary Crisis. New York: Ishi Press International. Chown, J. (2003) A History of Monetary Unions. London: Routledge. De Grauwe, P. and W. Mosen (2009) Gains for All: A Proposal for a Common Euro Bond. Intraeconomics May–June, 132–5. Delors, J. (2013) Economic Governance in the European Union: Past, Present and Future. Journal of Common Market Studies 51 (2), 169–78. Dodd, N. (1994) The Sociology of Money. Cambridge: Polity Press. Dodd, N. (2001) What is Sociological about the Euro? European Societies 3(1), 23–39. Dodd, N. (2012) Simmel’s Perfect Money: Fiction. Socialism and Utopia in The Philosophy of Money. Theory, Culture and Society 29 (7/8), 146–76. Dodd, N. (2013) Nietzsche’s Money. Journal of Classical Sociology 13 (1), 47–68. Dodd, N. (2014) The Social Life of Money. Princeton, NJ: Princeton University Press. Douglas, C.H. (1974) Economic Democracy. Sudbury: Bloomfield Books. Douglas, C.H. (1979) Social Credit. Sun City, AZ: Institute of Economic Democracy. Douthwaite, R. (2006) The Ecology of Money. Cloughjordan, Ireland: Feasta. http://www. feasta.org/documents/moneyecology/contents.htm. Eichengreen, B. (2008) Globalizing Capital: A History of the International Monetary System. Princeton, NJ: Princeton University Press.

100

Utopianism and the Future of Money Eighengreen, B. (2007) The Breakup of the Euro Area. NBER Working Paper No. 13393, Cambridge, MA: National Bureau of Economic Research. http://www.nber.org/ papers/w13393. Fisher, I. (1935) 100% Money: Designed to keep checking banks 100% liquid; to prevent inflation and deflation; largely to cure or prevent depressions; and to wipe out much of the National Debt. New York: The Adelphi Company. Fisher, I. (1936) 100% Money and the Public Debt. Economic Forum, April–June, 406–20. Fromm, E. (1976) To Have or To Be? New York: Harper and Row. Gelleri, C. (2009) Chiemgauer Regiomoney: Theory and Practice of a Local Currency. International Journal of Community Currency Research 13, 61–75. Gesell, S. (2007) The Natural Economic Order. Frankston, TX: TGS Publishers. Godschalk, H. (2012) Does Demurrage Matter for Complementary Currencies? International Journal of Community Currency Research 16, 58–69. Goodhart, C.A.E. (1997) One Government, One Money. Prospect March, 1–3. Goodhart, C.A.E. (1998) The Two Concepts of Money: Implications for the Analysis of Optimal Currency Areas. European Journal of Political Economy 14 (3), 407–32. Greco, T.H. (2009) The End of Money and the Future of Civilization. White River Junction, VT: Chelsea Green Publishing Company. Habermas, J. (1990) Der DM-Nationalismus. Die Zeit 14, March 30, 1990. Habermas, J. (2011) Euro-Krise: Rettet die Würde der Demokratie. Frankfurter Allgemeine Zeitung, November 4, 2011. Habermas, J. (2012) The Crisis of the European Union: A Response. Cambridge: Polity Press. Harvey, D. (2010) The Enigma of Capital and the Crises of Capitalism. London, Profile Books. Hayek, F. (1976) Denationalization of Money, the Argument Refined. London: Institute of Economic Affairs. Kaern, M. (1983) Understanding Georg Simmel. Sociological Focus 16(3), 169–79. Kaern, M. (1990) The world as human construction. In: M. Kaern, B.S. Philips, and R. S. Cohen (eds), Georg Simmel and Contemporary Sociology. London: Kluwer, pp. 75–98. Knapp, G.F. (1924) The State Theory of Money. London: Macmillan. Knight, F. (1927) Review of Frederick Soddy’s “Wealth, Virtual Wealth, and Debt”, The Saturday Review of Literature, April 16, 732. Knight, F. (1933) Memorandum on Banking Reform, March. Franklin D. Roosevelt Presidential Library, President’s Personal File 431. Marsh, D. (2009) The Euro: The Politics of the New Global Currency. New Haven: Yale University Press. Martin-Nelson, J. (2007) An Engineer’s View of an Ideal Society: The Economic Reforms of C. H. Douglas, 1916–1920. Spontaneous Generations 1(1). Maurer, B. (2011) Money Nutters. Economic Sociology: The European Electronic Newsletter 12(3), 5–12. McKinnon, R. (2000) Mundell, the Euro, and Optimum Currency Areas. Department of Economics Working Paper 009, University of Stanford. Menger, C. (1892) On the Origin of Money. The Economic Journal 2, 239–55. Mitchell-Innes, A.M. (1913) What is Money? In: R. Wray (ed.), Credit and State Theories of Money: The Contributions of A. Mitchell Innes. Cheltenham: Edward Elgar Publishing, 14–49.

101

Nigel Dodd Mitchell-Innes, A.M. (1914) The Credit Theory of Money. In: R. Wray (ed.), Credit and State Theories of Money: The Contributions of A. Mitchell Innes. Cheltenham: Edward Elgar Publishing, 50–78. Mundell, R. (1961) A Theory of Optimum Currency Areas. American Economic Review 51(4), 657–65. Nakamoto, S. (2008) Bitcoin: A Peer-to-Peer Electronic Cash System. https://bitcoin. org/bitcoin.pdf. North, P. (2005) Scaling Alternative Economic Practices? Some Lessons from Alternative Currencies. Transactions of the Institute of British Geographers 30(NS), 221–33. Phillips, R. (1994) The Chicago Plan & New Deal Banking Reform. Armonk, NY: M.E. Sharpe. Poggi, G. (1993) Money and the Modern Mind. Berkeley: University of California Press. Positive Money (2013) Sovereign Money: Paving the Way for a Sustainable Recovery. London: Positive Money. Proudhon, J.-F. (1927) Proudhon’s Solution of the Social Problem. New York: Vanguard Press. Riegel, E.C. (1944) Private Enterprise Money: A Non-Political Money System. New York: Harbinger House. Riegel, E.C. (1978) Flight From Inflation: The Monetary Alternative. Los Angeles: The Heather Foundation. Ruskin, J. (1928) Time and Tide and Munera Pulveris. London: Macmillan. Ruskin, J. (1997) Unto This Last and Other Writings. Harmondsworth: Penguin. Saint-Simon, C. (1977) Oeuvres. Vol. 1. Geneva: Slatkine Reprints. Seyfang, G. (2004) Working Outside the Box: Community Currencies, Time Banks and Social Inclusion. Journal of Social Policy 33(1), 49–71. Simmel, G. (2004) The Philosophy of Money, 3rd edn. London: Routledge. Simons, H. et al. (1933) Banking and Currency Reform, manuscript. In: Warren Samuels (ed.) Research in the History of Economic Thought and Methodology, Archival Supplement, Volume 4, Greenwich, CT: JAI Press. Soddy, F. (1926) Wealth, Virtual Wealth and Debt: The Solution of the Economic Paradox. London: George Allen & Unwin. Soros, G. (2009) The Eurozone Needs a Government Bond Market. Financial Times, February 18. Streeck, W. (2011) The Crises of Democratic Capitalism. New Left Review 71, 5–29. Swedberg, R. (2013) An Elephant in the Room? Or Can You Create a European Community Through Economic Means? Cornell University, Dept. of Sociology. Swedberg, R. (1994) Saint-Simon’s Vision of a United Europe. Archives européennes de sociologie, XXXV, 145–69. Wray, R. (2004) Conclusion: The Credit Money and State Money Approaches. In: R. Wray, (ed.), Credit and State Theories of Money: The Contributions of A. Mitchell Innes. Cheltenham: Edward Elgar Publishing, 223–62. Wray, R. (2006) Understanding Modern Money. Basingstoke & New York: Macmillan.

102

4 What is a Financial Market? Global Markets as Media-Institutional Forms Karin Knorr Cetina

Few concepts today are as widely used as that of a market, few accorded more importance, and few slip away more easily when closely examined. The financial crisis of 2008–9 surely made it apparent how we depend on especially financial markets for pensions, credit and income, and governments and corporations for their borrowing and debt management. And yet when we search for a market concept that captures markets from the inside, we will not readily find it in sociology or even economics. How can we conceptualize the financial market from a behavioral rather than a functional perspective? What type of action is involved and what motivates participants? Is there a special “finance motive” that characterizes financial markets but not other kinds? Is a financial market in some sense a coordinated collective form? Think of the common contrast between markets, hierarchies, and networks. Markets feature in such distinctions as the least structured entity; in fact, the mechanism of supply-and-demand that guarantees a balanced, working market in economics is not a principle of social coordination at all, but an invisible hand that works through self-interested, dispersed participants who adjust their choices to price signals. This chapter looks at the ways in which a financial market is not an empty configuration at all but rather a densely structured and coordinated cultural form. The general claim I make is that it is analytically productive to distinguish between the contemporary form a financial market takes as a mediacentered institution and other types of social arrangements, including production markets; what we learn from this new type of market can enrich our theoretical portfolio (see Swedberg, Chapter 1). Understanding the identifying features of these markets requires looking at them from the inside. Financial

Karin Knorr Cetina

markets, too, are internal environments worth studying in detail—as some recent work has shown that illustrates various behavioral components of financial markets (e.g. Smith 1981, 1999, 2007; Baker 1984; Abolafia 1996; Knorr Cetina and Bruegger 2002; Zaloom 2006; Preda 2009a, 2009b). This chapter extends this research to those financial markets that are now global in nature and based entirely on electronic trading. In what follows, I will start constructing the media-institutional model I propose, starting from a notion of financial market action rather than from market models that target primary markets (e.g. Swedberg 1994, 2003; Aspers 2011; see also Aspers, Dodd, and Anderberg, Introduction to this volume). The core activities in financial markets are investment and speculation, and these involve claims and commitments exercised over time and oriented to future outcomes.

Financial Market Action: Not Simply Exchange How should we conceptualize financial market action? The snap answer to the financial action question surely is that it is a type of exchange. When most people think “market,” they are also thinking exchange—markets are places where we can get the goods produced in the economy, provided we are willing to pay for them in exchange. Consider the following common definition (Gravelle and Rees 1992: 3, cited in Rosenbaum 2000: 459): “A market exists whenever two or more individuals are prepared to enter into an exchange transaction, regardless of time or place.” Such a definition, I will explain, ignores central aspects of financial market activities. Although the definition may well work for the primary economy, it is too limiting when it comes to financial transactions. Consider going to a weekend market to buy produce for money through a paradigmatic exchange transaction. Exchange implies that the objects that change hands are defined to be of equivalent value so that the transaction can be brought to a close once the payment has been made. The most pertinent characteristic of such a buy-and-sell transaction is that when you are finished with the transaction, you are quits, as Slater put it so aptly (2002: 237). Now consider buying or selling a stock, or a currency, in the financial market. The transaction also involves a payment for the instrument at its current market value. Nonetheless, when you are finished buying or selling you are typically not quits. The core activities in financial markets are investment and speculation. What is bought and sold in financial markets are not consumer goods but financial instruments (e.g. stocks, currencies, bonds, etc.) that directly or indirectly provide credit to a borrower (firms, states, etc.) for which the lender hopes to get dividends, interest payments, or value changes of the credit 104

Global Markets as Media-Institutional Forms

instrument in a profitable direction over time—notably, the price of the instrument tends to reflect this expectation. Thus, the buying or selling of a financial instrument initiates an engagement or contract that lasts as long as you hold the instrument, and invariably involves risk (as the future is uncertain, outcomes cannot be guaranteed). A financial market does not exist when two or more individuals are prepared to enter into an exchange transaction, but rather when these actors are prepared to enter into promissory engagements: claims and commitments exercised over time based on the promise of future outcomes. Stock exchanges is a type of market considered to be auctions. Stock exchanges regularize the auction activities through standardized trading rules, defined assets, and a general professionalization through membershipensured training, solvency, and broker reliability. In economic language, it has rendered the process efficient by solving some of the problems involving information, comparability, and consistency of decentralized unregulated markets. But an exchange remains essentially a mechanism for facilitating and executing buying and selling; it matches up interested parties with the help of brokers and smoothens out excess supply and demand by means of market-harmonizing traders. In other words, an exchange is a trading service that emerged historically in connection with particular markets. It is an important trading service. Stock exchanges, for instance, thrive on the share liquidity they offer, and they have been crucial historically to legitimating financial markets (Preda 2009a). The currency market, however, has never been located primarily at exchanges—and yet with its average daily trading volume of nearly $5.3 trillion (B.I.S. 2013), it is by all accounts the world’s largest and most liquid market—ten times the size of all the world’s equity markets.1 Its recent history lies with the generalized and private trade conducted within networks of banking institutions far from the public eye and the regulatory frameworks of security exchanges.

Real Financial Market Action: Contingent Promises, Position Taking, and Trading If exchange is not at the heart of financial markets, what is? The core activities in financial markets, I said, are investment and speculation; and these turn around finance rather than exchange. For example, they involve the lending of money in the hope of financial returns on the investment; lenders hope for 1 For these comparative figures, see, for example, http://www.bauer.uh.edu/rsusmel/7386/ln1. pdf, page I.4 or http://www.babypips.com/school/what-is-forex.html (accessed November 26, 2012).

105

Karin Knorr Cetina

dividends, interest payments, and value changes of a credit instrument in a profitable direction. When it comes to financial markets, the crucial qualifying concept is finance. Finance provides the credit that many types of actors (firms, families, and the state) need in a capitalist economy and credit involves claims and commitments exercised over time and oriented to future outcomes. There can be many reasons why borrowers—a firm or government—seek financing. But why should lenders supply their funds to those seeking credit? Is there a finance motive that illuminates financial market action? Financing can be done through two major channels in Western economies: bank lending and financial markets. When banks lend money to loan-seekers, that is when they engage in old fashioned “boring banking,” to which the economist Paul Krugman proposed a return in 2009,2 they simply fulfill one of their institutional roles. They have client funds (e.g. savings deposits) available that they recycle into the economy by financing loans while earning money from the interest they charge and from fees. Investors and speculators acting through the market channel are not in the business of institutional loan making and cannot charge for credit. They can only take a direct interest in the fund-seeking party. What prompts this interest? The answer, I suggest, is the promise originating with this party.3 Investment and speculation are based on contingent promises; when investors and speculators take a direct interest in a borrower they buy into a promise, but they do this in a contingent fashion. Promises involve risks for the credit advancing party: they are contingent on the future turning out as envisaged, on the debtor keeping their part of the promise, on contextual factors. Promises are a useful concept when it comes to specifying what’s involved in financial commitments. We can see them as a constitutive of what we may call the finance motive, borrowing a notion from Keynes but giving it specific meaning. The first thing to note is that promises can carry considerable performative force. They set into motion chains of activities that we need to consider when trying to understand investment and speculation. In finance, promises not only provide an incentive for the lender, but effectively bring about relationships, specify timelines, and put into place obligations. First, the content of promises—who promises what to whom when, under what conditions—is not external to financial deals but constitutive of them; the deal comprises a promising party and a promise receiver, and various specifications and indications of promise realization. Second, investment and speculation imply engagements that result from this promise structure; when

2 See his article “Making Banking Boring” in The New York Times, http://www.nytimes.com/ 2009/04/10/opinion/10krugman.html?_r=0 (accessed December 30, 2012). 3 This has been worked out in some detail in Knorr Cetina (2009).

106

Global Markets as Media-Institutional Forms

people make promises, they assume a relationship with the promise-receiver. Third, in financial markets promises are the mechanism through which the present and future become locked in step. By articulating and perhaps negotiating what will be done with the transferred resources, and what one is to get in return within what time frames, promises engage the future and make it concrete and potentially real. Fourth, promising involves the imagination and persuasion—think of the storied nature of financial transactions and the epistemic imaginaries they invoke. In sum, the dynamism and temporal orientation of financial markets can be understood to unfold in terms of the implications of promises. What I am here suggesting is that promising can serve as an anchoring concept for the relational, temporal, moral, and affective-persuasive dimensions of financial market transactions. The concept gives us a wider-ranging tool than the legal language of a contract; it allows us to pick apart these dimensions as components of a promise-script underlying such transactions. The notion of promise helps to clarify the finance motive and how investment and speculation are future oriented time transactions—engagements with implied obligations and moral accountabilities that last as long as the debt is not repaid or the contract not expired and the financial instrument resold. But what do investors and speculators actually do when they enter such engagements? In native terminology, this action (buying a country’s currency or a firm’s stock, for instance) is called “position taking”—one commits to a promise and buys into it, and then one is “in” the market. The notion of position taking is rarely if ever discussed in the economic and practical literature on finance, yet it is central not only to the understanding of financial transactions in all financial markets but also to the distinctiveness of finance. Position taking signals the durational, moral, and affective aspect of financial activities; the fact that they are not just quick, atomistic, and valuebalanced exchange-interactions but complex commitments that extend over time and involve belief and obligations. When someone makes an investment or speculation, a position in the market follows (see also Bruegger 1999: 109– 13). When acquiring (or selling before acquiring) a financial instrument, one enters a position (in stock market parlance, one acquires an inventory). Once entered, positions are simply the volume of assets someone holds, for example the millions of dollars a currency trader has on his or her account. In accounting language, the position is the balance obtained when adding up one’s purchasing and selling activity. When entering a position, a trader goes “long” or “short” on a financial instrument. If traders buy more than they sell of one or another instrument, the positions they hold are long. If they sell more than they buy, the positions are short. A long position thus corresponds to positive holdings of an instrument or asset, while a short position corresponds to a negative inventory. For example, a short position in dollars means 107

Karin Knorr Cetina

a trader has sold dollars without yet owning them. Futures and options are particularly suitable for short selling as their delivery period may lie months or weeks ahead. Positions thus refer to an accounting reality, but they are also clearly linked to a market engagement. Although the term bridges both domains, it is plain that positions are not only taken in books but also in markets, and that markets determine the fate of one’s positions. For example, traders enter short positions in the hope of profiting from a future downturn of prices that will allow them to buy this or that financial instrument at prices lower than the ones at which they have already been sold. Conversely, traders go long on instruments in the hope that the market will validate their move by rising prices, so that they can sell the relevant objects at higher prices than those at which they were bought. Positions may cause havoc for the traders who hold them. For example, when an algorithm of the trading firm Knight Capital that accounted for 11 percent of all stock trading in the U.S. in the first half year of 2012 generated erroneous orders to buy shares during the first half hour of trading on August 1, 2012, the firm ended up with a position that resulted in a 440 million U.S. dollar trading loss when the shares had to be sold.4 The notion of position taking signals strong boundaries between market and non-market activities, manifest not only in the distinction between bank loans and financing through the market channel, but also in the distinction between traders who are market-makers and take positions in the market and brokers who do not. Market-makers may trade for their own account and may risk their own money through position-taking— although in institutional trading, this money is advanced to them by the bank for which they work. For their part, brokers are mediators bringing together buyers and sellers for a fee; but they may not take positions in the market. Thus brokers are not strictly speaking in the market, whereas traders are. The term position-taking clearly indicates what it takes to become a market participant and what market participation excludes (one cannot, for example, be only halfway in the market). Position management often is an extended, involved, and reflexive process that may include different positions held simultaneously, routine and ad hoc position adjustments, structured relationships between positions, macrotrades, and new designs in accordance with perceived market developments. Trading is always part of position management—and we can link it here to the promises that underlie position taking. This is a large part of how financial promises and the relationships they establish are contingent for the parties involved: the promise taker can back out of the relationship. Professional 4 The case was widely reported in all media. See, for example, Protess and Popper 2012a and 2012b.

108

Global Markets as Media-Institutional Forms

participants routinely do just that, in response to how the promise develops, to new market opportunities, to needs and circumstances. Trading itself is of course also position taking based on promises—it is again not simply an exchange transaction, although it routinely involves buying and selling and when algorithms trade, extremely fast buying and selling. Trading does not in itself change the engagements implied by financial transactions. But it shifts engagements from one party to another, highlighting the elasticity of financial market relationships. With trade, new promises and chances of successful promise realization emerge from the aggregate of market activities—from what positions others take, in what volume, at what point in time. High tradability of instruments, called “liquidity,” is one of the most important features of a credit market system; it stimulates, economists maintain, broad market participation and taps more resources for the financing and realization of growth than traditional lending because it allows participants to intervene in the scripts. In other words, the market adds to position taking an element of fluidity, contingency, and emergence having to do with the responsiveness of all others in the market, with time running on, with all the uncertainty the future brings (Knight 1965). This also brings up a structural tension inherent in trading. On the one hand, position taking and the engagements positions imply point to relationships extending over time and being accountable for the mutual obligations promises involve. On the other hand, actors can legitimately exit relationships and substitute them by others, or drop out of the market. These tensions surface as moral issues when firms complain about the selling of their stock and governments about speculation against their currency, when parties go to court, and when regulators step in to limit these activities—modifying their previous legality. The tensions are replicated in trading practice. Trading, then, may intensify speculation, but we should be careful not to see this speculation as unrelated to investment. One way the line can be drawn between speculation and investments is by associating the former with a short time horizon and an interest in buying financial instruments only to resell them quickly once their price has sufficiently appreciated (Bogle 2012).5 Speculation would then imply high responsiveness and a high elasticity of the relationships involved. Investment money, on the other hand, would be more patient money, money that is willing to wait, perhaps until an investment has borne fruit, a production cycle has been carried out, or a technology has been developed. All promises in the market are contingent, it 5 As suggested, speculation in the sense of short term shifting engagements—sell one promise and buy into another—does not mean that money is withdrawn from the engaging party; it simply means that the party engaging with a promise changes. Also, when the price of a firm’s shares comes down because traders opt out of the stock, it is first and foremost the shareholders who suffer from the price decrease.

109

Karin Knorr Cetina

would seem, on market opportunities, downturns and upturns, and new things swimming into view. What this means is that the difference between investment and speculation cannot be fixed easily in terms of time periods. In fact, the principal difference between these notions might simply be that when we say investment, we shine the analytic light more on the projects that are financed and on their economic impact, and when we use the term speculation, we highlight more position management and the foresight, uncertainty, and risk aspects of financial positions. Investment and speculation, then, both involve trading, which is to say position management and a level of agency and attempted control that is part of the life of financial market debt. It points to a professional class capable of and skilled in the art of intervention in the promises of finance. Traders and trading firms use these skills extensively and they are held accountable for them—for managing not only positions but also the promises on which they are based.

The Architecture of Financial Markets Adam Smith famously wrote that markets are coordinated by an invisible hand. This section is about the visible hands of contemporary financial markets: the structures and scaffolds that make markets into a distinctive structural form and lend it a level of stability and consistence. Thus, we switch from looking at the form financial action takes to looking at the larger entity, the market in which these actions take place. Financial markets come in two types: exchange traded markets, and over-the-counter (O.T.C.) markets. The former illustrate the visible hands of a market most directly. For more than 200 years, exchanges in places like New York, Frankfurt, or Amsterdam were stately buildings in central locations in which demand and supply became concentrated. Exchanges were (and still are) themselves corporations or membership-based organizations of brokers and traders that have exclusive rights to trade at the exchange. Their matching and trade execution facilities were not only tied to a place (computers and clearing functions may be located in additional places), but also fixed in time—exchanges had opening hours, schedules, and times when prices would get settled—meaning they were not continuous but discontinuous trading facilities. While some of these locational and temporal constraints changed when exchanges became electronic, instruments still must be standardized to be traded, and companies have to meet the listing requirements of the exchange (e.g. minimum market capitalization, earning requirements, number of shares issued, auditing requirements), along with being subject to specific disclosure regulation. The exchange itself is also subject to oversight by bodies such as the U.S. Securities and Exchange 110

Global Markets as Media-Institutional Forms

Commission, and to regulation designed to restrict opportunism such as insider trading, price manipulation, and failure to disclose information. For example, regulation may attempt to ensure and safeguard: fair, orderly, and efficient business operations; price formation that conforms to exchange rules and the prevention of price manipulation; documentation of all business for a number of years by the exchange and by listed companies; defined rules for publishing prices, turnover, and so on; and investors’ access to constitutive information (S.E.C. 2010). Exchanges illustrate how organizing and regulating elements are structured into markets. Yet, the market itself is not interiorized in exchanges. In fact, large and small investors may trade at a public exchange, and, consequently, large numbers of actors participate in such markets. The exchange simply realizes a function that markets need through a human organization by bringing together buyers and sellers and executing trades. The second type of financial market, over-the-counter, mostly realizes the same functions today in the electronic form—it uses electronic brokers for matching and ordering of buying and selling interests in the market. A financial market, then, is always larger than any particular organization that may be part of it. But how should we conceptualize this larger entity? Partial organization theory may lead a step further; it suggests that we may see a market as an organization outside organizations, which is partial in the sense that it may include some, but not all, elements that we commonly associate with formal or complete organizations (Ahrne and Brunsson 2010). Decided-upon membership, rules of behavior, sanctions, monitoring, and formal authority or hierarchy are defining elements of formal organizations. Financial markets have most of these elements. However, the hierarchy is a status hierarchy rather than being based on formal authority; this is a differently created order from that generated by the line of command in a firm. Most rules in an O.T. C. market do not have the formal character and are not formally sanctioned in the same way as organizational rules. These market rules are conventions of trading practice corresponding to the legal category of a lex mercatoria. The rules are orally transmitted and may be partially written up in codes of conduct issued by trader associations rather than by the banks involved or by governments. In the foreign exchange market, the Association Cambiste International (A.C.I.), established in 1955, wrote out the rules, issuing the latest rewriting of the code at the end of 2012.6 Membership in the market is definitional and sanctioned by consequences rather than being controlled by authority: a market participant is anyone taking and holding a financial position in the market. Thus, a financial market is an organized social form, 6 For the A.C.I. website, see http://www.aciforex.org/gb/aci-presentation-and-statutes-99.cfm# (accessed January 15, 2013).

111

Karin Knorr Cetina

complete with strong insider–outsider distinctions, membership criteria, potentially stable status hierarchies, and interiorized forms of monitoring and regulation. Yet there is an obvious difference to the formal organization: market structure appears to be institutionalized on the execution and agency level, rather than on any formal level. In other words, it is organized as a practice, converging with Goffman’s (1983) and others’ interaction-level structures; the institutional foundation of a financial market is microsociological in nature. Over-the-counter markets illustrate this most clearly as they are not centralized but decentralized; they are not built around exchanges. In an O.T.C. market, transactions typically occur between traders on the trading floors of global banks in some global cities.7 The laws of trading practice in such a market are maintained through the structural use of interaction means as traders warn, reprimand, and sanction one another using linguistic formats and threats to prevent the rules of trading practice from being broken. However, it would be wrong to understand a financial market purely as a field of interaction. Imagine a federation of computers and a set of electronic screens: the screens form a synthetic, ring-like medium through which tasks flow horizontally— from time zone to time zone—and vertically as things scroll down the screen. The screens sit on an electronic infrastructure that interconnects trading floors and serves as a scaffold, on which various interaction-level systems—devices for performing a task—are mounted. Conversational dealing systems, one of the functions grafted onto electronic screens allow two participants to deal with each other through a typed question and answer sequence—and like oral conversations, these systems are also used for a variety of other purposes, for example for gossiping and for coordinating things, and for sharing information. The screen provides organizational, communicative, and analytic functions; its content comes from information providers, analysts, and traders who create some of the instruments and bring the various capacities alive as they engage with the market. Yet the screen has another effect that is crucial in understanding the architecture of financial markets: it acts like a scope—a central mirroring device that projects the market and coordinates trading. What I am aiming at here is a notion of the market as a tightly (reflexively) coordinated response system that is based on a regime of attention and perception that developed and changed with the digitization of functions. Let us define a response system as a sequential transaction system in which responsiveness is mandated. Conversations are examples: they are dyadic response systems for which turn-taking rules and the visual and cognitive orientation of participants toward each other provide the scaffold. Conversationalists take

7

112

See Sassen (e.g. 2001) for the correspondence between global cities and financial centers.

Global Markets as Media-Institutional Forms

turns in contributing utterances that acknowledge and react to previous utterances. Conversationalists are accountable for responding; when someone does not, this may be interpreted as the conversation taking a hostile turn. Electronic markets are not simply dyadic and neither are they symmetric like an ideal human speech situation—but they can nonetheless be likened to a far-reaching, distance-overcoming conversation among many conversationalists, held together by participants’ attention and responsiveness to their communicative screens. The conversation is dispersed, involves many participants (several hundred in top-tier currency trading, many more if day traders are included), and most turns simply consist of clicked automated buying and selling orders. It has a central communicator, the market itself, on which everything is focused and to which all conversations return and are directed. Responsiveness to the central market on screen is necessary to protect and manage positions. Not moving responsively along with the market, by at least taking note of how the market conversation develops, risks losing money and succumbing to hostile market turns. What brings the market conversations together and directs the sequences is the system at the center that holds participants’ attention, that is, the scrolling trading screens. The most developed O.T.C. markets have become global, unified arrangements in which participation is enabled and coordinated by a central monitoring and mirroring medium that distills the market and sends it to everyone connected. Hence, participants conduct dealing conversations not only through the electronic medium with concrete others, but also continually with the screen itself—with an algorithmically enabled aggregate of deals and dealing possibilities, presented to them by an electronic broker. The notion of a scope I am using is an umbrella term for the picked and placed functions and the software and hardware through which they are offered to market participants on their computer screens. A “scope” emphasizes the “see-all,” “render-all” capacities of the electronic medium and the environment it creates. When a “scoped” reality is projected to everyone connected simultaneously, the scope acts as an integration and communication device that places all those observing it (as professional traders must) instantly into an identical world. There is no need to call a contact and draw on one’s network of relationships to learn where the market is and what else is going on. Not all financial markets are as yet of this nature; as indicated before, exchange traded markets have moved only in the last decade from their open outcry system to embracing scopic media and to transnational arrangements (Muniesa 2003; Zaloom 2006; Pardo-Guerra 2012). Scopic markets are not relationship markets for which a network approach is theoretically adequate (see Aspers, Dodd, and Anderberg, Introduction to this volume), but are media-institutional in nature. As media-institutions, they are based on a regime of attention and perception: of watching the 113

Karin Knorr Cetina

market on screen continuously, synchronously, and in immediacy. Attention to the screens is mandatory and coercive—the equivalent of a scopic mechanism on the human side, and a behavioral pattern that identifies professional market participants. Coordination results from the simultaneous injection of bursts of content onto a collective of observers—or, to put it the other way round, from the simultaneous and continuous exposure of an attentive and expectant group of market participants to bursts of information. The exposure results in collective cognition—a shared awareness (and distributed conversation) within a bounded market environment of the state of the market, and the world relevant to it—while also resulting in different responses to the market. We can think of this collective cognition in informational terms, visualizing it in terms of the strange swarm intelligence of the market, to use a contemporary term for what Hayek described in 1945. We can also visualize this collective cognition and the emotions and talk carried along with it as a social membrane of the market field. The screens feed and renew the membrane—and they provide a sophisticated feedback and support system for the market discourse that develops around their bursts of information.

Who Are the Conversationalists? Traders and Trading Floors, and How Markets and Firms Intersect From the media-institutional framework advocated here, the central organizing mechanism of contemporary financial markets is not the authority structures of firms or interfirm arrangements, but the “authority” of screens, their rule encoded, contextually augmented, and algorithmically enhanced projection of the market to which participants become oriented and to which they react. I take the position that the primary actors in a financial market are the traders—they are the ones doing the transactions, the response present participants, the most informed and up-to-date conversationalists in the market conversation. To be sure, traders are not a homogenous group of actors; there are market-makers, proprietary traders, day traders, specialists in exchanges, and on one level, hedge funds are also traders. Algorithms also trade, but here I focus on the human traders that direct and observe them and on the firm– trader relationship. My main argument is that traders wield power, and this power contrasts with and counterbalances the formal authority and hierarchy firms represent. In what follows I go through several sources and indicators of traders’ power. To begin with trading floors, these floors belong to firms, yet they are not like other sub-divisions of big banks and investment firms in which corporate tasks are performed. In the global banks and private banks I visited, trading floors were exotic elements, their distinctiveness signaled by nearly all of their 114

Global Markets as Media-Institutional Forms

characteristics. Trading floors were temples of technology in the office and paper environment of banking institutions. Visitors needed special permits and were always chaperoned to the floor. Trading floors took up to two years to fully wire and equip—their design complicated by challenges such as the speed of desk connectivity or the cooling of the trading floor. Once finished, floors were moved into in a day, and the previous floor was abandoned. Trading floors tend to be large as banks have turned to gathering different market teams (equities, bonds, currencies) to one site—to reduce installation costs, and enhance traders’ reactivity.8 The Swiss Bank U.B.S. Warburg’s trading floor in Stamford, CO, which the bank described as the worlds’ largest when it was created in 2002, had room for 1,400 traders and staff and 5000 monitors; it was the size of two football fields.9 With all their strangeness as elements in a bank, trading floors are obviously adapted to markets—although a better conceptualization may be to simply see them as part of an electronic market’s media-infrastructure that reaches into firms and is paid for and supported by them. The crucial question, however, for defining the relationship between firms and traders is not just trading floors’ status and provenance but the control of the financial transactions performed on floors. Although banks limit traders’ losses and the volume of instruments they can trade, traders are not constrained by any of the banks’ views on the development of price movements but instead develop their own stance on the instrument they trade. Indeed, as participants confirm, it is quite common for the trading book and banks’ investment positions to be at odds with one another (Goodhart 1988: 456; traders in hedge funds may have less autonomy). When it comes to market making and earning money in markets, agency shifts from the firm to the trader: traders, not bankers, are the key operators in these arrangements. In the aforementioned O.T.C. market, traders were market-makers. Market-makers provide liquidity to the market and sustain it—if necessary against their own position and interest. In other words, they act as custodians of the market— they fulfill bridging and liquefying functions when gaps arise and activities seem to gel, and they may also try to revive markets when they break down. Unlike a proprietary trader, a market-maker acts as a counterparty for market actors that want to buy or sell, but may not find someone quickly to take the opposite side of their trade. Thus the market-maker jumps in and takes that

8 For a limited overview over this development, see http://en.wikipedia.org/wiki/Trading_room (accessed January 2, 2013). 9 The total floor size was 103,000 square feet. The bank did not indicate the cost of installing this floor. In 2014, The Wall Street Journal reported that the floor, built for 1400 traders and a “showcase” for the bank, was now mostly used for back office, legal, and technology staffers, and virtually empty of traders, as a result of a deep slump in trading activity since the financial crisis. See http://www.wsj. com/articles/empty-trading-floors-fray-nerves-on-wall-street-1405302362 (accessed May 27, 2015).

115

Karin Knorr Cetina

side, injecting liquidity in the market and guaranteeing continued trading. Market-makers can, in principle, simply earn all their money from the difference between bid-ask spreads, as “pure” market-makers. These traders nonetheless hold positions which they acquire for instance, when they take the other side of someone’s trade. But they will want to get out of them as soon as possible, trying to “complete their roundtrips” in stock trading in a day, for instance (see Ayache 2010). The traders observed in the institutional foreign exchange market, in contrast, provided liquidity but also took advantage of their market knowledge to make directional bets on market trends, attempting to earn substantially more profits than what could be made from bid-ask spreads. As a result, these floors felt much as in Chernow’s description of the new environment that emerged after the first “real traders” arrived at Morgan Stanley—his “real traders” were speculators, and not just pure trade executers earning spreads (see 1997). Traders in the foreign exchange market studied were market actors with generally no obvious external client, operating as market-makers in their own right with a substantial proprietary component “in pursuit of the next valueenhancing move” (Folkman et al. 2008: 155). Trading involves speed, quantitative skills, implicit processing, and tacit knowledge developed over time in and only in direct interaction with the market. Traders are trained to keep their eyes glued to the market on screen; they seek moment-to-moment market information, and respond to every market move with their gaze, response cries, and the deals they make, implicitly processing what they see and do. Traders appear to have an embodied relationship with their object, the market: they do not observe it like an anthropologist might, from a detached academic standpoint, but like we would watch prey when giving chase—fully absorbed, switched into highest gear, and ready to hit. Traders’ self-understanding and the bonus system of pay reflects the autonomy of trading—as do job descriptions and the ideals and language of talent, mastery, stardom, and skill that come up when their high pay is defended. The bonus system of pay has two components, a base salary and the bonus. A bonus is a share in the revenue a trader garners. I have also seen it used in the market studied to motivate cooperation among the currency option traders of a bank working in different time zones—the attempt was to get traders to coordinate their position taking philosophy across trading desks rather than to structure positions individually as they would normally do. When this form of compensation was tried, traders received a bonus commensurate to their shared rather than individual revenue. My point here is simply that with both of these rationales, the bonus can be seen as the entrepreneurial part of traders’ pay—the part they feel entitled to based on how successful they were, individually or as a group, in dealing with a complex, independent entity, the market. Entrepreneurial self-feelings were 116

Global Markets as Media-Institutional Forms

common among traders—and the firms expected traders to be “proactive” and “entrepreneurial” and “generate trading ideas.” Evidence for the relevance of such feelings can be seen in the phenomenon that traders, particularly proprietary traders, eventually launch their own hedge funds or asset managing firms. The high turnover on trading floors also can be linked to the relative autonomy of traders—whose primary loyalty seemed not to lie with the firm for which they worked, but with the agency and rewards that trading offered. With traders, however, the bonus may be several times higher than the base salary. Firms, it should be noted, like this compensation structure, because the bonus is not part of their fixed costs, transcending company functions. Traders may formally be categorized as belonging to the group of feeearning capital market intermediaries who provide various services in financialized capitalism. However, intermediaries are not a coherent group of actors either. If we define intermediation as “a relation in which one actor mediates the flow of resources or information between two other actors who are not directly linked,” as in brokerage (Fernandez and Gould 1994: 1457), marketmaking traders are not a good case in point, as, in the cases observed, they initiated deals proactively, took and managed their own speculative positions, and, like the traders accused of insider trading, had and sought out relevant information. However, if we consider that intermediation in financial services is a functional term that describes a purpose rather than activities, then market-makers do have an intermediary role—they provide liquidity to the market. Their role as an intermediary will be supplemented by a speculative dimension—custodial market activities and proprietary trading coincide in market-making desks.10 Regulators have acknowledged this—in their attempt to curtail proprietary trading in trying to implement the Volcker plan, they found it difficult to determine where the line is between “real” market-making and short-term proprietary trading. The rules they proposed were promptly countered by the plausible threat that “If the market-making definition is too narrow, that kind of activity will be curtailed.”11 What interests me here is that the split between traders’ entrepreneurial and service activities turns up here again in actual trading. One way to define traders’ role is to simply acknowledge their dual involvement and to see them as agents for their own and firms’ interests. Traders (and firms) see these interests as aligned when both 10 The weight given to the respective dimensions and the profits resulting from either of them will vary over time and across markets. 11 According to the draft rules, the volume and risk associated with such a trade were to be “proportionate to historical customer liquidity and investment needs.” See Wyatt (2011) for this discussion. “Regulators to Set Forth Volcker Rule.” http://www.nytimes.com/2011/10/11/ business/volcker-rule-to-take-shape-this-week.html?_r=0 (accessed October 12, 2011). The “Volcker plan” generally aims to bar banks from proprietary trading unrelated to serving customers. For the full text of the rule see http://www.sec.gov/rules/proposed/2011/34-65545. pdf (downloaded November 15, 2011).

117

Karin Knorr Cetina

parties capture substantial shares of the turnover and profit. For traders, bonus day is when the alignment gets tested. If they find it faulty, they will seek adjustments. If the bonus does not “compute,” does not reflect the size of their earnings in the market, traders are likely to complain, and leave the firm. What the firms and traders have is a pact and an understanding. The firm keeps its side of the pact if it transfers back to a trader a sizeable portion of the revenues he or she earned.12 Traders keep their side of the pact when they earn that sizeable revenue. The discussion thus far was geared to the interbank O.T.C. market in which traders are employees and firms are global banks, and my goal was to argue that it makes sense to link the notion of a financial market to traders rather than to the firms involved. There are, however, also trading firms and trading groups—and for these the problem I started out with disappears at least in the way in which it was posed. If the whole firm is a “trader” specializing in position managing or market-making, this just lifts trading up to a corporate level and illustrates that trading is an industry, not just a profession. In such firms, which can be small (they may have just a handful of employees), there should be no difference between the trading book and the firm’s view, and coordination rather than separation between trading and management levels. Trading firms usually specialize in a particular market, instrument, and strategy, for example in equity index options. Hedge funds and pension funds also can be called traders as identifying and making the best possible trades for their investors is their goal. Traders are, however, still the group closest to the market, coming up with trading ideas, and charged as responsible for market manipulations when this is suspected of the firm. Trading in such firms involves activities that may include developing and testing of “alpha”-generating ideas, risk management, execution strategies, compliance, and the use of different trading strategies, such as of arbitrage pricing theory to find arbitrage opportunities. I went through several features of traders’ work to show how each one contributes to their role as the primary agents in a financial market. Control over decisions, agentic, entrepreneurial behavior, intimacy with the market, compensation, insider information, responsibility before the law, profitability, and the skill sets quoted all reflect a professional class in charge of a rather specific, outlying object, that of a financial market. Traders are not the only ones in charge; regulators are on some level, as are banks and their management when traders work in banks. They fund the costs of the infrastructure

12 I take the term “compact” from Elliott (2010: 4) who says: “The banks want to carry through on their traditional compact of rewarding performance by paying out a sizeable portion of the revenues that were earned and they are genuinely afraid of losing the best employees to hedge funds or other banks if they do not.”

118

Global Markets as Media-Institutional Forms

and trading positions and take the profit—although in the past, firms also gave back to their market operators a substantial share of the profits they personally earned, overall paying out about 50 percent of their net revenues as compensation in the U.S.13 My view of the firms in question is that they are in purpose and tendency structured, orderly systems, the sort of thing the term “hierarchy” tries to capture. But the market-related classes in a firm live under their own principles corresponding to a different form of order. Firms that veer in both directions may not be clearcut hierarchies, analytically speaking, but rather exhibit a form of negotiated order, or, an analytic alternative, they may work with a certain amount of decoupling between one domain and the other. The existing lawsuits suggest that decoupling dominates: between the bank as a governance structure and traders who are acting in the force-field of the market.

Attentional Integration and the Scrolling and Transiting Market There is a powerful element still missing from the framework I have offered: the temporal nature of these markets. The question I raised for which this chapter tries to give an answer is how we should conceptualize a large, electronic, O.T.C. market like the currency market. A good way to think about such a market is in terms of a “flow.” The scopic media at the center of the market enable, exhibit, and pulse the flow. The attentional regime is the human response system attuned to the flow. The very media through which market transactions go transpose them into differences (e.g. price changes) displayed in the analytic time of scrolling screens. A media-institutional framework is not static, but processual—what the electronic media enable is specific and perhaps strange, an institution that resides in a texture of differences with the texture itself being continually in flux. Consider again that traders perform their activities in a moving field constituted by changing dealing prices, shifting trading interests (indicative prices), scrolling records of the immediate past that are continually updated, incoming conversational requests, newly projected market trends, and emerging and disappearing headline news, commentaries, and analyses. In other words, they perform their activities in a streaming world of inchoate experiences; as the information scrolls down the screens and is replaced by new information, a new market reality continually projects itself. The screen reality, in these markets, is like a tapestry, small sections of which are woven in 13

See Elliott (2010: 2).

119

Karin Knorr Cetina

front of us. More generally, the screen reality—the tapestry—is a process, but it is not simply like a river that flows in the sense of an identical mass of water transferring itself from one location to another. Rather, it is processual in the sense of an infinite succession of non-identical matter projecting itself forward through the changing screen. The market’s “flow” refers to this rolling projection of change; the scopic architecture enables the seemingly unstoppable dynamic of an electronic financial market. Everyday time does not “clock” such markets, although it is never fully suspended and operates in the background, grounding, among other things, traders’ work schedules and the opening hours of exchanges. What clocks them is an “analytic time,” that of the speed and clustering of incoming messages. Analytic time has specific features. For example, its rhythms are not even; it may suddenly speed up as message intervals get shorter and more items stream onto the screen. It is punctured by specific calendars and schedules, dates and hours set for important economic announcements and for the release of periodically calculated economic indicators and data. At these occasions, analytic time intersects with everyday time as developments in the primary economy break into the financial economy, encapsulated in indicators of the former’s state and “fundamental” characteristics. The market’s temporal nature is closely intertwined with the attentional regime. Here, the tension between the idea that a financial market is basically a dispersed global interaction system and the idea that it is centrally coordinated by scopic media can be “papered over” so to speak, with the term attentional regime. What one needs to do is separate the actors which are distributed from the attention they all focus on the same, screen-shared object that also concentrates their actions in one place, and the regime they subject themselves to with this focus and their responsiveness to the market. Why do the actors comply with the attentional regime? First, markets mandate such a regime because they change continually, and do so according to a time of their own, that of the streaming aggregate patterns of algorithmically processed transactions and contextual activities. Second, traders who take positions in the market put themselves (their financial well-being and employment) on the line with every move the market makes, and they can see their developing fate recorded on screen. This combination of high personal stakes rendered visible on screen and of a quickly moving market, explains the need for continuous attention to the latter. Third, the attentional regime can be brought into contact with the concept of the flow experience—a highly focused subjective condition of concentration implying an altered state of consciousness and an almost automatic task performance (Csikszentmihalyi 1990). Thus, we may assume that the unforgiving temporality of the market and the attention this commands engenders subjective states of flow, and 120

Global Markets as Media-Institutional Forms

needs them for optimal performance. Flow experiences also involve feelings of self-actualization as well as the disappearance of self-reflexivity, distractions, and worries of failure. This may help explain the risk market actors often embrace and the disregard they may have for the concerns and rules of those external to financial markets. A global market, to be sure, flows not only in analytic time but also across territories from one time zone to another. This type of flow captures the mobility of the market. The market’s visit in various time zones implies an intersection of residential physical life-forms—that of the embodied operators of the system (e.g. traders) and of system facilities (e.g. trading floors)—with the non-residential level of this specialized world: actions, transactions, and accounts which are all in symbolic form and on the move. By this I mean that the ongoing stream of transactions show up and become intensified in the three major time zones “with the sun”—those that are wide awake and pay attention to the market. In response–presence terms, markets are released from the attention of a previous time zone and seized by the attention of the next. Moving the market across time zones involves work, for example the production of summary accounts which transfer attention-demanding trends from one time zone to the next for processing—these trends are encapsulated in closing rates, index values, volume statistics, intraday trading indicators, and so on. As a consequence of this alerting work, the market appears to arrive “whole” (encapsulated in summaries) at every time zone and takes off “whole” to the next one. And as it “arrives,” attentional resources are activated to amplify the task of engaging the market until it becomes the exclusive content of a time-zone-centered system. These include technological resources, such as auditory and visual signals that can be switched on and off on screen, and organizational resources, such as transnationally conducted morning meetings that highlight certain developments, or lunch being served at trading desks so as to not interrupt traders’ concentration.

Conclusion The attention and responsiveness participants bring to the market joins them together across organizations and space, and here too, time matters (Abbott 2001). As professional traders observe the market continuously (virtually without interruption), in synchronicity and temporal immediacy (they see the same market simultaneously in real time), a level of integration emerges among them that is a core dimension of the sociology such markets. It is plain that the emergence of an attentional regime is premised on the presence of scopic media—on the screen as a device that continually rolls out the market, “flowing” it to viewers as a reality of its own. Markets are transactional worlds 121

Karin Knorr Cetina

connected not only via traditional organizational media, such as networks or rules of trading practice, but via reflexive mirroring systems that gather up transactions, augmenting and embodying them as “market” for an audience of observers. Although human-to-human trading remains a possibility in these markets, human-to-screen/market trading appears dominant, and trading by algorithms (market-to-market trading) is an increasingly important component. The concept of a coercive response system intends to capture the media-institutional foundation of these markets, while also seeing them as scopic environments in which media and media feeds have become embedded in human interaction. The scopic mode of life raises research questions not addressed in this chapter, for example the question of how the attentional resources located not only on an organizational, technological, and interactional level, but also on a cognitive (information processing) and neural level, supplement and interact with one another. Another vector in the scopic realm, which I cannot discuss here, concerns the rules and conventions encoded in a social form that is media-institutional in character. An electronic broker, for instance, is not just an instrument that enables the matching of buyers and sellers and replaces “life” human brokers. It is an instrument in which the conventions of brokerage are encoded in media-specific ways—and that constrains and routinizes trading. Media-institutions extend our notion of institutions by working on a micro-level, targeting the cognitive and attentional system of participants, and by temporalizing normative orders.

References Abbott, A. (2001) Time Matters: On Theory and Method. Chicago: University of Chicago Press. Abolafia, M.Y. (1996) Making Markets: Opportunism and Restraint on Wall Street. Cambridge, MA: Harvard University Press. Ahrne, G. and G. Brunsson (2010) Organization Outside Organizations: The Significance of Partial Organization. Organization 21(1), 1–22. Aspers, P. (2011) Markets. Cambridge: Polity Press. Ayache, E. (2010) The Blank Swan: The End of Probability. Chichester, West Sussex: John Wiley and Sons. Baker, W.E. (1984) The Social Structure of a National Securities Market. American Journal of Sociology 89(4), 775–811. B.I.S. (Bank for International Settlement) (2013) Triennial Central Bank Survey. Foreign exchange turnover in April 2013: Preliminary global results. Basel: Bank for International Settlements, Monetary and Economic Department. Bogle, J.C. (2012) The Clash of the Cultures: Investment vs. Speculation. Hoboken, NJ: John Wiley and Sons.

122

Global Markets as Media-Institutional Forms Bruegger, U. (1999) Wie handeln Devisenhändler? Eine ethnographische Studie über Akteure in einem globalen Markt. Dissertation, Universität St. Gallen Hochschule für Wirtschafts-, Rechts- und Sozialwissenschaften (HSG). Chernow, R. (1997) The Death of the Banker: The Decline and Fall of the Great Financial Dynasties and the Triumph of the Small Investor. London: Pimlico. Csikszentmihalyi, M. (1990) Flow: The Psychology of Optimal Experience. New York: Harper and Row. Elliott, D.J. (2010) Wall Street Pay: A Primer. The Brookings Institution. http://www. brookings.edu/research/papers/2010/01/11-wall-street-elliott (accessed May 27, 2015). Fernandez, R.M. and R.V. Gould (1994) A Dilemma of State Power: Brokerage and Influence in the National Health Policy Domain. American Journal of Sociology 99(6), 1455–91. Folkman, P., I. Froud, S. Johal, and K. Williams (2008) Intermediaries (or Another Group of Agents?). In: I. Ertuk, J. Froud, S. Johal, and K. Williams (eds), Financialization at Work. London: Routledge, 150–62. Goffman, E. (1983) The Interaction Order. American Sociological Review 48(1), 1–17. Goodhart, C. (1988) The Foreign Exchange Market: A Random Walk with a Dragging Anchor. Economics 55(220), 437–60. Gravelle, H. and R. Rees (1992) Microeconomics, 2nd edn. London: Longman. Hayek, F. (1945) The Use of Knowledge in Society. American Economic Review 35(4), 519–30. Knight, F.H. (1965[1921]) Risk, Uncertainty and Profit. New York: Harper and Row. Knorr Cetina, K. and U. Bruegger (2002) Global Microstructures: The Virtual Societies of Financial Markets. American Journal of Sociology 107(4), 905–95. Knorr Cetina, K. (2009) What is a Financial Market? Kölner Zeitschrift für Soziologie und Sozialpsychologie, Sonderheft 49, 326–43. Krugman, P. (2009) Making Banking Boring. The New York Times. April 9. Muniesa, F. (2003) Des marchés comme algorithmes: sociologie de la cotation électronique à la Bourse de Paris. Thèse pour le Doctorat en Socio-Economie de l’Innovation, Ecole des Mines de Paris. Pardo-Guerra, J. (2012) Financial Automation, Past, Present, and Future. In: K. Knorr Cetina and A. Preda (eds), The Oxford Handbook of the Sociology of Finance. Oxford: Oxford University Press, 567–86. Preda, A. (2009a) Framing Finance: The Boundaries of Markets and Modern Capitalism. Chicago: University of Chicago Press. Preda, A. (2009b) Brief Encounters: Calculation and the Interaction Order of Anonymous Electronic Markets. Accounting, Organizations and Society 34, 675–93. Protess, B. and N. Popper (2012a) Quick Lunge for a Lifeline Helped Knight Skirt Collapse. New York Times, August 7. Protess, B. and N. Popper (2012b) Exchange Sale Reflects New Realities of Trading. New York Times, December 20. Rosenbaum, E.F. (2000) What is a Market? On the Methodology of Contested Concept. Review of Social Economy 58(4), 455–83. Sassen, S. (2001) The Global City, 2nd edn. Princeton, NJ: Princeton University Press.

123

Karin Knorr Cetina S.E.C. (U.S. Securities and Exchange Commission) (2010) The Laws that Govern the Securities Industry. http://www.sec.gov./about/laws.shtml (accessed September 21, 2011). Slater, D. (2002) From Calculation to Alienation. Disentangling Economic Abstractions. Economy and Society 31(2), 234–49. Smith, C.W. (1981) The Mind of the Market. A Study of Stock Market Philosophies, their Uses and Implications. Totowa, NJ: Rowman and Littlefield. Smith, C.W. (1999) Success and Survival on Wall Street: Understanding the Mind of the Market, rev. edn. Lanham, MD: Rowman and Littlefield. Smith, C.W. (2007) Markets as Definitional Practices. Canadian Journal of Sociology/ Cahiers canadien de sociologie 32(1), 1–39. Swedberg, R. (1994) Markets as Social Structures. In: N. J. Smelser and R. Swedberg (eds), Handbook of Economic Sociology, 1st edn. Princeton, NJ: Princeton University Press, 255–82. Swedberg, R. (2003) Principles of Economic Sociology. Princeton, NJ: Princeton University Press. Wyatt, E. (2011) Regulators to Set Forth Volcker Rule. New York Times, October 10. Zaloom, C. (2006) Out of the Pits. Traders and Technology from Chicago to London. Chicago: University of Chicago Press.

124

Part II Consolidating Economic Structures

5 Economy and Law Old Paradigms and New Markets Bruce G. Carruthers

Law plays a critical role in the constitution and governance of modern capitalist economies. Unlike other forms of social exchange (like gifts), market transactions require a means of exchange, buyers and sellers, objects of exchange (i.e., something to transact), information about goods, and enforceable agreements. Formal laws grant legal tender status to money, create fictive entities that can buy, sell, and own (viz. corporations), define property rights over tangible and intangible assets, promulgate standardized weights and measures, mandate the provision of information, and support the creation of enforceable private arrangements through contracts. Law provides a conventional way to organize transactions and codify economic relationships. It offers a paradigm for making and enforcing promises. Law is also used in the intergenerational transmission of wealth (central to the reproduction of economic inequality), and defines economic failure and its resolution (via bankruptcy or insolvency law, or other debt-enforcement procedures). Overall, law plays a fundamental and pervasive role in modern market economies. The relationship between law and a capitalist economy was classically theorized by Max Weber in Economy and Society and the General Economic History, wherein he underscored the necessity for rational, calculable law. Capitalism requires law that can be: “. . . counted upon, like a machine” (Weber 1981: 342–3); it needs a legal system that is “. . . calculable in accordance with rational rules” (Weber 1978: 337). Furthermore, Weber recognized the significance of the fact that legal rules were enforced by persons who specialized in that task and who could deploy the coercive powers of the state to ensure compliance. Thus, formal law was linked to the state and

Bruce G. Carruthers

was, in effect, a set of public enforceable rules. Earlier students of capitalism, such as Adam Smith, also noted the critical role played by government in providing the law and order that undergirded markets (Smith 1976, II: 231–2). Institutional economists like Douglass North (1981, 1990) emphasize the importance of law and secure property rights for long-term economic growth, and some have argued that differences between legal traditions (e.g. Civil vs. Common Law) are highly consequential for the development of finance (e.g. La Porta et al. 1997, 1998, 2002). More recently, the connection between law and economy has inspired development policy, as institutions like the IMF and World Bank shifted their focus from balanced budgets and civil engineering infrastructural projects to legal institutions and the “rule of law” as generators of economic growth (Carruthers and Halliday 2007; Halliday and Carruthers 2009; Pistor and Wellons 1998). Within sociology, there has been less effort to develop or amend Weber’s arguments (but see Macaulay 1963). However, Richard Swedberg makes law and the economy the focus of a chapter in the Principles of Economic Sociology (Swedberg 2003), and another in Max Weber and the Idea of Economic Sociology (1998). Swedberg’s discussions elaborate Weber’s arguments and will serve as the starting point for this paper. In particular, it is useful to recognize: “. . . the capacity of law to create new economic relationships” (Swedberg 2003: 199). Law both constrains and enables economic action, and so it should be viewed as akin to a generative grammar. I share with Victor Nee and Sonja Opper (Chapter 6) an appreciation of the importance of formal institutions for economic action. Here I consider several related developments in light of Weber’s arguments about the importance of legal certainty: the evolution of public and private forms of market regulation, the shift from national to global legal systems and rules, and the growth of financial markets and related “financialization” of economic activity. Contemporary financial markets operate at a global level and constitute a growing proportion of total economic activity. In different ways, these interconnected changes problematize the traditional basis of legal promulgation and rule enforcement in the nation-state. These developments reflect the growing importance of law but also a shift away from public law-making toward private law-making, a change with enormous implications for market governance and democratic accountability. I focus here on formal legal rules and their connection to calculability, and so it is important to acknowledge two other lines of work. Since Macaulay (1963), it has been recognized that some measure of predictability and certainty can be supplied to markets via informal means (Nee and Opper also explore this point). As Macaulay and others (e.g. Bernstein 1992) have noted, businesspeople do not always use formal contracts to transact. Under certain conditions (e.g. when they are embedded in small, stable, multiplex social 128

Economy and Law: Old Paradigms and New Markets

networks), they can rely on informal social relations and networks, and informal sanctions, to negotiate and enforce their agreements. Indeed they may prefer to transact informally. Although informal social ties undoubtedly play a role in the markets I examine here, they function on a “substrata” of formalized legal relationships.1 Furthermore, formal laws make it possible for market participants to forgo the kind of relational work discussed by Bandelj (Chapter 9) and which, in some circumstances, can be onerous, limiting, or impractical. Formal rules enable the high volume of impersonal transactions that characterize modern financial markets. Other researchers have considered situations where formal law was itself ambiguous and open-ended. Dobbin (2009) and others (Edelman 1992; Dobbin et al. 1993) noted that the Civil Rights Act of 1964 imposed vague but politically salient imperatives about non-discriminatory employment practices, but did not specify how U.S. employers were to comply with these new prohibitions. It was unclear what compliance with this law meant as a practical matter. Statutory law was incomplete, and so newly emergent “human resource professionals” and “personnel experts” created legal certainty by providing definitive interpretations and offering practical ways to comply that were subsequently upheld by the federal judiciary. The financial markets studied here were much less politically salient than civil rights, and the possibility of legal uncertainty, as well as its resolution, was correspondingly different. Market activity involves the creation and allocation of economic value, and one change in particular has significantly increased the overall importance of formal law in contemporary markets. Modern capitalist property rights stipulate who “owns” an asset, where ownership consists of a bundle of more-orless exclusive usufructuary rights, along with the rights of alienability and heritability that give property its mobility (Carruthers and Ariovich 2004). Traditionally, the assets subject to property rights were tangible objects: land and chattels. These physical objects existed independently of the private property rights2 that governed use and control over them. Now, however, many assets are intangible; they are constituted directly through law, and exist only because of law. Financial assets, for example, involve legally enforceable promises to make future payments. Household balance sheets now include many intangible assets that involve some type of contingent claim on future

1 For example, a recurrent tension in contemporary financial markets is between the traders and salespeople, who wish to transact deals quickly and informally, and the “back office” staff, whose job it is to formalize, execute, settle, and confirm such transactions. Despite the tension, the former requires the latter. 2 Or, as Sir William Blackstone put it: “. . . that sole and despotic dominion which one man claims and exercises over the external things of the world, in total exclusion of the right of any other individual in the universe.”

129

Bruce G. Carruthers

cash flows: stocks, bonds, bank accounts, pensions, etc. Firm balance sheets include intangible assets like financial assets and tax credits but also patents, trademarks, and other types of intellectual property. Company shares only exist as a form of property because states allow for the incorporation of firms as fictive individuals, which themselves can own property, including the shares of other companies. Similarly, ideas and inventions only exist as property because states have laws that allow for protection of patents, trademarks, and copyrighted material. And what can be patented has expanded in recent decades (Rhoten and Powell 2007).3 Thus, the historical shift from tangible to intangible property and the dramatic expansion of the latter rested directly on legal foundations. One particularly significant type of intangible asset involves financial derivatives, which played a starring role in the global financial crisis of 2008, and which raised the issue of legal uncertainty.

Over-the-counter Derivatives In finance, a derivative is an “arrangement or instrument (such as a future, option, or warrant) whose value derives from and is dependent on the value of an underlying variable asset, such as a commodity, currency, or security” (Oxford English Dictionary). Whether or not the “underlying” is itself tangible or intangible (wheat vs. stock indices), the instruments that derive from it are intangible (wheat futures vs. stock index options). Derivatives, including financial derivatives, are generally traded in one of two institutional locations, either on an organized exchange (like the Chicago Mercantile Exchange, or CME) or over-the-counter (OTC). Exchange-traded derivatives (like options or futures) are standardized and fungible contracts. Trade on an exchange allows for high levels of liquidity and transparency (including “price discovery”). Who is buying and selling what, and at what price is public knowledge. Exchanges also provide clearing services, an arrangement under which the exchange itself guarantees that transactions between buyers and sellers will be finalized and executed.4 This means, among other things, that traders on an exchange do not really need to know who is their counterparty, and so they can in principle trade anonymously.5 The OTC market, by contrast, involves

3 Witness developments since the 1980 Supreme Court decision Diamond v. Chakrabarty, which upheld the patentability of bacteria. 4 Clearing mitigates so-called “counterparty risk” because for sellers, the exchange assumes the buyer position, and for buyers it assumes the seller position. Neither buyers nor sellers have to worry that their counterparty will fail to live up to their obligations (unless the exchange itself fails). 5 Baker (1984) shows that in the days of face-to-face floor trading, traders were clearly not anonymous. They formed groups, depending on the level of trading activity.

130

Economy and Law: Old Paradigms and New Markets

private, customized, bilateral exchanges between dealer-banks and clients.6 Trading activity is not centralized and the market lacks an institutional locus. There is much less transparency in OTC markets and much more information asymmetry. Prices are not public knowledge, trades are not cleared, and it is critical to know who one is dealing with. Derivatives markets can be used to hedge various risks, but also to speculate. A U.S. firm that trades internationally might worry that the U.S. dollar will drop in value in relation to other national currencies, and so it can use foreign exchange futures or options to protect itself against “FX” risk. In so doing, the firm uses currency options to mitigate a specific type of uncertainty about the future, and to create a particular scenario in which certain risks have been minimized. Or a firm may simply wish to speculate on the future value of the U.S. dollar. Whether intended for hedging or speculation, activity in both exchange-traded and OTC derivatives markets expanded dramatically at the end of the twentieth century. For example, the total notional value of OTC interest rate and currency swaps grew from $U.S. 865 billion in 1987 to $426 trillion in 2009. In the latter year, the addition of credit default swaps and equity derivatives puts the overall OTC total at $463 trillion. Exchange-traded derivatives markets also experienced substantial growth, especially as markets like the Chicago Board of Trade (C.B.O.T.) and CME shifted away from commodity-based derivatives (like corn, wheat and “pork belly” futures and options) and toward financial derivatives (foreign exchange, interest rate, and equity index contracts). According to the B.I.S. (Bank for International Settlements), the total notional value of financial futures traded globally on organized exchanges was about $3.7 trillion in March of 1993, and about $24.3 trillion in March of 2012. Growth in financial options traded on organized exchanges was comparable over the same period. If market activity requires a certain, stable, and predictable legal framework to flourish, then that requirement was evidently satisfied in abundance in the case of modern financial derivatives markets. It is no accident that the organized exchanges have a well-defined and stable legal status. Exchange-traded derivatives were a form of contract, and hence governed by whatever contract law applied in the jurisdiction in which the exchange was domiciled.7 The exchanges themselves were governed by law. Exchanges based in the U.S. were subject to U.S. law, for example. Furthermore, exchange-based trading in such contracts in the U.S. was governed by the Commodity Exchange Act of 1936, regulated first by a bureau in the Department of Agriculture (because the early market was dominated by derivatives based on agricultural commodities like wheat, corn, and pork 6 7

Without clearing, counterparty risk is a serious problem in OTC markets. See Suchman (2003) for an insightful sociological discussion of contract.

131

Bruce G. Carruthers

bellies), and then by the Commodities Futures Trading Commission (C.F.T.C.), founded in 1974. The earliest derivatives contracts were simple futures and options with a commodity “underlying.” Market innovation was consistently tempered by the requirement for new contracts to get prior regulatory approval before they could be traded on the exchange. Thus, only about five new contracts were introduced annually during the 1970s (Gorham and Singh 2009: 186). But with financial deregulation in the 1980s and 1990s, such constraints were loosened, and after passage of the Commodity Futures Modernization Act of 2000 it became much easier for the exchanges to innovate, and the rate of new contract introduction increased. Overall, the legal framework for exchange-traded derivatives is clearly situated in statutory, administrative, and case law. The legal status of over-the-counter transactions has been much less straightforward. As the global OTC market emerged in the 1980s, OTC derivatives transactions often involved global financial institutions that spanned different legal jurisdictions. So although OTC derivatives were clearly a type of contract, it was uncertain which national body of contract law was applicable. A U.S. bank might use its British subsidiary to enter into a pound–deutschmark currency swap with a French institution, and so potentially U.S., British, German, or French law might apply. As these transactions occurred over-the-counter, there was no exchange with a specific domicile to dictate legal jurisdiction and governing law. One particular concern for market participants was that important contractual provisions (e.g. netting provisions) might not be equally valid or enforceable in all jurisdictions, and both procedural and substantive law varied from one country to the next. As OTC derivatives are “bespoke” and subject to near-continuous innovation, new provisions and contractual obligations were created all the time and so the question of their enforceability could only be answered provisionally and ex post (Awrey 2013). So even if a simple interest rate swap was deemed enforceable, what about a “collar,” or a “swaption” or some more complex hybrid contract? Innovative market activities often expand into areas where law is uncertain or incomplete, in part because the market has “outstripped” law, but also because market participants may wish to evade legal oversight. In the OTC market, there is no patent protection for new financial products and so continuous innovation is not only a way for the “sell side” of the market to move from one temporary monopoly to another, but also to stay ahead of regulators. In addition, the OTC market was jarred early on by surprising court rulings about the enforceability of derivatives contracts, unclear standards for the liability of dealer-bankers for customer losses (especially in the wake of the Orange County, Gibson’s Greetings, and Procter & Gamble scandals), uncertain rules about the capacity of market participants, and plagued by concerns about the applicability of statute-of-frauds measures (Lynn 1994). 132

Economy and Law: Old Paradigms and New Markets

Legal uncertainty can be addressed using four general strategies, either singly or in combination: creation of a private legal order that supplants public law (Wielsch 2012), harmonization of different public legal orders (Shaffer 2009), agreement to select one particular law as the governing law, or legal clarification.8 The first two strategies have been pursued in the OTC derivatives market, although the third has not. The fourth has been pursued, but only very narrowly. And although reduction of legal uncertainty appears to benefit all market participants, it is often the case that predictable legal rules favor particular sets of interests. The pursuit of legal certainty can mask conflict.

To Regulate Or Not To Regulate One of the biggest regulatory-cum-political questions concerned whether OTC derivatives should be subject to the same public regulatory oversight that applied to exchange-traded derivatives, and it remained an ongoing issue for some decades. The swaps market started small and grew in something of a regulatory void. To be sure, the market players were themselves regulated as institutions (banks were overseen by bank regulators), but the market itself was not. And traditional bank regulations were particularly ill-suited to these innovative financial transactions. Should the C.F.T.C., which regulated exchange-traded derivatives, also regulate an OTC market that before too long eclipsed the exchange-traded market in size? The OTC market was and is highly concentrated (Stulz 2004), highly profitable (FCIC 2011: 50–1), and core market participants have wanted to minimize public oversight. Furthermore, OTC derivatives consisted of private financial arrangements between sophisticated self-interested traders, which undermined the case for public oversight. Nevertheless, reasonable interpretations of the Commodity Exchange Act and the Commodity Futures Trading Commission Act suggested that OTC derivatives might be regulated by the C.F.T.C. At first, swaps occurred outside of any regulatory framework. This exclusion was reinforced by a specific intervention made by the U.S. Treasury Department when the CFTC was established in 1974. The bill to found the C.F.T.C. was amended in accordance with the wishes of Treasury that all foreign exchange (FX) transactions in the over-the-counter market (then primarily based in New York City) be exempted from C.F.T.C. oversight (Harvey 2013). Only exchange-traded currency futures were to be regulated. The “Treasury 8 For example, regardless of where the issuer is based, modern corporate bonds are generally issued either in New York or London, and so their terms are governed either by New York state law or English law (see Choi and Gulati 2006).

133

Bruce G. Carruthers

Amendment” was justified on the grounds that FX market participants were large, sophisticated institutions that knew what they were doing, and furthermore that they were already regulated by the Federal Reserve and Comptroller of the Currency. Yet as the swaps market grew in size and importance, various observers again raised the question of whether OTC markets should be regulated by the C.F.T.C. The C.F.T.C. itself started an investigation of the Chase Manhattan Bank commodity swaps program in 1987 and then issued an advance notice of rule-making with respect to swap transactions (Young and Stein 1988: 1918). Partly because of the vigorous and negative reaction to C.F.T.C. monitoring of swaps (mostly coming from the large banks that participated in the market), in 1989 the C.F.T.C. exempted swaps from the C.E.A. requirement that such contracts be traded on designated contract markets (Romano 1996: 55). However, as the C.E.A. did not expressly give the C.F.T.C. the power to grant such exemptions, in 1992 President Bush signed the Futures Trading Practices Act, which reauthorized the C.F.T.C. and explicitly granted to it the authority to exempt OTC derivatives from C.F.T.C. regulation. With this new authority, in 1993 the C.F.T.C. duly exempted swaps and hybrids from regulation. This exemption was one of the last actions undertaken by the Bush administration, specifically by the soon-to-depart head of the C.F.T.C. Wendy Gramm.9 The influential Group of Thirty, representing leading global financial institutions, weighed in on the matter of regulation in its 1993 report. Overall, the report urged governments to resolve various legal and regulatory uncertainties so that derivatives markets could thrive with minimal public oversight, and called on them to support swaps netting provisions (GDSG 1993: 20–1). On the other side, the U.S. General Accounting Office issued a report noting how concentrated and interconnected the OTC market had become, and drew out some worrisome implications for systemic financial stability (Bowsher 1994a: 2). The report recommended that all major OTC derivatives market dealers be subject to federal regulatory oversight with respect to their soundness and safety. Shortly after the release of the GAO report, ISDA issued a critical response that attacked the GAO’s recommendations to increase regulation of the OTC market, and the GAO duly rebutted the criticisms (Bowsher 1994b). Nevertheless, nothing further was done. During the mid-1990s, a number of well-publicized scandals prompted reconsideration of the regulatory status of OTC and whether the framework

9 Gramm was married to Senator Phil Gramm, a leading Republican supporter of financial deregulation. Later she was a director of Enron.

134

Economy and Law: Old Paradigms and New Markets

that governed exchange-traded derivatives should not also encompass the OTC market (FCIC 2011: 47). In 1994, Procter & Gamble and Gibson Greetings both entered into swap arrangements with Bankers Trust, and both suddenly and very publicly suffered huge losses (Overdahl and Schachter 1995; Morrison and Wilhelm 2007: 248–9). In December of 1994, Orange County in California filed for bankruptcy after suffering massive losses through OTC derivatives it arranged through Merrill Lynch. Then in 1998, the failure of Long Term Capital Management (L.T.C.M.) again brought OTC derivatives into disrepute as it became clear that even a major firm staffed by Nobel Prize winning economists could get into serious trouble in this market (Edwards 1999). These episodes underscored that OTC derivatives involved considerable risk, both for individual firms (which often underestimated those risks) but also for the overall market. The push to consider regulation of OTC came to a head when the C.F.T.C., under Brooksley Born, issued a Concept Release published in May 1998. The Release stated the Commission’s belief that: “. . . it is appropriate to reexamine its regulatory approach to the OTC derivatives market taking into account developments since 1993” (Federal Register Vol. 63, No. 91, May 12 1998: 26115). It alluded to various financial scandals involving OTC derivatives and noted that the market had evolved in ways that undermined some of the justifications offered in 1993 for the regulatory exemption of swaps. In particular, some swaps had become highly standardized (in part because of the effect of ISDA Master Agreements). Furthermore, no capital requirements had been imposed on swap market participants and the C.F.T.C. wondered whether regulatory capital could be useful in risk management. The opposition to these proposals was immediate and strong, and came even from within the regulatory community. Top officials from the Treasury department, Federal Reserve, and S.E.C. all publicly disagreed with Born, and urged Congress to halt all regulatory moves by the C.F.T.C. (see The New York Times May 8, 1998, D3). They were supported by various financial industry groups, including ISDA (Stout 2011). This political pressure swayed Congress and so the C.F.T.C. was prevented from taking any further action. Even the spectacular failure of L.T.C.M. that same year did not hinder the push to deregulate financial markets or to protect OTC markets from public oversight. The April 1999 report of the President’s Working Group on the failure of L.T.C.M. urged private parties to improve their own internal riskmanagement systems and to increase transparency, and suggested that if matters did not improve it might consider closer regulation of hedge funds (PWG 1999a: 36–7, 42). Facing widespread opposition even from inside the Clinton administration, Brooksley Born resigned from the C.F.T.C. The President’s Working Group on Financial Markets issued another report in November of 1999 that repeated 135

Bruce G. Carruthers

claims about the “cloud of legal uncertainty” that had supposedly undermined the OTC derivatives market, criticized the C.F.T.C. Concept Release of 1998, worried very little about L.T.C.M., and recommended that new statutory law definitively exclude swaps from regulatory oversight (PWG 1999b: 1, 6, 12). It also recommended that swaps be put safely beyond the reach of any and all state laws or regulations (PWG 1999b: 16). Much of the 1999 report was incorporated in the Commodity Futures Modernization Act of 2000, which strongly protected swaps from regulation by either the C.F.T.C. or the S.E.C., or state law (FCIC 2011: 48). Furthermore, the act reduced the regulatory burden on the existing exchanges like the CME and C.B.O.T. by giving them greater self-regulatory power subject to “principles-based” regulations (Donohue 2007).

Private law and OTC derivatives If OTC derivatives markets are not publicly regulated through statutory law or a federal agency, then what creates the legal certainty and predictability that Weber (and others) believed to be so necessary for a functioning market? In the case of OTC derivatives, private regulation is centrally important (Shaffer 2009; Wielsch 2012). It turns out that market participants were not against regulation per se, just so long as they could directly regulate the regulators. The issue of control made private regulation preferable to public regulation. The dealer-bankers are formally organized through an industry association founded in 1985, the International Swaps and Derivatives Association (ISDA). The founding members included the large U.S. commercial and investment banks that were active in establishing the OTC market. ISDA offers various services to its members, but one of the most important involves the provision of highly standardized contractual language in the form of a “Master Agreement.” Thévenot (Chapter 8) notes how much globalized economies depend on standards, benchmarks, and formalized procedures, and ISDA was in the business of creating exactly these kinds of conventions and devices. The first such Master Agreement was created by ISDA in 1987, with updates in 1992 and 2002 to reflect the evolution and growth of the market.10 Doubtless, informal social relations among market elites helped with the negotiations that preceded creation of a Master Agreement, but market participants clearly sought to add formal certainty to their transactions with each other. ISDA’s standardized documentation now governs about 90 percent of the 10 Although beyond the scope of this chapter, the determination and rationalization of financial relationships which were then “crystallized” into boilerplate contractual language may well have followed the process discussed by Owen-Smith (2011). See also Suchman 2003: 120–6.

136

Economy and Law: Old Paradigms and New Markets

transactions in the OTC derivatives market (Braithwaite 2012: 784). With standardized forms and legal templates as building-blocks, OTC dealerbankers can more easily construct the customized swaps that constitute the market (Suchman 2003: 101–2). By creating a common contractual language in the form of legal boilerplate and standardized definitions, ISDA in effect set forth the rules of the OTC game (Choi and Gulati 2006). This formal-legal language provided a privately controlled “generative grammar” for the market, enabling combinatorial innovation (where preexisting elements are put together in new combinations) but constraining new contracts to conform to prescribed templates whose legal status was certain. The role of private ordering was amplified even further by the fact that ISDA contracts make significant use of the credit ratings issued by private rating agencies like Moody’s and S&P. OTC derivatives involve significant counterparty risk (because of the absence of clearing) and such risk is dealt with in the “credit support annex” attached to a Master Agreement. Credit ratings are used to measure counterparty risk, to set levels of collateral, and to value collateral when it consists of financial securities (Cunningham and Werlen 1996; Gregory 2010: 65–6, ISDA 1996: 11, 20, 49–50). As their incorporation into derivatives contracts is part of the industry standard, this means that changes in credit ratings automatically produce widespread effects. Internally, ISDA is dominated by a small group of dealer-bankers (Partnoy 2002: 10, Partnoy and Skeel 2007: 1039). ISDA also plays a very important function by determining when the “credit events” that trigger credit default swaps have occurred. Such factual determinations are made by ISDA Recognition Committees, organized by global region (Flavell 2010: 86–7). Until a Recognition Committee rules that debt repudiation has occurred (which it does only after a discussion and formal vote), the repudiation has for all intents and purposes not happened. It happened if they say it happened, and so, in a sense, ISDA itself creates contractually relevant events. ISDA also functions politically to defend OTC derivatives industry interests around the world (Flanagan 2001: 229, 246; Morgan 2010). It has been particularly vigorous in opposing any attempts in the U.S. to regulate the OTC market, but more generally it undertakes “. . . the education of regulators . . . ” as Flanagan (2001: 262) euphemistically put it. As a testament to its global political efficacy, consider that many sovereign nations, including the U.S., U.K., France, Germany, Switzerland, and Japan, have modified their national corporate bankruptcy statutes by adopting ISDA’s “model netting act” (which give derivatives counterparties a kind of super-priority claim on the bankrupt estate, ahead of all other corporate creditors, see Partnoy and Skeel 2007: 1048; Roe 2011). Although such a modification can produce dramatic 137

Bruce G. Carruthers

distributional consequences (favoring swaps market participants over all other creditors), this sweeping change in bankruptcy rules mostly went unmarked. The case of OTC derivatives illustrates that private institutions can provide legal certainty and predictability sufficient to sustain an active market.11 But the legal order that ISDA created privately was not intended to serve a public interest, and in fact it reflected a deliberate strategy of keeping the state at arm’s-length via non-regulation or deregulation. ISDA used Master Agreements to create its own internal legal certainty, but it also simultaneously sought external legal certainty about the unregulated status of the OTC market. Many argued during the 1990s and 2000s that self-interest would combine with sophisticated risk-management to ensure that financial markets no longer required regulatory oversight: private regulation would effectively replace public regulation. Consequently, ISDA reflects the very specific interests of the organizations that dominate it: the large dealer-banks (e.g. Goldman Sachs, Deutsche Bank, JPMorgan Chase, etc). These narrow interests were particularly evident when ISDA sought to harmonize private with public law by bringing the latter into compliance with the former. ISDA netting rules have been adopted by many nations, at the behest of ISDA, and privilege OTC market participants above other groups in the bargaining that occurs in a bankruptcy court. Most of the attention on the 2005 revision of U.S. bankruptcy code focuses on the success of the credit card industry in making revolving credit harder for consumers to discharge, but the revisions also greatly favored the treatment of OTC derivatives (Vasser 2005). ISDA’s model netting rules illustrate another way to achieve legal certainty: by reducing legal pluralism through harmonization. It is too much to expect sovereign nations to completely harmonize their legal codes, but ISDA has achieved a remarkable degree of legal isomorphism in netting provisions, a contractual feature that greatly concerns its core membership.12

Legal Harmonization Along with private law, prior choice of law and legal clarification (as discussed in Over-the-counter Derivatives), harmonization is another way to confront the problem of legal uncertainty. Markets that span multiple jurisdictions create uncertainty when legal rules vary and it is unclear which set of rules apply to a 11 In this respect, ISDA’s Master Agreement framework is not unlike the early modern lex mercatoria. 12 As a testament to ISDA’s ability to work with a variety of legal codes, including some quite hostile to financial contracting, consider its successful negotiations with the International Islamic Financial Market to devise a Master Agreement to cover sharia-compliant swaps. See Jobst and Solé (2012).

138

Economy and Law: Old Paradigms and New Markets

particular transaction, or if multiple and conflicting rules apply. Legal harmonization can proceed along a variety of pathways. A group may design a common legal code, and then apply political pressure or moral suasion to get that code adopted, without modification, in separate legal jurisdictions. The best known example of this strategy is probably the uniform law movement in the United States. Federalism meant that each state in the U.S. had its own commercial laws, and domestic commerce was hampered by legal pluralism. A secured transaction (i.e., one involving collateral) meant something different in New York as compared with Illinois, adding unhelpful uncertainty to interstate trade and financing. At the end of the nineteenth century, the American Bar Association created the National Conference of Commissioners on Uniform State Laws (N.C.C.U.S.L.) and it determined a number of areas where uniform law “made sense.” The N.C.C.U.S.L.’s mission was to devise a model law in an appropriate issue area (for example, the Uniform Negotiable Instruments Act, finalized in 1896) and then urge its adoption by states (Smith 1914; Stimson 1895). In similar fashion, U.N.C.I.T.R.A.L. (the UN Commission on International Trade Law) became active after the Asian Financial Crisis in negotiating a model bankruptcy law that reflected global “best practices,” and then urged its adoption by different countries (Halliday and Carruthers 2009). So to deal with the uncertainty created by legal pluralism, one general strategy involves creating standardized law and then getting multiple jurisdictions to adopt it.13 Two other strategies are also used to pursue legal harmonization. One involves “regulatory arbitrage,” where businesses make locational decisions in response to regulatory differences. The fact of capital mobility allows investors to react to regulations they like, or dislike, through application of the “exit” option (Hirschman 1970, Murphy 2004). By disinvesting from one jurisdiction, and investing in another, businesses can pressure politicians to make regulations in their jurisdiction more attractive, business “friendly,” less onerous, etc. When multiple polities are subject to this threat of disinvestment, the result can be a “race to the bottom” in which states or nations competitively harmonize their laws so as to minimize regulatory burdens and otherwise make laws in their jurisdiction as attractive as possible to business. The other strategy reflects the fact that politicians are not always at the mercy of mobile capital. It involves what Vogel (1995) terms the “California effect” and marks the ability of the state of California to set stronger, as opposed to weaker, environmental standards for automobile manufacturers. Cars that do not comply cannot be sold in California. More generally, restriction of market

13 Clearly, the strategy assumes that identical legal codes adopted in different legal jurisdictions will function in a similar fashion. Numerous examples of the so-called “transplant effect” suggest that this assumption does not always hold true. See Berkowitz et al. 2003.

139

Bruce G. Carruthers

access can give leverage to politicians whose domestic markets are relatively large.14 When the market is too large for businesses to ignore, politicians can impose legal rules that may be not be attractive to business, and so set higher, as opposed to lower, regulatory standards. The “California effect” can result in “races to the top.” These various harmonization strategies have been deployed at different times, and by different parties, in financial markets. Competitive deregulation was certainly apparent in the 1980s and 1990s, where supporters of deregulation invoked the prospect of “exit” to convince politicians that unless they liberalized financial markets, finance would move elsewhere. New York bankers threatened to move to London, and vice versa. And insofar as netting rules are concerned, ISDA has embraced the uniform law strategy, creating its own model code and successfully pressuring nations to adopt it. The final strategy may be in play in the post-2008 era, where U.S. and European policymakers are trying to impose higher regulatory standards and use market access as a lever: it would be hard for a global financial institution to be locked out of U.S. or European financial markets because it failed to comply with post-2008 regulations. These financial markets are too large and important to forgo. The development of financial derivatives markets has involved harmonization of public law, but private rules have also been important, especially for the OTC market. Yet the limits of private legal ordering also became apparent after the 2008 crisis. To be sure, ISDA privately increased legal predictability by creating standardized contractual language for a market organized around contracts. And the effectiveness of contract as the primary market ordering device presumed the coercive backing of the state. But without direct public oversight, the OTC derivatives market accumulated risks that in 2008 threatened the stability of the world’s financial system. Although leading private financial institutions were able to use ISDA to dictate exactly the kinds of market rules they desired, the result was a market that dissolved chaotically in the fall of 2008. Lacking transparency, no-one knew what was going on or how to fix problems. Unbeknownst to public authorities, AIG took a large and unhedged position in credit default swaps, and when its own credit rating was lowered by the rating agencies, it was required by the standardized contracts it entered into to post more collateral. As it did not possess enough collateral, and as its failure would have severely damaged its counterparties, the U.S. government bailed out the company. Counterparty risks soared and major financial institutions refused to deal with each other, even for the shortestterm loans imaginable like overnight repo (Gorton 2010; Gorton and Metrick 2012). Liquidity disappeared and so market prices became essentially

14

140

For an example of the “California effect” in the case of labor standards, see Huberman 2012.

Economy and Law: Old Paradigms and New Markets

meaningless even when they could be calculated. Without legitimate market prices, the accounting machinery ground to a halt as it became impossible to “mark” financial assets “to market” (Plantin et al. 2008). Furthermore, to comply with capital standards, institutions were forced to dump assets at “fire sale prices,” which led to further price declines and additional compliance problems. Evidently, systemic financial stability is a public good that the private market undersupplies, and when private interests alone dictate the construction and operation of market infrastructure, as was the case in OTC derivatives before 2008, the necessary oversight and ability to protect financial capitalists from themselves is absent (Rajan and Zingales 2004). Public regulatory capacity may not be critical when the market is doing well, but during a crisis its absence is sorely felt.

Conclusion In recent decades, the OTC derivatives market has flourished. One reason for this success is that derivatives are a practical and conventional device that firms can use to manage uncertainty or help to create a specific “imagined future” (Beckert, Chapter 2). Yet uncertainty did not disappear, for at best it was displaced to a different level. Uncertainty about currency values or interest rates became uncertainty about law. Remarkably, the OTC derivatives market grew despite worries publicly expressed by market players that its status in relation to public law was too uncertain and that it remained vulnerable to the kind of regulatory interventions that occurred in exchange-traded derivatives markets. It grew despite its global reach, which meant that transactions regularly crossed multiple legal jurisdictions and so confronted the unpredictabilities generated by legal pluralism. And it grew despite the fact that market transactions concerned intangible contingent claims on intangible monetary flows, and so the value that was transacted would completely disappear without the certain legal enforceability of contract. Much more than its exchange-traded counterpart, the OTC derivatives market rests on a legal order that was largely privately created, a late twentieth century aerarius lex mercatoria (“financial merchant law”). It also depends on other privately created information, particularly the ratings generated by the credit rating agencies. The OTC market is not privately self-contained, however, for it rests on the fundamental sanctity of publicly enforced contract (Sagy 2011), and it articulates with public law at several key points (especially having to do with the netting provisions in corporate insolvency law). The coercive power of public law is clearly a necessary condition for this private arrangement to function. Nevertheless, the huge OTC derivatives market depends directly on the conventional rules and contractual templates created 141

Bruce G. Carruthers

privately by ISDA, and until very recently ISDA’s infrastructural work had not been tempered or constrained by public regulatory oversight. The highly centralized nature of the OTC market meant that any convention or rule agreed on by the core group could be dictated easily to the rest of the market. ISDA is an industry organization that reflects the particular interests and embodies the power of its biggest members, the large private dealer-banks. ISDA’s primary mission was positively Weberian in its conception: devising standardized contractual language and common definitions to increase the certainty of OTC derivatives transactions. But it was certainty in the service of a particular group. Certainty did not only mean restrictive constraints, for ISDA’s framework enabled enormous financial innovation. OTC market participants were able to use the contractual elements created by ISDA like standardized building blocks, which when combined in new ways made possible the creation of “bespoke” swaps, customized to the unique risk profile of a client. If it is true that, following Weber, law both constrains and enables economic relationships (Swedberg 2003: 199), the OTC derivatives market illustrates these two aspects at the same time. ISDA Master Agreements were designed as enabling devices: their uniform meanings and standardized provisions were intended to reduce uncertainty by constraining the contractual elements that market participants would use, but this constraint enabled dealer-banks to transact in new ways, by using contractual templates as building blocks for new financial structures. These “enabling constraints” were privately created, and so reflected the very particular interests of major financial institutions. The logic of their innovation was that of bricolage, a recombinatorial process in which pre-existing elements were combined in new ways. Other examples of “enabling constraints” include the legal standardization of home mortgages that underpinned mortgage securitization, the physical standardization that enabled the development of commodity derivatives, and the rules that constitute any generative grammar (Carruthers and Stinchcombe 1999). At the same time as it privately created a standardized contractual language, ISDA and its membership intervened politically to make sure that public regulatory constraints were minimized. The battle to keep the C.F.T.C. from regulating OTC derivatives was fought from the mid-1980s onward and conclusively won in 2000, with passage of the Commodity Futures Modernization Act. Regulatory oversight would have given influence to other stakeholders and forced consideration of the public interest, and that is definitely not what the big market players wanted. So they pushed hard for legal clarity about the unregulated status of OTC derivatives, and got it. The 2008 financial crisis demonstrated that society does indeed have an interest in systemic financial stability, and unfortunately the privately governed OTC derivatives market was unable to forestall systemic crisis (witness the necessity to save A.I.G., a 142

Economy and Law: Old Paradigms and New Markets

key player in the credit default swaps market). The result was passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, a measure that recognized how important public regulatory constraints were in modern financial markets. Arguments made in favor of financial deregulation, or non-regulation in the case of OTC derivatives, claimed that unregulated markets allowed for the accurate pricing of risk, the efficient diversification of risk, and the redistribution of risk into the hands of those best able to manage it. These arguments proved to be overblown and simplistic. And they were also self-serving. The narrow private interests that dominated ISDA ignored the broader social interest that a market society has in a stable and functioning financial system. Collective interests that could have been recognized through public laws and regulations were excluded for decades. Crisis has dictated their re-inclusion. In considering the relationship between law and markets, economic sociology needs to broaden its understanding of what is law. To be sure, law includes the formal rules promulgated by legislatures and administrative agencies, as well as the binding determinations issued by courts and the judiciary. But it also includes private rules. Arguments about the importance of legal certainty continue to be made and they continue to influence policy, but it is evident that private law has become an important basis for such certainty (Shaffer 2009; Wielsch 2012). The attractions of private legal ordering to private interests are pretty clear in the case of OTC derivatives, as are some of their limitations. Other markets and industries have also witnessed the emergence of private regulation (e.g. Bartley 2007; Locke 2013), and so market governance has to be conceived as involving more than public law and regulation. Why such private arrangements arise, and whether they will supplant, undermine, or bolster traditional public legal ordering remains an important research question. One possible explanation, however, develops the connection between market innovation and legal uncertainty. Sometimes market activity “gets ahead” of the law in the sense that it moves into areas where there may be no legal rules at all, or where the import of such rules is unclear. As Nee and Opper (Chapter 6) also note, formal law often follows the market rather than leading it. This can happen when market innovation occurs faster than legal innovation, and market participants may turn to informal arrangements based in social networks to help order their interactions. But it can also occur if market innovators deliberately operate in areas with minimal legal oversight. In a capitalist democracy, where laws (partly) reflect the interests of voters/citizens, formal law may offer certainty that capitalists wish to avoid: namely, the certainty that their actions may be restricted or curtailed in ways they find onerous. Certainty of law is not an unmitigated good if it forces capitalists to do things they wish to avoid, or forecloses opportunities they 143

Bruce G. Carruthers

want to exploit. This is one reason why OTC derivatives market participants worked so hard to prevent regulation by the C.F.T.C. But private law can offer an attractive intermediate position: it confers some of the formal certainty of public law, without its broad democratic accountability. Instead, the rules are designed by a small group of powerful market participants. And in the AngloAmerican legal tradition, building private law around the central legal institution of contract preserves a great deal of flexibility and discretion for market actors. Only when there is a compelling public interest does the state interfere with mutually agreeable arrangements between freely consenting parties.

References Awrey, Dan (2013) Toward a Supply-Side Theory of Financial Innovation. Journal of Comparative Economics 41(2), 401–19. Baker, Wayne (1984) The Social Structure of a National Securities Market. American Journal of Sociology 89, 775–811. Bartley, Tim (2007) Institutional Emergence in an Era of Globalization: The Rise of Transnational Private Regulation of Labor and Environmental Conditions. American Journal of Sociology 113(2), 297–351. Berkowitz, Daniel, Katharina Pistor, and Jean-Francois Richard (2003) Economic Development, Legality, and the Transplant Effect. European Economic Review 47, 165–95. Bernstein, Lisa (1992) Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry. Journal of Legal Studies 21, 115–57. Blackstone, Sir William 1979 [1766]. Commentaries on the Laws of England. Volume 2. Chicago: University of Chicago Press. Bowsher, Charles A. (1994a) Financial Derivatives: Actions Needed to Protect the Financial System. GAO/T-GGD-94-170, Washington DC: General Accounting Office. Bowsher, Charles A. (1994b) Response to the International Swaps and Derivatives Association Position Paper. GAO/T-GGD-94-163, Washington DC: General Accounting Office. Braithwaite, Joanne P. (2012) Standard Form Contracts as Transnational Law: Evidence from the Derivatives Markets. Modern Law Review 75(5), 779–805. Carruthers, Bruce G. and Laura Ariovich (2004) The Sociology of Property Rights. Annual Review of Sociology 30, 23–46. Carruthers, Bruce G. and Terence C. Halliday (2007) Institutionalizing Creative Destruction: Predictable and Transparent Bankruptcy Law in the Wake of the East Asian Financial Crisis. In: Meredith Jung-En Woo (ed.), Neoliberalism and Institutional Reform in East Asia. New York: Palgrave Macmillan. Carruthers, Bruce G. and Arthur L. Stinchcombe (1999) The Social Structure of Liquidity: Flexibility in Markets and States. Theory and Society 28(3), 353–82. Choi, Stephen J. and G. Mitu Gulati (2006) Contract as Statute. Michigan Law Review 104(5), 1129–73.

144

Economy and Law: Old Paradigms and New Markets Cunningham, Daniel and Thomas Werlen (1996) Derivatives and the reduction of credit risk. International Financial Law Review January, 35–6. Dobbin, Frank (2009) Inventing Equal Opportunity. Princeton: Princeton University Press. Dobbin, Frank, John R. Sutton, John W. Meyer, and W. Richard Scott (1993) Equal Opportunity Law and the Construction of Internal Labor Markets. American Journal of Sociology 99(2), 396–427. Donohue, Craig (2007) “Keynote Address,” U.S. Securities Industry and Financial Markets Association, November 8, 2007. Chicago: CME Group. Edelman, Lauren B. (1992) Legal Ambiguity and Symbolic Structures: Organizational Mediation of Civil Rights Law. American Journal of Sociology 97(6), 1531–76. Edwards, Franklin R. (1999) Hedge Funds and the Collapse of Long-Term Capital Management. Journal of Economic Perspectives 13(2), 189–210. Financial Crisis Inquiry Commission [FCIC] (2011) The Financial Crisis Inquiry Report. New York: PublicAffairs. Flanagan, Sean M. (2001) The Rise of a Trade Association: Group Interactions Within the International Swaps and Derivatives Association. Harvard Negotiation Law Review 6, 211–64. Flavell, Richard (2010) Swaps and Other Derivatives. 2nd edn. New York: Wiley. Global Derivatives Study Group [GDSG] (1993) Derivatives: Practice and Principles. Washington DC: Group of Thirty. Gorham, Michael and Nidhi Singh (2009) Electronic Exchanges: The Global Transformation from Pits to Bits. Amsterdam: Elsevier. Gorton, Gary B (2010) Slapped by the Invisible Hand: The Panic of 2007. New York: Oxford University Press. Gorton, Gary B. and Andrew Metrick (2012) Securitized banking and the run on repo. Journal of Financial Economics 104, 425–51. Gregory, Jon (2010) Counterparty Credit Risk: The New Challenge for Global Financial Markets. New York: Wiley. Halliday, Terence C. and Bruce G. Carruthers (2009) Bankrupt: Global Lawmaking and Systemic Financial Crisis. Stanford: Stanford University Press. Harvey, Rachel (2013) The Legal Construction of the Global Foreign Exchange Market. Journal of Comparative Economics 41(2), 343–54. Hirschman, Albert O. (1970) Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States. Cambridge, MA: Harvard University Press. Huberman, Michael M. (2012) Odd Couple: International Trade and Labor Standards in History. New Haven: Yale University Press. International Swaps and Derivatives Association [ISDA], Inc. (1996) Guidelines for Collateral Practitioners. New York: ISDA. Jobst, Andreas A. and Juan Solé (2012) Operative Principles of Islamic Derivatives— Towards a Coherent Theory. IMF Working Paper WP/12/63. Washington DC: International Monetary Fund. La Porta, Rafael, Florencio López de Silanes, Andrei Shleifer, and Robert W. Vishny (1997) Legal Determinants of External Finance. Journal of Finance 52(3), 1131–50.

145

Bruce G. Carruthers La Porta, Rafael, Florencio López de Silanes, Andrei Shleifer, and Robert W. Vishny (1998) Law and Finance. Journal of Political Economy 106(6), 1113–55. La Porta, Rafael, Florencio López de Silanes, Andrei Shleifer, and Robert W. Vishny (2002) Investor Protection and Corporate Valuation. Journal of Finance 57(3), 1147–70. Locke, Richard M. (2013) The Promise and Limits of Private Power: Promoting Labor Standards in a Global Economy. New York: Cambridge University Press. Lynn, David M. (1994) Enforceability of Over-the-Counter Financial Derivatives. Business Lawyer 50(1), 291–337. Macaulay, Stewart (1963) Non-Contractual Relations in Business. American Sociological Review 28, 55–67. Morgan, Glenn (2010) Legitimacy in financial markets: credit default swaps in the current crisis. Socio-Economic Review 8(1), 17–45. Morrison, Alan D. and William J. Wilhelm Jr. (2007) Investment Banking: Institutions, Politics, and Law. Oxford: Oxford University Press. Murphy, Dale E. (2004) The Structure of Regulatory Competition: Corporations and Public Policies in a Global Economy. New York: Oxford University Press. North, Douglass C. (1981) Structure and Change in Economic History. New York: Norton. North, Douglass C. (1990) Institutions, Institutional Change and Economic Performance. New York: Cambridge University Press. Overdahl, James and Barry Schachter (1995) “Derivatives Regulation and Financial Management: Lessons from Gibson Greetings,” Financial Management 24(1), 68–78. Owen-Smith, Jason (2011) The Institutionalization of Expertise in University Licensing. Theory and Society 40(1), 63–94. Partnoy, Frank (2002) ISDA, NASD, CFMA, and SDNY: The Four Horsemen of Derivatives Regulation. Public Law and Legal Theory Working Paper no. 39, University of San Diego School of Law. Partnoy, Frank and David A. Skeel (2007) The Promise and Perils of Credit Derivatives. University of Cincinnati Law Review 75(3), 1019–51. Pistor, Katharina and Philip A. Wellons (1998) The Role of Law and Legal Institutions in Asian Economic Development 1960–1995. Oxford: Oxford University Press. Plantin, Guilllaume, Haresh Sapra, and Hyun Song Shin (2008) Fair value accounting and financial stability. Financial Stability Review 12, 85–94. President’s Working Group on Financial Markets [PWG] (1999a) Hedge Funds, Leverage, and the Lessons of Long-Term Capital Management. Washington DC. President’s Working Group on Financial Markets [PWG] (1999b) Over-the-Counter Derivatives Markets and the Commodity Exchange Act. Washington DC. Rajan, Raghuram and Luigi Zingales (2004) Saving Capitalism from the Capitalists: Unleashing the Power of Financial Markets to Create Wealth and Spread Opportunity. Princeton: Princeton University Press. Rhoten, Diana and Walter W. Powell (2007) The Frontiers of Intellectual Property. Annual Review of Law and Social Science 3, 345–73. Roe, Mark J. (2011) The Derivatives Market’s Payment Priorities as Financial Crisis Accelerator. Stanford Law Review 63, 539–90. Romano, Roberta (1996) A Thumbnail Sketch of Derivative Securities and Their Regulation. Maryland Law Review 55(1), 1–83.

146

Economy and Law: Old Paradigms and New Markets Sagy, Tahila (2011) What’s So Private about Private Ordering? Law and Society Review 45(4), 923–54. Shaffer, Gregory C. (2009) How Business Shapes Law: A Socio-Legal Framework. Connecticut Law Review 42(1), 147–83. Smith, Adam (1976 [1789]) An Inquiry into the Nature and Causes of the Wealth of Nations. Chicago: University of Chicago Press. Smith, Walter George (1914) Uniform Legislation in the United States. Annals of the American Academy of Political and Social Science 52, 67–76. Stimson, Fredric Jesup (1895) Uniform State Legislation. Annals of the American Academy of Political and Social Science 5, 1–36. Stout, Lynn A. (2011) Derivatives and the Legal Origin of the 2008 Credit Crisis. Harvard Business Law Review 1, 1–38. Stulz, Rene M. (2004) Should We Fear Derivatives? Journal of Economic Perspectives 18(3), 173–92. Suchman, Mark (2003) The Contract as Social Artifact. Law and Society Review 37(1), 91–142. Swedberg, Richard (1998) Max Weber and the Idea of Economic Sociology. Princeton: Princeton University Press. Swedberg, Richard (2003) Principles of Economic Sociology. Princeton: Princeton University Press. Vasser, Shmuel (2005) Derivatives in Bankruptcy. Business Lawyer 60(4), 1507–46. Vogel, David (1995) Trading Up: Consumer and Environmental Regulation in a Global Economy. Cambridge: Harvard University Press. Weber, Max (1978) Economy and Society. Guenther Roth and Claus Wittich (eds). Berkeley: University of California Press. Weber, Max (1981) General Economic History. Frank Knight (tr.). New Brunswick, NJ: Transaction Books. Wielsch, Dan (2012) Global Law’s Toolbox: Private Regulation by Standards. American Journal of Comparative Law 60, 1075–104. Young, Mark D. and William L. Stein (1988) Swap Transactions Under the Commodity Exchange Act: Is Congressional Action Needed? Georgetown Law Journal 76, 1917–47.

147

6 Economic Institutions from Networks Victor Nee and Sonja Opper

Introduction Institutions viewed as social structures enabling and guiding economic action has been a core concept of economic sociology since its origin as a subfield of sociology. Whether in explaining the rise of rational capitalism in the West or the workings of firms, bureaucracy, national markets and the regulatory state, institutions matter in economic life. In a critique of the new institutional economics, Granovetter (1985) formulated the guidelines for a renewal of economic sociology as a response to the omission of social structure in the neoclassical model of economic action. Combined with White’s (1981) “Where do Markets Come From?” the concept of embeddedness laid the foundation for a distinctive sociological approach to the study of markets and firms. By focusing on how social relationships channel information, secure trust, and enable cooperation, many low hanging fruits were ready for picking leading to significant findings on the workings of markets and firms (Swedberg 1994; Abolafia 1996; Burt 1992; Evans 1995; Keister 2000; Powell et al. 1996; Portes and Sensenbrenner 1993; Saxenian 1994; Uzzi 1996; Fligstein 2001; Bothner 2003). In the revival of economic sociology, White’s (1981, 2002) sociological theory of markets was distinctive in its turn to economics for a micro-foundation (Muth 1961; Spence 1974; Akerlof 1976; Dixit and Stiglitz 1977; Porter 1980). His theory assumed firms are driven by hedonic profit-seeking, which motivates a relentless drive for quality and innovation (Rosen 1974). In production markets, the need to make decisions under condition of uncertainty poses an incorrigible problem for firms (Knight 1921). The dilemma cannot be resolved within the firm, as classical uncertainty involves the conditions where risks are incalculable. Yet, as White (2002) underscores, firms must make decisions to invest in productive capacity, human capital, and technology in present

Economic Institutions from Networks

time to meet the competition. This confronts economic actors with the need to make decisions under market pressure while confounded by uncertainty about risks involved and future returns. White turned to signaling theory (Spence 1974; Akerlof 1976) for the mechanism that enables economic actors in production markets to resolve the problem of Knightian uncertainty. Accordingly, economic actors watch signals of strategic action of other firms in their niche to position their firm where they have competitive advantage and where survival chances are better. As they seek positions in the niche to enhance survival chances and profitability, successive adaptations of firms in the niche lead to the social construction of a status order in which identity and position are ranked by quality, the W(y) curve predicted by White’s theory. This evolution results in a stable market structure in which predatory and destructive competitive pressure is restrained through social control of a stable market order (Fligstein 2001). In this chapter, we extend White’s emphasis on specifying general mechanisms of human behavior as the micro-foundation for economic sociology. Our aim is to show how mechanisms built into ongoing social exchange serve as the link connecting networks with institutional arrangements. We first provide an overview of our network and institutions approach, then we extend it to explain the emergence of economic institutions of capitalism in China.

The Network Foundation of Economic Institutions The definition of institution we use integrates the structural approach of sociology with the agency perspective of economics. In our framework, institutions are self-reproducing social structures that provide a conduit for collective action. We define institution as a system of interrelated informal and formal elements—customs, conventions, norms, beliefs, and rules— governing social relationships within which actors pursue and fix the limits of legitimate interests. In Chapter 5 of this volume, Carruthers underscores how modern financial markets turn on formal legal rules and the rule of law. Our definition shifts analysis of the effectiveness of enforcement of contractual agreements to social mechanisms endogenous to the transaction between principal and agent. In this shift in emphasis, we steer a middle course between Granovetter’s (1985) embeddedness approach and the new institutional economics. Sociologists have long held the view of markets as self-reproducing social structures within which buyers and sellers transact across market interfaces. “However difficult it often is to account for all their detailed characteristics,”

149

Victor Nee and Sonja Opper

market institutions “are at least the product of the very things economics disregards—the relatively permanent relationships between individuals or between groups, which form social structures” (Homans 1974: 68). Economists concur that repeated exchange is commonplace even in markets characterized by the ease and reliability of impersonal exchange. The market is, for example, defined as “a forum” for carrying out “exchange that is voluntary: each party can veto it, and (subject to the rules of the marketplace) each freely agrees to the terms” [italicized in original]. In such definitions “the market” is generally differentiated from “a market” or “a marketplace,” which refers to a specific physical place or cyberspace where goods are bought and sold: “By ‘the market,’ I mean the abstraction,” writes McMillan (2002: 6). But economists have yet to find a fully satisfactory way to characterize the structure and process through which firms actually constitute a market. Economists and sociologists recognize the need to examine the workings of markets; yet as White (2002: 9) observed, “because the market is a tangible social construction opaque to tools familiar to economists, and because sociologists by and large have not looked, the market has remained a mystification.” The challenge to demystify markets calls for examining the relationship between norms embedded in social exchange and the formal rules mandated and enforced by the state. Many economists now accept the view that social norms are likely to play a stronger role in explaining economic behavior than was commonly assumed. Indeed, the formal rules that make up the institutional environment and informal norms embedded in ongoing social relations jointly interact to shape economic behavior in markets. Only if individual interests and preferences are well aligned with the incentives structured in the institutional environment will they reinforce compliance with formal rules through self-monitoring and mutual enforcement. Otherwise, if individual interests are not aligned with the structure of opportunity legitimized by the state, strategic interest may give rise to decoupling from institutionalized routines, which may in turn lead to the formation of self-help opposition norms once a sufficient number of actors decide to decouple from the formal framework of rules (Meyer and Rowan 1977). Informal norms gain in importance as more and more actors find it rational to decouple from existing formal rules. The collective action of economic actors imposes pressure on the state to respond initially by enforcing the existing legal and regulatory structures. Once a critical mass is reached, however, and collective action becomes self-reinforcing, the state can no longer effectively enforce compliance. Opposition norms may eventually spur changes in the formal rules, if a certain threshold level of non-compliance with statemandated rules is reached and state actors set a need to adjust formal rules accordingly.

150

Economic Institutions from Networks

Norms arise in the course of social interaction as standards of expected behavior and are maintained when reward is expected to follow conformity and punishment, deviance. Members of a group routinely reward conformity to norms by conferring social approval and status. Conversely, members punish failure to conform to norms through their social disapproval and, ultimately, through ostracism. Hence, the monitoring of norms is a spontaneous byproduct of social interactions in markets and firms. In more complex exchanges, the same processes hold, but the pressure to conform also takes on a collective action dimension. Frequency of interaction, a characteristic feature of close-knit groups, lowers the cost of monitoring members, assuming they are in close enough contact with one another that information about members’ conduct is common knowledge. Reward and sanction in repeated exchanges—when actors take into account the weight of the future, as in ongoing relationships—motivates cooperative behavior. Community sanctions complement bilateral responses, if transactions are infrequent. In sum, trustworthiness and reliability as forms of cooperative behavior arise from social action responding to rewards and sanctions in ongoing relationships guiding economic activity. Throughout history, norms have coordinated group action to improve the chances for success—the attainment of rewards—through cooperation. As ideas about expected behavior, norms evolved together with language, as in the norms uttered by early hunting parties to coordinate action during the course of the expedition. Norms probably evolved through trial and error, with success the arbiter of why a particular norm persists in equilibrium across generations and diffuses to different groups. Members of close-knit groups cooperate in enforcing norms not only because their interests are linked to the group’s success, but their identity as well. Rational choice theory emphasizes reputational effects on social behavior; but emergent principles of proper conduct embedded in identities are also important in norm compliance. For example, there are many occasions when no-one is monitoring closely, yet people comply with norms that are woven into their identity. This is because identity as well as interests explain the willingness to cooperate in a competitive environment (see Aspers, Chapter 10). Many economists now accept the view that social norms are likely to play a stronger role in explaining economic behavior than commonly assumed (see also Thevenot, Chapter 8, on the Convention School).

The Relationship Between Informal Norms and Formal Rules The behavior of economic actors often bears little resemblance to the legitimate courses of action stipulated by state-mandated formal rules. Instead, social groups based on personal connections serve to organize market-oriented 151

Victor Nee and Sonja Opper

economic behavior according to informal norms reflecting the private expectations and interests of individuals. They act often at odds with the goals formulated by politicians. Norms operating in the shadows of state-mandated rules can both limit and facilitate economic action. On the one hand, a decoupling of norms from these rules can give rise to inefficient allocation of resources when individual actors collude to secure resources from government for their group, resulting in structural rigidities and economic stagnation. In Russia, mafia-like business networks operated to obstruct Boris Yeltsin’s efforts at building a market economy. On the other hand, a decoupling of norms can also facilitate economic action and promote growth by providing a framework for trust and collective action. In China, informal privatization and local institutional arrangements have contributed to two decades of economic growth during the early stages of economic reform. What accounts for the difference in results? Given the variance of possible interactions between formal rules and social norms, it is a central task for theory development to better specify the nature of the relationship. Under what conditions will norms evolve into self-reinforcing opposition norms, which then undermine the effectiveness of formal rule? By opposition norms we refer to beliefs that enable, motivate, and guide collective action, decoupled from and not legitimated by state-mandated rules (Nee and Ingram 1998). Opposition norms are commonplace in all societies and span a wide range of activities, be they those of alienated minority youths in America and Europe or the untaxed economic transactions between buyers and sellers in the informal economy of established market economies. Especially in the early stage of norm emergence, opposition norms often involve “subterranean” activity below the radar of the state, and thus are not detected by law enforcers. They can remain below the radar indefinitely, but at an inflection point, opposition norms can burst into the public arena to enable, motivate, and guide self-reinforcing collective action compelling politicians to respond. Political elites face a range of options in their response, from strengthening law enforcement and use of coercive force to adaptive institutional change. To understand the link between opposition norms and endogenous institutional change, it is crucial to explore the role of private order allowing members of social sub-groups to improve their welfare position, although the state is unwilling or unable to protect their economic transactions (Nee and Opper 2012). Clearly, to the extent that social groups have interests and preferences independent of what politicians or organizational leaders want, the respective contents of social norms and organizational rules will emerge to “bend the bars of the iron cage” imposed by formal rules. Norms are ideas that arise from the problem-solving activities of human beings in their strivings to 152

Economic Institutions from Networks

improve their chances for success (the attainment of rewards) through cooperation. Individuals jointly produce and uphold norms to capture the gains of cooperation. Such norms arise through trial and error and are adopted by members of a group when they result in success. Hence, norm emergence involves a collective learning process in which members learn from experience gained through different strategies and gradually identify the one which seems to have an edge over others. In this sense, established norms are focal points which evolve through social learning processes. Whether decoupled norms operate only under distinct circumstances or more widely, developing into self-reinforcing opposition norms leading to endogenous institutional change, depends on whether a critical mass of societal participation is reached. For instance, in all command economies it was commonplace that individuals and firms sought to alleviate shortages of the formal economy by resorting to black-market activities and barter trading. Although this practice was against the formal rules, it never gave rise to endogenous institutional change. Although company managers hoarded goods and repair parts to prepare for unexpected shortages, these activities remained limited in scope. In retrospect, the scattered occurrence of black markets and barter trading may have stabilized the system, as companies were better able to respond to temporary shortages. Similarly, black markets may have helped to contain social discontent. As a thought experiment, assume now an alternative scenario: Given the beneficial effects of barter trading and black markets, a growing number of economic actors divert parts of their production to black-market activities. The informal economy expands and expands, and subsequently planned production and public revenues decrease. Once a certain tipping point is reached, the official economy collapses. In socialist economies, the reason for informal norms of black markets and barter trading not evolving into self-reinforcing opposition norms is fairly obvious. Institutional and organizational sanctions effectively suppressed these activities. Tight monitoring, high probabilities of detection in case of non-compliance, and costly sanctions made black-market activities risky and expensive. In our counterscenario, a self-reinforcing opposition norm could only develop if increasing numbers of actors could conveniently imitate the illegal activities at low costs without fear of sanctions or punishment.

Emergence of Economic Institutions: the Rise of Capitalism in China To demonstrate the potential of the networks and institutions approach for explaining economic life, the following section offers a brief review of an underlying multilevel model of institutions, in which more encompassing 153

Victor Nee and Sonja Opper

structures both constrain and empower the societal structures and actions at lower levels, which in turn through bottom-up dynamics reproduce and also change the very contexts in which they operate. The explicit notion of bidirectional dynamics linking more encompassing structures with localized social structures offers novel opportunities for the dynamic analysis of institutional change and sources of innovation not yet sufficiently exploited. In the following we provide an illustration of the explanatory power of the networks and institutions approach by turning to a case of institutional change that could not be explained by standard institutional theory focusing on the role of a state as the central arbiter of institutional change. Turning to the puzzle of the formation of a dynamic and quickly growing private firm economy in China, we highlight the role of networks and emanating institutional innovations that allow private economic actors to compete and cooperate in spite of the absence of reliable formal institutions. Building on seven years of research conducted in China’s Yangzi delta region, we highlight the underlying social mechanisms enabling cooperative behavior among entrepreneurs in the absence of formal institutions providing predictable and effective mechanisms to resolve business conflicts. Specifically, we draw on data from our firmlevel survey conducted in 2009 in seven cities of the extended Yangzi delta region in China using a stratified random sample of 700 CEOs of manufacturing firms (for details see, www.capitalism-from-below.com). Finally, our analysis demonstrates how these social mechanisms are closely linked with the bottom-up construction of robust business norms enabling and guiding economic exchange.

Networks and Institutions The networks and institutions approach integrates network spillover effects and shifts in norms into a multilevel model of the institutional framework. Importantly, the approach opens a novel analytic method to examine the sources of institutional innovation, change, and emergence. As Padgett and Powell (2012: 3) observe, “novelty in new organizational form often emerges through spillover across multiple, intertwined social networks.” Although North also underscores the importance of informal institutional elements in his framework, informal constraints play a role as the “cultural filter” providing “continuity so that the informal solution to exchange problems in the past carries over into the present and makes those informal constraints important sources of continuity in long-run societal change” (North 1990: 37). Greif (2006: 9) notes that in North’s framework the stability of institutions is “attributed mainly to frictions in the process of institutional adjustments (e.g. the costs of changing rules) or to the impact of exogenous informal institutions, such as customs and traditions.” In other words, North’s 154

Economic Institutions from Networks

explanation of institutions turns on exogenous factors wherein stability stems from informal constraints—custom and tradition—and institutional change emanates from purposive action of politicians, but not from institutional innovations arising from shifts in the content of social norms (Nee and Opper 2012) and spillovers across multiple intertwined networks (Padgett and Powell 2012). The networks and institutions approach accommodates dynamic processes of institutional change emanating from shifts in norms and positive feedback of network effects and accommodative action by the state. It is skeptical about the effectiveness of purely top-down imposition of institutional change by the state without a supportive social foundation of informal norms and multiplex networks. The sequence of institutional change, we think, is more common in the emergence of new organizational forms and institutional arrangements come first from bottom-up shifts of norms and positive spillover effects from interacting networks, followed by accommodative action by the state bringing formal rules into alignment with change that already has been realized in the real economy through bottom-up institutional innovations (Nee and Opper 2012; Padgett and Powell 2012). In other words, linking networks and norms to the analysis of institutional innovation and emergence uncovers the causal sequence in endogenous institutional change. Indeed, transformative institutional change does not originate first from top-down implementation by a powerful state elite, but often starts from small local action in networks leading to bottom-up institutional change arising from positive payoffs of institutional innovations from below. The larger the local payoffs of bottomup institutional innovation, the more rapid the diffusion of new organizational forms and institutional arrangements and the more likely state actors will accommodate bottom-up institutional change by implementing change in formal rules (Nee et al. forthcoming).

The Making of Capitalist Institutions By the time private enterprise received constitutional protection guaranteeing equal status with state-owned firms in 2004 and the implementation of China’s first Property Rights Law in 2007, a substantial private firm economy already employed close to seventy-five million workers. Even so, private property remained vulnerable. Many entrepreneurs are still skeptical that legal reforms provide substantive benefits. Their assessment is in line with the World Bank’s attempt to measure the quality of business regulations around the world (World Bank 2011). Yet, by 2011, with close to ten million registered units, the private sector has critically reshaped China’s industrial landscape, forcing a shift from a state-dominated economy to a mixed economy resting on a robust entrepreneurial base that now provides the main source of 155

Victor Nee and Sonja Opper

non-farm employment and, importantly, tax revenues for local governments. The emergence of private firms as the most dynamic sector of the economy was confirmed in a communiqué of the National Bureau of Statistics of China, which reports that profits of private enterprises increased by 20.0 percent in 2012, whereas state-owned and state-holding enterprises experienced a 5.1 percent decline in profits that same year. Thus, although state capitalism remains the most-favored sector, sustained by privileged access to loans from state-owned banks and government policies that enforce monopoly rights of state-run firms, the private enterprise economy was more profitable. And the relative numbers of registered private firms and workers employed by them continued to grow. The private enterprise sector has maintained this pattern of robust relative growth every year following the 2008 economic crisis, even though the private sector received a mere 1 percent of China’s huge stimulus program launched to revive economic growth. The plain numbers confirm the limitations of a top-down interpretation of institutional change initiated by the state. In China, proximate mechanisms built into ongoing social relations enabled private firms to compete and cooperate in an industrial economy where state-owned enterprises not only benefit from formal rules, but are subsidized by government sponsored investment capital from state-owned banks. The bottom-up social construction of economic institutions in China is not context-specific, but shares broad similarities with other cases of capitalist transformation in the West (Weber [1904] 2006; Mokyr 2009). At the heart of this dynamic process are shifts in norms first emanating in networked business communities, which through positive network effects and accommodative action of the state lead to a broader institutional transformation (Nee et al. forthcoming). This gradual process follows repeated feedback loops between bottom-up social innovations shared by a growing number of mutually connected societal sub-groups, and adjustments of formal institutions enforced by the state. Two mutually related institutional mechanisms combined to unleash and sustain self-reinforcing institutional change: First of all, the replacement of state bureaucratic allocation by market coordination involves a shift of power favoring direct producers relative to redistributors (Nee and Opper 2009). Almost imperceptibly, but accelerating following tipping points, selfreinforcing parameter shifts in the institutional environment caused stateowned industrial enterprises of the old redistributive economy to lose market share to hybrid and private ownership forms. Further, the greater autonomy afforded by the emergence of decentralized markets enabled entrepreneurs to construct informal arrangements that build from ground-up the economic institutions of a private enterprise economy. Second, with marketization, rewards became increasingly based on firm performance rather than the strength of political connections, which in turn stimulated productive 156

Economic Institutions from Networks

entrepreneurial activity. At the same time, decline in relative rewards to political connections reduced incentives for unproductive and destructive rent-seeking (Baumol 1990). When reflecting on their experience in a founding private manufacturing firm, close to 67 percent of the entrepreneurs interviewed in our survey explain that hope in securing higher income influenced their decision to start a business. As in the West, the seed of China’s capitalist transformation was localized, and originated in densely populated centers of commercial activities in the Yangzi delta region. As in Manchester in England or Rhineland-Westfalia in Germany, it was traders and artisans, “men who had grown up in the hard school of life, calculating and daring at the same time,” who innovated the modes of production and economic organization (Max Weber [1904] 2006: 69). Not unlike these historical cases, the diffusion of industrial clusters in the Yangzi delta region was the key driver of endogenous institutional change in the rise of the private enterprise economy. In the three provinces of the Yangzi delta region—Zhejiang, Jiangsu, and Shanghai—extensive multilateral clusters of private firms self-organized in spatially concentrated production markets provide the institutional matrix of competitive advantage. Zhejiang province alone is home to more than 500 industrial clusters covering 175 different industrial niches. More than 50 percent of the provincial industrial output value is generated in spatially concentrated cluster locations. These clusters are highly competitive manufacturing districts, producing substantive shares of the global production, especially in laborintensive industries. The definition of industrial cluster—used widely in economics, geography, and organizations—is a sectoral and spatial concentration of firms connected through vertical or horizontal relations (Porter 1990; Krugman 1991). Marshall (1920) pioneered the idea that spatial concentration of specialized producers gives rise to endogenous economic growth. First, it ensures a constant market for skilled workers, drawing in and training continuously specialized human capital. Second, agglomeration of productive assets enables individual manufacturers to economize on investments through subcontracting arrangements with specialized subsidiary firms. Third, spatial concentration fosters network effects that facilitate innovative activity such that, “if one man starts a new idea, it is taken up by others and combined with suggestions of their own; and thus it becomes the source of further new ideas.” The defining feature of industrial clusters is that spatial concentration not only reduces the costs of factor exchange and improve information flows, but equally important, the spatial proximity in cluster locations provides fertile grounds for face-to-face interactions required to develop and enforce business norms. In industrial clusters, personalized exchange—mutual dependence in business relations and community-backed sanctions—provide the social glue 157

Victor Nee and Sonja Opper

that binds principals and agents to contracts, both implicit and formal. In this way, spatial concentration in clusters enables spillover effects of multiple networks and community sanctions of norms to sustain trust and cooperation. The industrial cluster is similar to the production market insofar as in both forms of economic institutions social structures enable and guide economic action. The difference turns on spatial concentration of industrial clusters. White’s (2002) production markets are constituted of a relatively small number of firms that often span large distances. In his ethnography of an industrial cluster of high-end garment manufacturers in New York City, Uzzi (1996: 176) details how ongoing workaday connections between Italian, Jewish, and Chinese firms give rise to trust and flow of fine-grain information across ethnic boundaries. “I found that embedded ties entail joint problem-solving arrangements that enable actors to coordinate functions and work out problems ‘on the fly.’ These arrangements provide more rapid and explicit feedback than do marketbased mechanisms such as ‘exit’ (Hirschman 1970); they enable firms to work through problems and to accelerate learning and problem correction.” In the Yangzi delta region, early founders of private firms had no alternative but to rely on government sources for their supplies. As marginalized, semi-legal entities located at the low end of the pecking order in the manufacturing sector, private firms often experienced long delays and poor quality from government suppliers (Jingji Yanjiu Cankao, September 28, 1994). It was the rapid entry of new private start-up firms and bottom-up formation of integrated “industrial clusters” (chanye jiqun) and “production chains” (chanyelian) of specialty suppliers that enabled private producers to decouple from government-owned suppliers and firms to self-organize not only key input factors, but also to develop the industry-specific norms required to develop a sustainable business venture. Early founders recall that the early days of business activities in the 1980s were characterized by cheating and dishonesty. “It was chaos, everybody wanted to make a quick profit,” and “everybody could get rich.” But for businesses to be sustainable, transactions have to be reliable and calculable. At this stage, it was through mutual cooperation and joint problem-solving, that private producers gradually developed an understanding of proper business conduct. The simple observation that “you can only cheat once,” led to the rapid development of mutually accepted business norms that were key to reduce uncertainties. Through these bottom-up processes from within discrete industrial clusters and networked business communities, entrepreneurs in the Yangzi delta region were able to construct stable and autonomous supply and distribution channels decoupled from the state-controlled industrial and commercial sectors of the transition economy. 158

Economic Institutions from Networks

Once an integrated industrial cluster and production chain is established, expected operational costs decline. More and more entrepreneurs and vendors in accessory industries are drawn in by the critical mass of specialized human capital and organizational resources. A great majority of the firms in an industrial cluster and production chain are private enterprise ranging in size from household firms to very sizeable private enterprises in the same niche that compete in the global economy. In the mountainous southwestern region of Zhejiang province, for example, when an entrepreneur starts up a new business in the city of Yong Kang, they are able to draw on an industrial infrastructure of specialized human capital resources, subcontractors, raw material suppliers, and a distribution network of their industrial cluster. Manufacturers in industrial clusters strongly believe that they cannot find a better location for producing kitchenware and stainless steel products. The competitive advantage of the manufacturing economy in the Yangzi delta region is rooted in multiple overlapping industrial clusters. No other region in China has a comparable density of multiple cluster productions. Oftentimes these clusters evolve from mimicking successful start-up firms in the industrial niche. In our sample, a strong majority of entrepreneurs (64 percent) see themselves as part of this social process of entrepreneurship as either pioneer (inspiring others to follow their example to found a firm) or follower (mimicking a local role model). As more and more players enter into the market, a self-reinforcing, rapidly accelerating bottom-up process of specialization and differentiation gives rise to the formation of industrial clusters. This spatial proximity of hundreds, and often thousands, of producers operating in the same industrial niche oftentimes located in just one township or county, allows for rapid pace in the production cycle from purchase order to manufactured product. Producers can count on all the needed component parts supplied rapidly by subcontractors ready to produce. Access to a multitude of small satellite firms allied to the mother firm as spin-offs of start-up firms—employees and friends—provides for a ready ensemble of subcontractors who are connected through long-standing personal ties and share the same business principles. As small firms, they are adaptive, flexible, and capable of specialized production on a short time schedule. The rise of the Yangzi delta cluster economy is far from unique or linked to China’s specific historical context. There is a close parallel in the bottom-up institutional innovations that gave rise to industrial clusters and production chains in the Yangzi delta regional economy with the Emilia-Romagna region of Italy (Brusco 1982). The basis of regional competitive advantage is linked to the social structure of close-knit communities of manufacturers, suppliers, and artisans and to the effectiveness of social norms in enabling, motivating and guiding cooperation. There is the additional parallel that both regional governments—Emilia-Romagna and the Yangzi delta region—are controlled 159

Victor Nee and Sonja Opper

politically by communist parties. In both regions, however, sustained, high levels of economic performance do not rest on top-down central government measures, but on bottom-up dynamics of entrepreneurship rooted in local networks and norms.

The Underlying Social Exchange Mechanism Homans (1974: 76) identified social exchange as the mechanism of norm enforcement in close-knit groups: “The great bulk of controls over social behavior are not external but built into the relationships themselves, in the sense that either party is worse off if he changes his behavior toward the other.” Mutual dependence—on information flows, on access to scarce resources, on inter-firm collaboration in technology development, and on privately organized supply networks autonomous from state-controlled sources—can provide the glue that endogenously reinforces long-term stability of contractual relationships, without reliance on third-party enforcement. Even so, control via norms becomes more problematic the larger the size of the group and community (Taylor 1987; Elster 1989; Coleman 1990). Thus, stable cooperation is likely to depend on a complex set of design principles. Following the theoretical and experimental literature on the rise of cooperative norms, we highlight two central, and closely related, social mechanisms shaping the emergence of norms within dense industrial cluster structures: One is personalized exchange with trading partners, which is widely believed to facilitate mutual observation and information exchange; the other is reputation, which operates as a selection mechanisms when choosing business partners, and thereby promotes the rise and diffusion of cooperative norms.

Personalized Exchange Any business operation can be broken down into a diversified and multilayered structure of principal agent relations, each involving high levels of risk and uncertainty. Principals need to be confident that suppliers provide the agreed-upon quality standard crucial for the production process and intended product quality. They need to be certain that suppliers will deliver the correct amount at a specified price. Entrepreneurs have to trust that their customers will pay on time to manage a company’s cash flow and to avoid liquidity constraints. Entrepreneurs take substantial risks when investing in an employee’s technical training, if local job mobility and competition for trained staff is excessively high. And finally, they need to trust their staff and collaborators when investing in research and development, if technologies can be easily copied and transferred. Such general risks are most critical when legal recourse 160

Economic Institutions from Networks

is expensive, the outcome of court rulings hard to predict, and the enforcement uncertain. A standard response to reduce these types of business risks and uncertainties is the reliance on personalized exchange and cultivation of interconnected networks of suppliers and customers. Frequent social interactions improve information flows, they allow for mutual monitoring at low costs, and thereby strengthen mutual trust necessary for cooperative behavior. The more frequent the interaction between group members, the lower the cost of mutual monitoring, assuming group members are in close enough contact with one another that information about members’ conduct is common knowledge (Axelrod 1984). Entrepreneurs operating in China’s Yangzi delta region confirm that personalized exchange plays an important role in developing mutual trust and cooperative behavior. Intense contacts with key suppliers often involve onsite company visits, and joint training and technology development. Ongoing trends and development within industrial niches are discussed at frequent meetings of business associations, professional meetings, and trade fairs. Also, less formal activities play a crucial role in updating network members on important development. Many rely on informal circles of friends and longterm business partners to exchange information, discuss market developments, and cooperate on specific problems. This type of exchange is typically not limited to the local business community. The Internet allows producers to cultivate and maintain personal ties across the regional and national economy. Widely used business-to-business platforms provide open access to new business contacts, reinforcing the cross-cutting nature of business networks to combine closure and brokerage as stable features of entrepreneurship in industrial clusters. Through personal communications, producers gain timely market information, secure quality deliveries and timely payments, and maintain a cooperative atmosphere for joint problem-solving. Producers in the Yangzi delta region also emphasize personal contact in their customer networks. Importantly, information sought through personalized exchange allows producers to differentiate between financially stable and doubtful fly-by-night businesses, an important piece of information to guard the company against risk of late payments and default. It is also common for entrepreneurs to visit each others’ firms to study specific customer needs and technical product requirements. Close and personalized relations with customers are seen as a prerequisite to arrive at satisfying solutions in case of future business conflicts.

The Role of Reputation Informal norms arise in the course of social interaction as standards of expected behavior, and are maintained when reward is expected to follow 161

Victor Nee and Sonja Opper

conformity and punishment, deviance. Members of a group confer social rewards for conformity to norms through social approval and higher status. In more complex exchanges, the same processes hold, but the pressure to conform also takes on a collective action dimension (Hardin 1982; Gould 1993). As Axelrod (1984) shows, social reward and punishment in repeated exchanges—when actors take into account the weight of the future, as in ongoing relationships—motivates cooperative behavior. Cooperation in business communities rests on the entrepreneurs’ reputation. Reputation, however, is also a factor explaining the initial rise and diffusion of norms, as reputation serves as a selection mechanism in choosing business partners as long as formal rules are not firmly established. This choice mechanism is still in place, even though formal laws have evolved considerably since China’s early reform period. Asked about the selection criteria for choosing the supplier of a key input, the majority of the entrepreneurs in our Yangzi delta survey confirmed consistently in each of three survey waves from 2006 to 2012, that good reputation (as confirmed by long-term business partners, business administration, or friends) is the single most important factor. Interestingly, even in the aftermath of the economic crisis, price, quality, and supply time did not emerge as the single most important factor by 2012. What generally matters most to entrepreneurs in the Yangzi delta region is building good reputations in their business relations. Reputation, or the assessment of a social entity by others, can refer to a whole variety of individual or organizational qualities. However, experimental research on the rise of cooperative norms identifies an individual’s willingness to contribute to the public good as a central determinant of an individual’s reputation. Nowak and Siegmund (1998), Fehr and Fischbacher (2004), and Fehr (2004) show that those who are willing to contribute to the public good are more likely to benefit from community enforcement of cooperative norms than those who choose to defect. This observation is very close to what entrepreneurs in the Yangzi delta region observe in their daily business life. As an entrepreneur in Wenzhou emphasizes, receiving help from other entrepreneurs depends on one’s reputation: “Reputation is like a code of conduct in Wenzhou. Good reputation is needed if you want help from others; if you have good reputation, people will help you if you have problems.”1 A central feature in reputation building is therefore an entrepreneur’s willingness to behave cooperatively. That “you cannot survive just by yourself” is a common belief shared by all entrepreneurs. The search for ways to further develop or just to maintain the company in an increasingly competitive environment spurs an active search

1

162

Nee and Opper, Capitalism from Below, Interview # 56.

Economic Institutions from Networks

Alter (j2)

Alter (j1)

Ego (i)

Alter (j5) Purchasing and selling Mutual lending Recommendation of new customers Information sharing of government regulations

Alter (j4)

Alter (j3) Joint technology development Co-op with sales and marketing

Figure 6.1. Multiplex network relations

to assemble a group of strategically positioned business contacts. Central in these inter-firm alliances and informal types of cooperation are otherwise hard-to-secure resources, such as finance, market knowledge, and technology development. The emerging multiplex business relations turn into decisive factors explaining a company’s capability development, success in product specialization, and strategic positioning. Network overlaps through multiplex activities increase the subjective value of each tie above and beyond the monetary value of bilateral contracts on sales and supplies. Building on data generated in our 2009 survey, the average entrepreneur exchanges about 15 different activities often crucial for the survival of the firm within a network of the five most valuable business partners, typically comprising customers and suppliers but also competitors. Figure 6.1 offers a stylized illustration of the diversity of exchange activities. Naturally, entrepreneurs make substantial efforts to cultivate and maintain these links. In close-knit communities, loans rarely default. “One default on one loan, this would ruin the entire reputation.” Cooperative behavior also extends beyond the boundaries of the close-knit networks of the most important business associates. Our field interviews confirm that reputation building rests on an individual’s behavior in a whole range of activities relevant for business survival. Among the fields mentioned as important to entrepreneurs is mutual exchange of business advice, mutual information on cheaters operating in their niche, and the provision of mutual help in the form of informal loan agreements, customer recommendations, and the willingness to help when someone in their social group experiences major technical problems. In the Yangzi delta region, a good business reputation rests very much on the willingness of an individual to help others, as long as such help is not associated with undue personal costs. Those who do not follow the norms of mutual help quickly face social 163

Victor Nee and Sonja Opper

and economic sanctions.2 Most entrepreneurs are therefore anxious to maintain a good reputation.

Norm Compliance and Conflict Resolution We take our analysis a step further to confirm the emergence of business norms as closely linked with the observed social mechanisms structuring and shaping the workings of business communities within China’s Yangzi delta region. Here, as in other business networks, fluid information exchange and reputation effects foster broad norm compliance and individual efforts to solve problems through private means. “Good relations are based on trustworthiness, which involves not treating others as fools,” explains one entrepreneur, “As time passes, others will find out about everything.”3 Deviators from accepted business norms generally have to calculate the costs of community sanctions. Almost 50 percent of the respondents in each of our three surveys conducted between 2006 and 2012 are confident that they would find out if one of their suppliers cheated on another client. This is independent of the type of networks entrepreneurs maintain. Producers organized in formal business networks such as industrial associations (or guilds) or local branches of the Association of Private Entrepreneurs do not score differently from those producers who rather rely on informal arrangements. Through the interconnectedness of small-scale groups of producers, information exchange is apparently equally effective in informal as in formal producer networks. Also spatial proximity is not a critical requirement. Information on supplier malfeasance seems to be equally available to producers who source their supplies outside their home province as to those relying on local suppliers. In Shanghai, where private producers typically rely on supplier networks located outside their province, intra-community information exchange seems even slightly higher than in other locations, as 55 percent of the respondents interviewed in 2012 believe they would learn about supplier malfeasance, whereas in Wenzhou, a city with strong reliance on cluster production of small-and medium-scale producers, only 47 percent of entrepreneurs expressed similar confidence. Business conflicts remain rare within these networked communities. Only 5 percent of the interviewed entrepreneurs recall notable conflicts with their suppliers over a three-year period preceding our 2012 survey. As a result of well-established personal relations and pronounced mutual interest, those 2 The owner of a factory producing and trading specialized steel stated unequivocally, “I refuse to do business with someone whom I have heard from three people bad things about. I will not do business with that person even if they threaten to cut my head off.” Nee and Opper, Capitalism from Below, Interview # 37. 3 Nee and Opper, Capitalism from Below, Interview # 87.

164

Economic Institutions from Networks

conflicts can typically be resolved between both business partners without any outside involvement (78 percent of the cases). An additional 20 percent of the cases are solved with the help of business associates and friends, who step in to mediate between the conflicting parties. None of the cases was brought to court, suggesting strong reliance on intra-group norms and informal mediation processes. Effective ex ante screening of business partners and monitoring of business transactions partly explain the rare occurrence of critical conflicts. Particularly those producers, who rather rely on local suppliers and customers are less likely to encounter business disputes. In contrast, dependence on international supplies and customers is associated with a substantively higher risk to encounter business disputes. Although we cannot rule out that higher international quality standards may play a role too, cross-country business networks certainly lack the type of informal exchange mechanisms and social foundation, supporting local norms. To confirm quantitatively the existence or absence of certain behavioral business norms within the Yangzi delta cluster economy, we apply the relatively simple definition, that “the total absence of enforcement actions against detected violators of a guideline is conclusive evidence that the guideline is not a rule” (Ellickson 1991: 128). In our 2009 survey, the 700 participating entrepreneurs were asked to assess likely outcomes within their community, in response to a list of seven conflict scenarios. These scenarios described cases of business conflicts on a range of typical business transactions involving (1) provision of an informal loan, (2) mutual help within business networks, (3) repayment of an informal loan, (4) late deliveries of orders, (5) deliveries of sub-standard quality products, (6) late payments for goods and services, and (7) unfair competition. Scenarios (1) and (2) refer to precontractual disputes and informal favors exchanged between two business partners. Scenarios (3)–(7) specify standard conflicts common in business transactions. For each of these scenarios, we have asked the respondents to identify the most likely individual or social response in their local business community. Choices given were: (a) nothing will happen, (b) gossiping about the incident, (c) a bilateral tit-for-tat response between both contract partners, (d) a general change in the quality of the business relation between both partners, and finally, (e) community sanctions by those who learn about the incident. Following Ellickson’s definition choice, (a) signals the absence of normbased behavior.4

4 To avoid a method response bias, the different scenarios were not presented together, but were distributed across a detailed questionnaire covering various aspects of personal information, firm information and assessments of the firm’s environment.

165

Victor Nee and Sonja Opper

Business norms are most pronounced in standard cases of contract breach involving product quality, delivery time, and payment. In each of these cases, contract breach can have substantial economic consequences. Economic losses because of warranty issues caused by faulty supplies, loss of orders because of late delivery of inputs, and liquidity problems because of late payments all can pose a critical threat to the economic survival of a business. Mutual information sharing is therefore a natural response to guard against future economic losses of group members.5 More than half of the respondents would alert others if they encounter problems with sub-quality deliveries and the supplier rejects to settle the problem either through a discount or new delivery. A third of the respondents even expect that leaking out such information would lead other firms to cut business ties or reduce the contract volume with the respective producer. Losing one’s reputation as a producer of quality deliveries can therefore be a costly threat. Notwithstanding, this form of community sanction depends on spatial proximity and close-knit cluster structures. Producers who rely on less localized sourcing strategies, such as manufacturing firms in Shanghai, are less certain that information exchange on quality concerns provides an equally powerful sanctioning mechanism. Still, most entrepreneurs are confident that quality issues can be settled through joint negotiations. Companies mindful of their reputation set up internal guidelines to respond to quality issues within a certain period of time, and make sure that major quality issues are always solved by timely replacements. At the same time, entrepreneurs need to make sure that there is no abuse of the reputation-mechanism. If clients become known for making unjustified complaints in an effort to achieve undue price reductions of their deliveries, word is quickly out blacklisting these customers as dishonest business partners. Norms on how to deal with late deliveries of supplies appear similarly strong. About 42 percent of the respondents would inform others in cases of late deliveries of supplies, and an even slightly larger share of 47 percent would discuss problems with delayed payments with business friends and associates. The likelihood of ensuing community sanctions further increase the threat for deviators. Of respondents, 26 percent expect that deviators would face a loss of business with other community members if word gets out that a supplier does not try to compensate the customer in case of late product deliveries. Even more respondents (31 percent) expect sanctions from

5 When asked about this in a slightly more general form, 74 percent of respondents in Shanghai and Nanjing (2002–4) also believe that other firms would learn about potential business disputes with suppliers (Clarke et al. 2008).

166

Economic Institutions from Networks

the broader business community if a debtor does not promptly honor financial commitments. Although gossiping and community sanctions are powerful mechanisms to enforce cooperative behavior, they do not safeguard against the rise of conflicts. Payment issues are common given the tight liquidity constraints of private companies, but generally they can be handled internally in a satisfying manner. Most entrepreneurs emphasize that it is always possible to renegotiate and to mediate. Hard-and-fast rules are seen as counterproductive as they do not reflect the specific circumstances. Community sanctions are therefore reserved for those cases where the contracting parties are either unwilling or unable to arrive at a mutually acceptable agreement. A Nanjing-based machinery producer summarizes, “Of course problems with payments do exist, but we will always talk with the firm. The good ones will tell us when they can eventually pay. The bad ones will just delay us longer and longer. . . . I then decide on a case-by-case basis whether I will continue to deal with them. For me it is important to know whether they really were in a financially difficult situation and could not make their payment on time.”6 Others confirm the importance of transparency and communication in upholding local business norms. Figure 6.2 gives an overview of the varied expectations respondents have concerning the different conflict scenarios. As expected, the highest proportion of respondents not expecting any particular norms to be in place is observed in the case of informal favors exchanged between two parties (Scenarios (1) and (2)). In contrast, fewer entrepreneurs fear the absence of norms in the remaining types of contractual conflicts. Only 12–22 percent of the respondents expect the lack of norms. The absence of norms is least pronounced, when suppliers are not delivering the agreed-upon quality standards (Scenario (5)), followed by general rules of fair competition (Scenario (7)). In other words, norms are most likely to emerge if the wrongdoing of defectors not only reduces private benefits within a bilateral relationship, but also if general principles of a rule-based (often contract-based) market exchange are affected. Hence, norms arise where individual interests are aligned in enforcing mutually beneficial guidelines protecting interests of group members. A review of the intra-group differences in norm expectations confirms our assumption that personalized exchange and reputation building provide key mechanisms in securing a certain level of norm enforcement. Initial tests relying on standard mean comparisons confirm that entrepreneurs who rely

6

Nee and Opper, Capitalism from Below, Interview # 92.

167

Victor Nee and Sonja Opper 40

Percentage of entrepreneurs, who agree

35 30 25 20 15 10 5 0 Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6 Scenario 7

Figure 6.2. Absence of norms Source: Yangzi delta survey 2009.

Table 6.1. Standard mean comparison tests of reflexive reputation and norm enforcement Average reliance on guanxi in customer relations, if respondents (Mean /std. err.)

Average share of customers known in person of respondents who (Mean /std. err.)

do not expect do expect do not expect community sanction community sanction community sanction Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6 Scenario 7

4.64*** (0.044) 4.82*** (0.045) 4.59*** (0.048) 4.57*** (0.047) 4.55*** (0.050) 4.59*** (0.049) 4.58*** (0.050)

*p < 0.10; ** p < 0.05; *** p < 0.01. Source: Yangzi survey 2009

168

4.96*** (0.099) 5.02*** (0.086) 4.94*** (0.074) 4.99*** (0.078) 4.93*** (0.065) 4.89*** (0.070) 4.91*** (0.065)

53.07 (1.035) 52.19* (1.058) 51.37*** (1.125) 51.02*** (1.143) 50.45*** (1.208) 50.59*** (1.157) 52.32 (1.171)

do expect community sanction 50.41 (2.908) 56.161* (2.478) 56.56*** (1.928) 57.65*** (1.823) 57.38*** (1.611) 57.55*** (1.769) 53.76 (1.765)

Economic Institutions from Networks Table 6.2. Standard mean comparison tests of reflexive reputation and norm enforcement Average reputation score of respondents who (Mean /std. err.) do not expect community sanction Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6 Scenario 7

4.84 (0.033) 4.82*** (0.033) 4.77*** (0.036) 4.77*** (0.036) 4.69*** (0.038) 4.78*** (0.037) 4.68*** (0.036)

do expect community sanction 4.87 (0.073) 5.03*** (0.068) 5.07*** (0.052) 5.08*** (0.054) 5.17*** (0.044) 4.99*** (0.052) 5.24*** (0.047)

*p < 0.10;** p < 0.05;*** p < 0.01. Source: Yangzi survey 2009

to a greater extent on personalized relations within their local business networks (measured by self-assessed guanxi reliance and share of customers known in person, Table 6.1) are more likely to expect the enforcement of community norms. Similarly, entrepreneurs who are more mindful of their reputation as cooperative agents are also more certain that community sanctions would follow malfeasance in business transactions (Table 6.2).

Conclusion The networks and institutions approach examines the link between social relationship and economic institutions. It differs from the new institutional economics in its focus on the workings of networks and norms in providing the glue that cements principal-agent relationships in economic institutions. The mechanisms that connect networks to institutions are intrinsic to social exchange, and are self-enforcing in ongoing social relationships. Networks are universal features of human societies wherein all actors are nodes in networks that include both strong and weak ties. What differentiates networks are the content of the norms sustained by mechanisms intrinsic to social action of like-minded members of multiplex networks. In explaining the emergence of private manufacturing economy in the Yangzi delta region, our focus is on the working of private orders of economic actors. We show that business norms enforced through community sanctions provide effective governance

169

Victor Nee and Sonja Opper

structures in principal-agent relations, in an institutional environment where enforcement of legal rules are unreliable and often capricious. The emergence of economic institutions embedded in networks and norms explains the successful rise and growth of the private manufacturing economy in competition with protected and privileged state-owned enterprises. In multiplex networks, shifts in the content of reciprocity and spillover from interacting networks drive endogenous emergence of new organizational forms and economic institutions. The greater benefits of institutional innovations through the network effects, the more rapid the diffusion of new organizational forms and institutional arrangements. In endogenous institutional change, economic institutions first emerge through shifts in the content of norms and spillover effects of interacting networks combining and recombining existing repertories of beliefs and norms. When institutional innovations generate economic advantages and diffusion of new organizational forms is widespread, the state acts to accommodate changes that have already occurred in the real economy. This is not only true for the rise of capitalism in China. England’s industrialization for instance seems to a substantial extent associated with changes of social norms, a novel business culture, and local trading conventions rather than with formal property rights regimes (Clark 1996; Mokyr 2010). The same line of reasoning is clearly reflected in Weber’s description of the rise of a capitalist spirit (Weber [1904] 2006) that gradually changed the economic system from below. Thus, in the rise of capitalism, formal rule changes implemented by the state often follow the endogenous emergence of capitalist economic institutions. The network and institutions approach offers a research program in economic sociology that revitalizes the study of economic institutions, and where they come from and how they change and evolve over time. This approach links advances in network analysis with the comparative analysis of institutions and institutional change. Already work is in progress, offering a broad canvass of problems of fundamental interest across the social sciences. Padgett and Powell’s (2012) focus on positive feedback from interacting networks as a source of organizational innovation is consistent with the network and institutions approach. The underlying mechanisms in these approaches are intrinsic to social action. The insights from the foundational studies of institutions and institutional change of classical work in economic sociology have diffused across the social sciences (see also Chapter 7 in this volume). It is time for economic sociology to reclaim the view that institutions matter by advancing a networks and institutions approach in the study of economic life.

170

Economic Institutions from Networks

References Abolafia, Mitchell Y. (1996) Making Markets: Opportunism and Restraint on Wall Street. Cambridge: Harvard University Press. Akerlof, George (1976) The Economics of Caste and the Rat Race and Other Woeful Tales. Quarterly Journal of Economics 84, 599–617. Axelrod, Robert (1984) The Evolution of Cooperation: New York, NY: Basic Books. Baumol, William J. (1990) Entrepreneurship: Productive, Unproductive and Destructive. Journal of Political Economy 98, 893–921. Bothner, Matthew S. (2003) Competition and Social Influence: The Diffusion of the Sixth Generation in the Global Computer Industry. American Journal of Sociology 108, 1175–210. Brusco, Sebastiano (1982) The Emilian Model: Productive Decentralisation and Social Integration. Cambridge Journal of Economics 6, 167–84. Burt, Ronald (1992) Structural Holes: The Social Structure of Competition. Cambridge, MA: Harvard University Press. Clark, Gregory (1996) The Political Foundations of Modern Economic Growth: England 1540–1800. Journal of Interdisciplinary History 26, 563–88. Clarke, Donald, Peter Murrell, and Susan Whiting (2008) The Role of Law in China’s Economic Development. In: Loren Brandt and Thomas G. Rawski (eds), China’s Great Transformation. Cambridge: Cambridge University Press, 375–428. Coleman, James (1990) Foundations of Social Theory. Cambridge, MA: Harvard University Press. Dixit, Avinash K. and Joseph E. Stiglitz (1977) Monopolistic Competition and Optimum Product Diversity. American Economic Review 67, 297–308. Ellickson, Robert (1991) Order without Law. Cambridge, MA: Harvard University Press. Elster, Jon (1989) The Cement of Society. A Study of Social Order. Cambridge: Cambridge University Press. Evans, Peter (1995) Embedded Autonomy. States and Industrial Transformation. Princeton: Princeton University Press. Fehr, Ernst (2004) Don’t Lose Your Reputation. Nature 432, 449–50. Fehr, Ernst and Urs Fischbacher (2004) Social Norms and Human Cooperation. Trends in Cognitive Science 8(4), 185–90. Fligstein, Neil (2001) The Architecture of Markets. Princeton: Princeton University Press. Gould, Roger V. (1993) Collective Action and Network Structure. American Journal of Sociology 58, 182–96. Granovetter, Mark (1985) Economic Action and Social Structure: The Problem of Embeddedness. American Journal of Sociology 91, 481–510. Greif, Avner (2006) Institutions and the Path to the Modern Economy: Lessons from Medieval Trade. Cambridge: Cambridge University Press. Hardin, Russell (1982) Collective Action. Baltimore: John Hopkins University Press. Hirschman, Albert O. (1970) Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States. Cambridge, MA: Harvard University Press. Homans, George C. ([1961] 1974) Social Behavior: Its Elementary Forms. New York: Harcourt, Brace Jovanovich, Inc.

171

Victor Nee and Sonja Opper Jingji Yanjiu Cankao [Reference Materials for Economic Research] (1994). Beijing: Jingji Kexue Chubanshe, September 28. Keister, Lisa (2000) Chinese Business Groups: The Structure and Impact of Interfirm Relations during Economic Development. Oxford and New York: Oxford University Press. Knight, Frank H. (1921) Risk, Uncertainty and Profit. Boston: Hougton Mifflin Company. Krugman, Paul (1991) Geography and Trade. Cambridge, MA: MIT Press. Marshall, Alfred (1920) Principles of Economics. 8th edn, London: Macmillan. McMillan, John (2002) Reinventing the Bazaar. New York: Norton. Meyer, John W. and Brian Rowan (1977) Institutionalized Organizations: Formal Structure as Myth and Ceremony. American Journal of Sociology 83, 340–63. Mokyr, Joel (2009) The Enlightened Economy: An Economic History of Britain, 1700–1850. New Haven, CT: Yale University Press. Mokyr, Joel (2010) Entrepreneurship and the Industrial Revolution in Britain. In: David Landes, Joel Mokyr, and William J. Baumol (eds), The Invention of Enterprise. Princeton, NJ: Princeton University Press, 183–210. Muth, John F. (1961) Rational Expectations and the Theory of Price Movements. Econometrica 29, 315–35. Nee, Victor and Paul Ingram (1998) Embeddedness and Beyond: Institutions, Exchange and Social Structure. In: Mary Brinton and Victor Nee (eds), The New Institutionalism in Sociology. New York: Russell Sage Foundation, 19–45. Nee, Victor and Sonja Opper (2009) Bringing Market Transition Theory to the Firm. In: Lisa A. Keister (ed.), Work and Organizations in China after Thirty Years of Transition. Emerald Group Publishing, 3–34. Nee, Victor and Sonja Opper (2012) Capitalism from Below: Markets and Institutional Change in China. Cambridge: Harvard University Press. Nee, Victor, Daniel DellaPosta, and Sonja Opper (forthcoming) Endogenous Dynamics of Institutional Change. Rationality and Society. North, Douglass C. (1990) Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press. Nowak, Martin A. and Karl Siegmund (1998) Evolution of Indirect Reciprocity by Image Scoring. Nature 393, 561–74. Padgett, John F. and Walter W. Powell (eds) (2012) The Emergence of Organizations and Markets. Princeton: Princeton University Press. Porter, Michael (1980) Competitive Strategy. New York: Academic Press. Porter, Michael (1990) The Competitive Advantage of Nations. London: Macmillan. Portes, Alejandro and Julia Sensenbrenner (1993) Embeddedness and Immigration: Notes on the Social Determinants of Economic Action. American Journal of Sociology 98(6), 1320–50. Powell, Walter W., Kenneth W. Koput, and Laurel Smith-Doerr (1996) Interorganizational Collaboration and the Locus of Innovation: Networks of Learning in Biotechnology. Administrative Science Quarterly 41, 116–45. Rosen, Sherwin (1974) Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition. Journal of Political Economy 82, 34–55. Saxenian, AnnaLee (1994) Regional Advantage: Culture and Competition in a Global Economy. Cambridge, MA: Harvard University Press.

172

Economic Institutions from Networks Spence, Michael A. (1974) Market Signaling: Informational Transfer in Hiring and Related Screening Processes. Cambridge, MA: Harvard University Press. Swedberg, Richard (1994) Markets as Social Structures. In: Neil Smelser and Richard Swedberg (eds), The Handbook of Economic Sociology. New York and Princeton: Russel Sage Foundation, 255–83. Taylor, Michael (1987) The Possibility of Cooperation (Cambridge: Cambridge University Press). Uzzi, Brian (1996) The Sources and Consequences of Embeddedness for the Economic Performance of Organizations: The Network Effect. American Sociological Review 61, 674–98. Weber, Max ([1904] 2006) Die protestantische Ethik und der Geist des Kapitalismus. München: C.H. Beck. White, Harrison C. (1981) Where Do Markets Come from? American Journal of Sociology 87, 517–47. White, Harrison C. (2002) Markets from Networks: Socioeconomic Models of Production. Princeton: Princeton University Press. World Bank (2011) Doing Business 2012. Doing Business in a More Transparent World. http://www.doingbusiness.org/reports/global-reports/doing-business-2012.

173

7 The Fourth Dimension of Power The Social Construction of Interest in the New Economic Sociology Frank Dobbin and Jiwook Jung

In the years after the Second World War, sociology became a multiparadigmatic discipline comprising paradigm groups that had little to do with one another. Theory was impoverished, as each of the main groups distilled certain core ideas from classical sociology but neglected others. The revival of economic sociology in the United States over the last quarter-century has brought different schools together. We take the challenge of the volume editors to consider possible avenues for theoretical integration in economic sociology. We argue that economic sociologists have made substantial progress toward integrating power theory, rooted in the work of Karl Marx, with meaningmaking theory, rooted in the later work of Emile Durkheim. This integration of ideas about power and meaning-making is perhaps economic sociology’s most important contribution to date to other subfields, such as political sociology (e.g. Fligstein and McAdam 2011). We argue that the simplified theory of power that dominated Marxist discourse has been enriched by theories of meaning-making. The result is a social constructionist approach to power that provides an understanding of power relations in scientific-rational settings, where power is based neither in military might nor in the manipulation of mystification, but in constructed ideas about rationality and human nature. Hence, whereas prior theories of power detail how different groups struggle to promote their interests, this social constructionist approach details a higher order struggle to define the very interests of groups.

Social Construction of Interest in New Economic Sociology

We proceed by charting power theories of the post-war period, to argue that power theorists used a narrow definition of power as direct coercion, distilling Marxist ideas to suggest that the state was merely an instrument of the capitalist class, and that states developed ideologies to support the interests of the capitalist class. They depicted meaning-making in modern societies as secondary, or ephiphenomenal, to power relations. Ideology was merely a tool of domination. As economic sociologists wrestled, however, with theoretical challenges posed by paradigm shifts in U.S. management practices from the 1970s forward, they moved away from a narrow focus on class power and direct coercion toward an integrative approach incorporating the capacity of expert groups to define economic conventions, and group interests, through theorization. Economic sociologists have come to recognize the role of meaning-making in shaping power relations and group interests. Economic resources certainly give groups sway over societal discourse, as Marx contended. But today, contending groups use meaning-making to construct group and societal interests, and to promote particular public and corporate policies. Today, different expert groups—economists, management consultants, politicians, labor leaders—vie to impose their particular social constructions of the boundaries of groups, the interests of those groups, and the social practices that serve those groups. They do this by theorizing the social world in rational terms.

Power Without Meaning: Post-war Economic Sociology Weber (1946) offered the classical sociological definition of power, as an actor or group’s ability to impose a certain behavior on another actor or group, despite any resistance. Marx (1894) also defined power in terms of coercion, and saw control of the means of production in any historical epoch as the source of the capacity to coerce others. We argue that most social scientists adhere to the direct, coercive view of power, but that that view has been enriched by theories of meaning-making from sociologists such as Neil Fligstein (1990) and William Roy (1997). The power to shape how people conceive of their interests, and of how to pursue those interests, is central to these theories. The powerful rarely exercise intrusive coercion and rarely threaten to sanction those who do not go along with their wishes, according to these social constructionists, as it is more effective to shape how others view the universe than to coerce them. Thus the struggle for power is more about defining the paradigms according to which economic actors operate, than about directly dictating the behaviors of others.

175

Frank Dobbin and Jiwook Jung

Next we review the dominant approaches to the study of power in sociology to make the case that they rely on the same realist view, in which power is defined as deliberate attempts to coerce others against their will. We argue that power over the social construction of reality has become more important, and thus that the study of this type of power has rightly become more central to economic sociology.

The Four Dimensions of Power In Power: A Radical View, Stephen Lukes (1974) defines two prominent approaches to power, and argues that there is a third form that is little recognized. The one-dimensional view concerns direct power to influence decision-making, or the capacity to cause people to act against their own subjective interests. Bachrach and Baratz (1962) had introduced a second dimension, in “The Two Faces of Power,” that involved controlling the public agenda. The key was the capacity to create barriers to the public airing of policy conflicts. For Lukes, the third dimension of power is the capacity to cause others to behave as you wish without their realizing you are exercising power. When the powerful create an ideology that causes the powerless to fail to recognize their interests, they exercise this third dimension of power. The powerless are rendered unaware of their true interests. In depicting the third dimension of power, Lukes made the case that Marx’s treatment of ideology essentially constituted a different form of power. The ideological power of the capitalist state, and the feudal and slaveholding state before it, was based in obscuring the interests of the dominated class. But Lukes continued to take the Marxist view that this kind of power over ideology was exercised by the dominant class to sustain domination. With the first dimension of power, the state used coercion. With the second dimension of power, it used its power to control the political agenda, and prevent certain policy options from coming to the surface. With the third dimension of power, it used ideology to shape how the subordinate class perceived its own interests, preventing the rise of class consciousness and the recognition of true class interests. With this form, the dominant class manipulates the subjective interests of the subordinate class. In Power: A Radical View, Lukes built on ideas found in Marx’s The German Ideology, as well as in Antonio Gramsci’s Prison Notebooks (Gramsci 1971) and Georg Lukacs’ History and Class Consciousness (1923). Lukacs saw the ideology of the capitalist state as nothing more than the projection of the class consciousness of the bourgeoisie. He argued that social relations under capitalism become objectified, and the system becomes reified. The idea that in an 176

Social Construction of Interest in New Economic Sociology

ongoing social system, people come to see existing social practices as natural is common to the Marxists interested in consciousness and the social constructionists interested in theorization and objectivation. But Lukacs and Gramsci, we argue, viewed meaning-making through the production of bourgeois ideology as epiphenomenal. We argue that there is a fourth dimension of power today. Power is not merely a reflection of bourgeois class consciousness, for the scientificrational ideology is not determined solely by the capitalist class and their lackeys. Scientific-rational ideologies are propounded by myriad groups of experts who theorize the social world in a variety of different ways. Those groups are engaged in an ongoing battle to define both group and societal interests. The kernel of this idea can be seen in The Eighteenth Brumaire of Louis Bonaparte (Marx 1963), where Marx argued that elite factions have divergent interests, and in contrast to his more general argument in Kapital (1894) about the ideological power of the capitalist class, contended that under Louis Bonaparte, a dozen or more elite factions struggled to impose their particular interests on the state. There Marx described how different elite factions struggled to promote their interests, but read class interests directly from material positions, and saw ideology as little more than a ruse. Under the fourth dimension of power, perceived group interests are socially constructed and thus may vary over time. The fourth dimension of power involves the capacity of not just ruling elites, but various expert groups, to define the interests of groups and the means of pursuing those interests. Labor leaders, economists, management gurus, populists, and others have sought to theorize groups and their interests (Strang and Meyer 1993). Their theories serve as “frames” for understanding reality, in Goffman’s (1974) terms. They serve the purpose of scientific paradigms, in Kuhn’s (1962) terms, by giving us a way to see the world. Economic sociologists have begun to explore the operation of this fourth dimension of power. Group motives range from building social movements (labor leaders), to becoming thought leaders (management gurus), to winning the reins of the state (politicians). Power struggles today are largely carried out among expert groups, rather than between a dominant and dominated class, and the tools of struggle are ideological. Next, we review influential treatments of power in political and economic sociology, to demonstrate that until the 1980s, most treatments emphasized direct power, before chronicling the rise of economic sociology and studies of the fourth dimension of power. In the middle decades of the twentieth century, we argue, sociologists of power operated with a direct, coercive view of power, whether they were the intellectual descendents of Marx or of Weber. The neo-Durkheimians, such as Berger and Luckmann, hardly considered power at all. 177

Frank Dobbin and Jiwook Jung

Marx on Coercion and Ideology Whereas Lukes acknowledged Marx’s ideas about ideology in his third dimension of power, post-war neo-Marxists largely worked with a coercive theory of power. Marx himself discussed power in different ways across his career, in Kapital (1894) emphasizing material relations and direct coercion. He argued that those who control the means of production, whether under slaveholding, feudalism, or capitalism, control the livelihood of the subordinate group, and this gives them the capacity to dictate behavior. In The German Ideology, Marx described ideology as an instrument of class power, but saw ideologies as epiphenomenal, as they merely served to support the prevailing system of class domination. He did not see ideology as a terrain of power struggle in normal times, and in revolutionary times, he depicted ideology as a terrain of power struggle only between the bourgeoisie and proletariat. As Marx was read in mid-twentieth century America, power was exercised through coercion, and ideology merely served to justify prevailing class relations.

Pluralism and Elite Theories Pluralist and elite theorists of the 1950s and 1960s articulated broadly similar views of power. Pluralists studied power in the context of competitive interestgroup politics. For them, political outcomes were the result of the balance of power between groups—business and labor for instance. Policy choices thus reflect the relative power of different interests in society (Truman 1951; Lowi 1969). The interest-group approach taken by pluralists was not so different from that favored by elite theorists who traced their lineage back to Marx (Mills 1956; Miliband 1969). Liberal and radical thinkers differ principally over whether the ground rules in political contests are fair (Clegg and Haugaard 2009). Elite theorists were intent on showing that the advanced, democratic, polities of the 1950s and 1960s were dominated by the wealthy. C. Wright Mills’ The Power Elite (1956) showed that power was increasingly concentrated in business, government, and the military elites. In a recent update of elite theory, Charles Perrow (2002) argues that the exercise of power to define property rights early in the history of capitalism was key to the concentration of power. Powerful business elites did not win all political battles—losing the battle to prevent antitrust legislation—but they did win key property rights battles that set the stage for the continued concentration of capital. For Perrow, there is no natural system of property rights, rather, property rights are the consequence of power struggles between capitalist groups. 178

Social Construction of Interest in New Economic Sociology

Resource Dependency Economic sociology emerged from several quarters in sociology in the 1970s and 1980s. Most of the early converts came from organizational sociology, where resource dependency was the leading theory of power. Resource dependency scholars used a direct theory of power to argue that states and corporations depend on a range of different groups for key resources. Those groups thus wield power by dint of their potential to withhold resources (Pfeffer and Salancik 1978; Prechel and Morris 2010). Most generally, the influence one group exerts over another is a function of the latter’s dependence on the former for crucial resources, and the availability of alternative sources (Emerson 1962). This approach enriched the neo-Marxist view of power by enumerating the different groups that hold power over leading institutions, but it did not move away from the first dimension of power (Davis and Thompson 1994). The nature of power remains largely direct and visible in that it depends on the specific configuration and intensity of resource dependence relations and on actual or potential threats to cut resources. Resource dependency theory has found support in recent studies of the role of professional investors in promoting shareholder value precepts among corporations. Investors with current and potential business ties to a firm are theorized to refrain from challenging management (Gourevitch and Shinn 2005; Brickley et al. 1988; David et al. 1998). Commercial banks, insurance companies, and mutual funds worry that they will lose the business of corporations they challenge (Coffee 1991). Mutual funds, in particular, worry that they will lose pension business (Davis and Kim 2007). Public pension funds do not depend on corporations for business, and hence they have been more active in challenging managers to adopt the shareholder-value reforms championed by institutional investors (Carleton et al. 1998; Del Guercio and Hawkins 1999; Gillan and Starks 2000; Jacoby 2006). However, as Davis and Thompson (1994) suggest, and as we discuss further, focusing on the specificities of resource-dependence relations may cause us to lose sight of the broader paradigms that shape group interests in the first place. Agency theory has helped to define the interests of all of these groups since the early 1980s, setting up how groups view their own preferences.

Bank Control Theory In organizational sociology, bank control theorists have developed a variant of resource dependency theory, arguing that for most corporations, banks are allimportant (Prechel 2000; Davis and Mizruchi 1999). Although Depression-era legislation curtailed the power of banks over firms, bank control theorists 179

Frank Dobbin and Jiwook Jung

maintain that commercial banks continue to exert influence through their control of capital flows (Mintz and Schwartz 1985; Mizruchi 1982). Analyses of corporate board co-memberships (“interlocks”) suggest that banks are often located at the center of board networks. Some argue that they use their positions to influence business decisions (Mizruchi 1996), whereas others argue that the ties demonstrate “co-optation” rather than bank control (e.g. Pfeffer and Salancik 1978). Findings about whether bankers on boards affect key strategic decisions, such as acquisitions, are mixed (Davis and Stout 1992; Fligstein and Brantley 1992; Palmer et al. 1995). Bank control over capital flows leads to a type of dependence that gives banks the potential to wield influence, without guaranteeing that they will exercise power (Pfeffer and Salancik 1978). For one thing, banks and corporations are mutually dependent and banks may hesitate to alienate the customers who use their corporate financial services. For another, corporations can turn to other sources of financing, including equity and retained earnings. Mintz and Schwartz (1985) argue that banks exercise hegemony rather than direct power. Disagreement remains, however, on whether banks exert much direct influence today. It may be that banks and corporations simply agree on what the underlying business model should look like, emphasizing growth and stability to guarantee job security for corporate managers and steady loan business for banks. In another riff on power-dependence theory, Michael Useem argues, in Investor Capitalism, that as they have come to control more shares, institutional investors have gained direct control over firms. Institutional investors control the majority of shares in most publicly traded U.S. companies. Power theorists see their influence behind recent corporate restructurings, governance reforms, and leadership changes (Khurana 2002; Useem 1996). Yet some note that institutional investors and corporations are mutually dependent, just as banks and corporations are, as firms depend on investors for capital, while institutional investors depend on firms as customers of banking, insurance, and pension products (Davis and Kim 2007).

The Revival of Economic Sociology Post-war debates on power typically centered on the issue of how ruling elites maintained political and economic institutions. The main debate between pluralist and elite theorists concerned whether elites exercise power within the boundaries set by democratic rules, or bypass those rules to maintain power. The economic and political instabilities in the 1970s and the 1980s, however, changed this situation and posed a new set of theoretical challenges to an emerging group of economic sociologists. 180

Social Construction of Interest in New Economic Sociology

On the one hand, the decline of the post-war institutional structure and the emergence of a new political and economic order based on neoliberalism and shareholder value highlighted the role of power in defining market institutions, rather than in maintaining them. On the other, the encounter and competition with alternative national economic systems, such as the Japanese system, drew the attention of economic sociologists to the ideological struggle between competing approaches to economic governance. As economic sociologists worked through these issues, they moved beyond the coercive view of power to explore ideational power. In the process they engaged with social constructionist insights. The lackluster performance of the U.S. economy in the 1970s undermined the West’s confidence in post-war economic institutions and triggered a search for alternatives. Despite formidable groups committed to the status quo, instances of institutional transformation were plentiful. They often involved power struggles among experts promoting different alternatives. What drew special attention from economic sociologists was the decline of conglomerate firms in the 1980s. The replacement of the dominant corporate form, the conglomerate, with firms that were focused in a single industry went hand-inhand with an alternative theory of the firm, focused on shareholder value and core competence, that was promoted by a range of groups, including hostile takeover experts, institutional investors, and securities analysts (Davis et al. 1994; Dobbin and Zorn 2005; Useem 1996; Zuckerman 1999). The rise of Japan helped to reinvigorate the field of economic sociology by challenging the functionalist view, exemplified in modernization theory, that all nations were converging on the same optimal set of economic institutions. Adam Smith (1970 [1776]) had argued that countries would find the one best way to organize a given aspect of their economies by trial and error. That idea continued to hold sway 200 years later, but Japan’s rise led many to question it. The rise of Japan suggested that narrow economic laws were not driving national economic systems toward a single ideal, which opened the possibility that the tremendous variety in national economic systems might be explained with the tools of sociology, and that power might be part of the explanation. The rise of Japan also stimulated innovations in nearby disciplines. In the field of political science, where many had subscribed to the modernizationtheory precept that national economic systems were converging under the pressure of ineluctable economic laws, a group of historical institutionalists came to the view that political institutions shape different sorts of markets in different countries, and that differences may persist (for reviews, see Hall and Taylor 1996; Thelen and Steinmo 1992; Campbell 1998). In economic history, where Alfred Chandler (1977) had suggested that the American path of development was driven by internal dynamics of growth that had nothing to do 181

Frank Dobbin and Jiwook Jung

with national institutions, Chandler (1990a) himself revised his position to argue that political institutions forged different market structures, with Germany organized around cartels, Britain around insulated family-held firms, and the United States around diffuse stock ownership and oligopolies. Economic sociologists argued that national systems maintained their distinctiveness, even under great normative pressure for convergence, because they supported different power dynamics, and operated under different social constructions of reality. Modern scientific-rational constructions of reality can vary significantly, they came to argue, and this leaves room for political mobilization to shape constructions reality.

Constructionism: Bringing Meaning Back In Next, we chart the rise of the social constructionist paradigm in sociology to pave the way for a discussion of how its insights have been used by economic sociologists to enrich power theories. Social constructionism, rooted in Durkheim’s later work in The Elementary Forms of Religious Life (1961 [1912]) and developed by Alfred Schutz (1967 [1932]), made its way into economic sociology when Meyer and Rowan (1977) brought the insights of Peter Berger and Thomas Luckmann (1966) to the field of organizations. Berger and Luckmann suggest that in social systems based in totemism, monotheism, philosophy, and scientific-rationality, people see the world through the lenses of collective understandings, or social constructions of reality. Collectively, people objectivize social practices and the meanings that lie behind them. This is true whether the meaning system is organized around the supposed will of the frog totem or around naturalized laws of the market. Social constructivists argue that the job of sociology is to understand “the objectivations of subjective processes (and meanings) by which the intersubjective commonsense world is constructed” (Berger and Luckmann 1966: 20). How does subjective “knowledge” of the world come to have the feel of objective reality? People actively participate in sustaining and transforming ideas about reality: “Knowledge about society is thus a realization in the double sense of the word, in the sense of apprehending the objectivated reality, and in the sense of ongoingly producing [and revising] this reality” (Berger and Luckmann 1966: 210–11). Societies have constructed social reality in any number of ways. Max Weber (1978) described some of that variety in his treatments of Hinduism, Buddhism, and Protestantism. Emile Durkheim described great variety in his studies of industrializing Europe and totemic Pacific tribes (1961 [1912]). Karl Marx described considerable variety in his analyses of slaveholding, 182

Social Construction of Interest in New Economic Sociology

feudalism, and capitalism. Both Weber and Durkheim depicted meaningmaking as central to shaping behavior, even if in his theory of power, Weber took a narrow view focusing on coercion. In his studies of religious systems, Weber described material relations in diverse societies as driven by religious ethics. In his studies of totemic tribes, Durkheim depicted classification and meaning-making, and not rational self-interest, as the driving human impulse—economic theory was just another worldview to Durkheim. Berger and Luckmann (1966) point to how individuals and groups experience social conventions, make sense of them, and sustain them by reproducing and reinterpreting them. In the modern economy, the social construction of reality is rooted in the scientific-rational institutional system. Rationalists believe that there must be “one best way” to organize economic activity under capitalism because scientific and economic laws rule the social universe, and they do not vary over time and space (Meyer et al. 1987; Berger and Luckmann 1966; Wuthnow 1987). Those laws determine the best way to build an airplane wing and the best way to structure a market for pop-up ads. When we get on a plane, we think that the best wing design that science has yet to offer is in place. When we buy pop-up ads, we assume that rational actors have produced an efficient market. We interpret the economic conventions around us as determined by economic laws, just as totemic peoples interpret social conventions around them as determined by their totems. The origins of the modern epistemology can be traced to the Enlightenment ideology, suggesting that the natural and social worlds would be apprehended through experience, and that a unified and universal canon of knowledge would be built up. Based in Newtonian physics and in the classificatory schemes that predominated in chemistry and biology, the new scientific method depended on identifying and categorizing physical forms and their properties (Wuthnow 1989: 208). Understanding the social and economic world was much like understanding the natural world. The epistemology depended not on substantive faith in a corpus of knowledge, but on faith in the scientific method. Everything about the world was demystified, and potentially knowable. Trial and error and scientific method reveal the nature of reality. The Enlightenment project is to discover, and enumerate, the laws that order the universe. Social scientists readily see the totemic worldviews that Durkheim depicted as socially constructed—made up by the locals. But we find it harder to see that our own worldview, comprising demystified theories of the individual, firm, and nation-state alongside theories of chemistry, physics, and biology, is a social invention. Economic sociologists have come to view economic and management theories as constructed, however, and as playing an important role in power relations and institutional change. 183

Frank Dobbin and Jiwook Jung

The Integration of the Paradigms Power theorists of the 1950s and 1960s emphasized the first dimension of power, direct coercion. Most worked with a naïve theory of power, in which resources determine one’s capacity to coerce politicians, determine political outcomes, exploit workers, and allocate national income (Baran and Sweezy 1966; Mills 1956). Next, we detail how two economic sociologists—William Roy and Neil Fligstein—have incorporated constructionist insights in their theories of power. Then we describe the fourth dimension of power more generally in modern scientific-rational settings, where individuals and groups compete to theorize the universe in scientific and rational terms, defining group boundaries, group interests, and the social practices that favor particular interests.

Structural Power and Objectivation William Roy (Roy 1997: 13) begins with a classic Marxist view of power as coercion: structural power is “the ability to determine the context within which decisions are made by affecting the consequence of one alternative over another.” He argues that large-scale capitalists exerted control over their smaller competitors by limiting their choices. But he amends this structural theory, arguing that after a merger wave at the dawn of the twentieth century, those large-scale capitalists depicted the outcome, of monopolistic firms, as the natural consequence of economic laws. In making this argument, Roy updates and enhances Marx’s argument about the role of ideology in sustaining power. For Marx, ideology sustains class domination by deceiving the subordinate class about its true interests. Roy describes how one faction (large-scale capitalists) makes its initial exercise of power over another faction (small-scale capitalists) disappear, by defining industry concentration as a move toward efficiency required by laws of efficiency. Roy shows, in Socializing Capital: The Rise of the Large Industrial Corporation in America (1997), that the enforcement of antitrust in 1897 shifted the balance of power away from small firms and toward big firms, which found they had the capacity to shape the options of their smaller competitors. After antitrust prevented firms from joining together to set prices, a big well-capitalized firm could quash its competitors in price wars. Big firms could threaten price wars, and show smaller firms that it was in their interest to sell out because they would inevitably lose a price war with a large, well-backed, rival. Thus the capacity to determine the options of their smaller competitors gave large firms structural power. Designed to prevent the concentration of economic power, antitrust law backfired because it changed intra-industry power dynamics. Roy argues that we need to understand the social construction of reality to understand the 184

Social Construction of Interest in New Economic Sociology

ensuing acceptance of industry concentration. Concentration had long been fought by consumers, shippers, and retailers as threatening economic freedom and efficiency. For Roy, the outcome of the power struggle, industry concentration, was naturalized through deliberate efforts by dominant firms to theorize concentration as efficient. Those firms drew on the theory of scale economies to explain industry concentration, arguing that concentration was the result of the natural economic tendency of enterprises to try to increase efficiency. Americans soon came to take the huge industrial enterprise for granted as a response to the natural law of economies of scale. The theory served to objectivate an institution that was actually brought about by structural power, not efficiency. Going forward, industry mergers and acquisitions would be controlled by new antitrust legislation, in the Clayton Act of 1913, which restricted mergers designed to create monopolies. But the idea that firms merge in response to laws of economic competition—to achieve lower production costs than their competitors—persisted to support concentration. Roy (1997, chapter 2) shows that this argument was specious, because in the merger wave that took place after 1897, industries that did not benefit from economies of scale were just as likely to become concentrated as industries that did. Moreover, as James Q. Wilson (1980) demonstrates, antitrust law itself was reinterpreted and objectivated. First viewed widely by business as an unnatural intrusion into the operation of markets, because it was designed to constrain business activity, it was soon depicted as the key to America’s economic vibrancy. Theorists came to argue that it served to enforce natural market competition, which was the key to America’s economic competitiveness.

The Rise of Experts In previous ideological systems, expertise was concentrated in a single role. The witch-doctor or shaman in totemic systems held exclusive rights to define the will of the local ancestors, or the animistic spirits (Durkheim 1961 [1912]). The priest held the exclusive right to interpret the will of God in Catholicism (Weber 1958). With the rise of capitalism, Marx (1974) argued, leaders of the capitalist state had sole responsibility for defining the ideology that justified class domination. But as the scientific-rational meaning system spread, the theorization of the world was democratized, so that any management consultant could come up with a new management precept, and any home tinkerer could come up with a solution to the problem of nuclear fusion (Wuthnow 1987). With the democratization of theorization, it is no longer the exclusive province of the witch-doctor, the Pope, or prime minister to articulate theories. In economic sociology, Neil Fligstein (1990) has been arguing that different expert groups vie to promote their own theories of the firm. When a group 185

Frank Dobbin and Jiwook Jung

wins out, firms follow its prescriptions for behavior and states adjust corporate regulations to conform to the theory. These groups can thus shape the business practices of thousands of firms, and the public policies of scores of nationstates, without resorting to conventional coercion. For Fligstein, groups seek to theorize the firm for self-interested reasons— typically because if they can control the discourse about the firm, they can gain leadership positions. Engineers dominated early manufacturing, with the argument that their expertise in production was the key to the firm’s efficiency. But before long, the sales and marketing theory of the firm came to dominate, and marketing experts took over the firm. Then finance experts promoted a new theory of the firm. The modern firm was a diversified conglomerate, operating an internal capital market to create a portfolio of industries. Finance experts ascended to the top of leading U.S. firms in consequence. The strategy of diversification, theorized with portfolio and internal-capital-market theories from economics, was soon challenged by the “shareholder value” theory of the firm, theorized by agency theorists in economics (Fligstein and Markowitz 1993). According to that theory, corporate strategy, compensation, and governance should be organized to align the incentives of executives with those of shareholders. Conglomerates were in the interest of executives, not shareholders, according to the theory, and thus should be disassembled. In The Visible Hand, Alfred Chandler helped to objectivate these changes by articulating a theory of the natural progression from one management approach to the next as the consequence of the search for the optimal approach to managing as capitalism evolved. Each approach was best suited to the economic environment of its era. Fligstein argues, instead, that each approach to the firm was championed by one expert group, and that Chandler and his brethren in business history had naively taken experts at their word. In fact, Fligstein argued, these groups used new theories of the firm to gain control. They may well have believed the theories themselves, but this is how power struggles are worked out in the modern world.

The Fourth Dimension of Power: Theorization Roy and Fligstein have done much to incorporate social constructionist insights into a theory of power. We argue that the fourth dimension of power involves competition among different groups of theorists of the firm and state, as Fligstein suggests. New social conventions become objectivated through the work of those theorists, as people come to see them as natural and right, as Roy suggests. Power relations become institutionalized as the practices are linked to theories of the firm and state that depict them as existing to promote corporate or societal well-being, rather than to serve the interests of particular groups. 186

Social Construction of Interest in New Economic Sociology

Building on the work of Peter Berger and Thomas Luckmann (1966), Alfred Schutz (1967), and John Meyer and Brian Rowan (1977), we have argued that people understand the social world through collective objectivations of experience. People apprehend the very idea that they are self-interested in this way (Hirschman 1977). Under early capitalism, groups relied largely on direct experience, and observation of the experiences of others, to determine their interests in particular economic strategies and practices. Today’s collective understandings of reality frequently change in response to new theories propounded by experts (Fligstein 1990; Strang and Meyer 1993; Meyer 1994). Innovative theories must be broadly compatible with existing interpretive frames, but there is a wide variety of scientific-rational frames (Johnson et al. 2006). The process of theorization among practitioners is, in fact, much like the process of theorization that Swedberg (Chapter 1 of this volume) describes for social scientists. It involves developing a typology, and specifying causal relationships. Theory must be demystified, and it must be framed in scientificrational rather than prophetic terms. Rationalized theories of management come from different groups of experts, vying to establish their authority (Strang and Meyer 1993; Davis and Greve 1997). Engineers sketched most early theories of management in the U.S. (Shenhav 2000), and are still important in Germany (Thelen 1993, 2004; Hall and Soskice 2001), but by the 1970s American executives relied heavily on “professional economics” for theories to guide behavior, and explain behavior to “investors, stockholders, and superiors” (Meyer and Rowan 1977: 350). Business practices were thus “embedded not in society” generally, as Polanyi (1944) had suggested, “but in economics” and economic theory (Callon 1998: 30). For economic sociologists studying the corporation, then, economists and management theorists play important roles in social construction of the economy. They define not only causal relationships, but interest groups themselves by theorizing bases of shared interest (Strang and Meyer 1993). They depend on a more sociological conception of interest, in which interest cannot be read directly from objective material position (Swedberg 2005). For instance, agency theorists, who theorized the shareholder value revolution, defined two distinct groups of business leaders—investors and executives—by defining their divergent interests (Jensen and Meckling 1976). They distilled human motivation to wealth maximization, in part by devising an executive compensation system, based on performance incentives, that depicted wealth maximization as the single appropriate motive of executives. Their strong presence at elite business schools after the 1970s meant that their theory crucially shaped the orientations of future executives (Khurana 2007). As these executives perform the theory, they help realize the vision of the world envisioned by agency theorists. 187

Frank Dobbin and Jiwook Jung

Because people now rely more on expert theorists to understand the world, and less on observation, experience, and folk theories, “theories can ‘win’ in the marketplace for ideas, independent of their empirical validity, to the extent their assumptions and language become taken for granted and normatively valued, therefore creating conditions that make them come ‘true’ ” (Ferraro et al. 2005: 32). Today’s financial market actors do not wait for scientific evidence before they embrace a new theory because they believe (a) that markets destroy last-movers and (b) that the latest innovations will draw customers and investors regardless of their efficacy (Meyer and Rowan 1977). Once a theory gains sway, people may not be deterred by negative evidence, for as in science, theories are underdetermined by facts, and can be displaced only by superior theories. Negative evidence can accumulate for decades before a better theory takes hold (Kuhn 1962; Giddens 1979: 243; Feyerabend 1988: 24). Theories about groups and their interests may never be subjected to strict experiential or scientific scrutiny. Faith in the theory, and confidence in the professional groups charged with theorization, can sustain a theory and the power dynamics it supports. When successful, new theories do more than promote specific behavioral practices and institutional policies. Successful theories establish the frames that individuals use to develop their own practices and policies. Thus with the rise of the shareholder-value model, CEOs used the broad framework to guide key strategic choices and to develop innovations that are consistent with the paradigm, but not prescribed in its initial formulation. Shareholder value advocates championed dediversification to promote share price (Pralahad and Hamel 1990), but CEOs took the instruction to promote share price and came up with the idea of workforce downsizing on their own (Budros 1997). Evidence for the efficacy of either strategy is weak. For instance, downsizing reduces short-term labor costs, but tends to have negative effects on profits and share price (Cascio et al. 1997; De Meuse et al. 1994; Dougherty and Bowman 1995; Flanagan and O’Shaughnessy 2005). Executives decisions were thus influenced broadly by the shareholder-value paradigm. They began to embrace strategies they perceived to conform to the logic of the paradigm (Emerson 1962). Shareholder value advocates have thus led corporate executives to internalize particular goals, and search for means to achieving those goals themselves.

Conclusion We have been arguing that economic sociologists have expanded the theory of power that prevailed in post-war sociology in the United States. The behavioral revolution of the 1950s had led most social scientists, in sociology and 188

Social Construction of Interest in New Economic Sociology

related disciplines, to focus on the determinants of individual action. Powerdependence theory (Emerson 1962) proved broadly influential in the 1960s and 1970s, among elite and pluralist theorists alike, for its direct and relational approach to power. In economic sociology, the approach taken by resourcedependence and bank-control theorists built on this foundation. Power was defined as the capacity to directly influence the behavior of another through coercion, or the control of resources. Stephen Lukes (1974) sketched a multifaceted theory of power, going beyond the focus on direct coercion to add a second dimension, agendasetting, whereby the powerful remove from the political agenda proposals that would serve the true interests of the subordinate class. A third dimension describes a type of power akin to the ideological domination of the state that Marx described, and that Georg Lukacs (1923) depicted in History and Class Consciousness, in which the ideology of the state conforms to the class interests of the bourgeoisie. The proletariat is unaware of its own interests, seeing the world only through the lens of the dominant class. In the middle decades of the twentieth century, power theorists largely neglected the role of ideology in the exercise of power, preferring to demonstrate that national political systems were dominated directly by elites (Mills 1956), and that international exchange systems were dominated by developed countries (Baran and Sweezy 1966). But since the 1970s, new theories of power have emerged that emphasize anew the role of meaning and ideology in the economy. What sets these approaches apart from Marx’s original view is that they explore the role of ideological, positional, and economic resources in the social construction of scripts for action, and of proper state and corporate policies and institutions. We have been arguing that much of the debate thus far has focused on how different groups impose their preferences in capitalist societies, and convince others that a particular policy approach, or corporate strategy, is optimal and reflects the true economic laws of the universe. We suggest that broad policy paradigms at the national level, or the interorganizational level, shape the motives and ideas of individuals and groups. In recent years, controlling the evolution of neoliberalism as the dominant public-policy paradigm has been key to shaping how individual policy-makers see their own options and interests. Controlling the evolution of shareholder value as the dominant management paradigm has similarly been key to shaping how executives and other corporate decision-makers see their own options and interests. We argue that economic sociologists have been describing a fourth dimension of power, in the efforts of competing expert groups to shape the social construction of modern reality. Those experts vie to define reality with scientific and rationalized theories of the world that specify appropriate social goals, groups with common interests, and the appropriate means to achieve 189

Frank Dobbin and Jiwook Jung

particular goals. Thus in the case of shareholder value, activist investors and fund managers defined share price returns at the single appropriate goal of the firm, and set out a series of strategies for achieving that goal. For theoretical backing they relied heavily on agency theory in economics. Those groups have influenced the behavior of firms not primarily by directing resources, or threatening coercion, but by changing the paradigm through which actors in economic markets view the world and view their own interests. This fourth dimension of power will require further fleshing out. In particular, work thus far has operated at the meso level, focusing on the role of groups in theorizing new approaches to management. Those meso level changes have led to macro changes. Thus the shareholder value paradigm has shaped not only the behavior of U.S. firms, but the behavior of multinationals and foreign firms, and the public policy preferences of nation-states. But economic sociologists have not paid much attention to how group-level struggles within the United States translate into global changes. Some have begun to explore these processes at the global level, for instance, studying how new economic theories shape the global bankruptcy regime, and national responses to that regime (Halliday and Carruthers 2009). At the micro level, the theorization approach of Strang and Meyer (1993) suggests that individuals come to see their own identities through theories that tie them to others with shared interests (see Aspers, Chapter 10 of this volume). But constructionists have not developed theories of action at the individual level that hold clear implications for research. Berger and Luckmann (1966) argued that individuals reinterpret and remake objectivations of reality in daily life, but what that means for empirical research is not altogether clear. The symbolic interactionists have probably done most to specify how meaning shapes, and is shaped by, broader constructions of reality in real time (Weick 1993; Glynn 2008). Economic sociologists have done much to elaborate this fourth dimension of power, but there is much theoretical work still to be done.

References Bachrach, Peter and Morton S. Baratz (1962) The Two Faces of Power. American Political Science Review 56(4). Baran, Paul A. and Paul M. Sweezy (1966) Monopoly Capital. New York: Modern Reader. Berger, Peter L. and Thomas Luckmann (1966) The Social Construction of Reality: A Treatise in the Sociology of Knowledge. New York: Doubleday & Company Inc. Brickley, James A., Ronald C. Lease, and Clifford Jr. Smith (1988) Ownership Structure and Voting on Antitakeover Amendments. Journal of Financial Economics 20(1–2), 267–91.

190

Social Construction of Interest in New Economic Sociology Budros, Art (1997) The New Capitalism and Organizational Rationality: The Adoption of Downsizing Programs, 1979–1994. Social Forces 76, 229–49. Callon, Michael (1998) The Laws of the Market. Oxford: Blackwell. Campbell, John L. (1998) Institutional Analysis and the Role of Ideas in Political Economy. Theory and Society 27, 377–409. Carleton, Willard T., James M. Nelson, and Michael S. Weisbach (1998) The Influence of Institutions on Corporate Governance through Private Negotiations: Evidence from TIAA-CREF. Journal of Finance 53, 1335–62. Cascio, Wayne F., Clifford E. Young, and James R. Morris (1997) Financial Consequences of Employment-Change Decisions in Major U.S. Corporations. The Academy of Management Journal 40(5), 1175–89. Chandler, Alfred D. (1977) The Visible Hand: The Managerial Revolution in American Business. Cambridge, MA: Belknap. Chandler, Alfred D. (1990) Scale and Scope: The Dynamics of Industrial Enterprise. Cambridge, MA: Harvard University Press. Clegg, Stuart. R. and Mark Haugaard (eds) (2009) Handbook of Power. London: Sage. Coffee, John C., Jr. (1991) Liquidity versus Control: The Institutional Investor as Corporate Monitor. Columbia Law Review 91(6), 1277–368. David, Parthiban, Rahul Kochhar, and Edward Levitas (1998) Research Notes. the Effect of Institutional Investors on the Level and Mix of Ceo Compensation. Academy of Management Journal 41(2), 200–8. Davis, Gerald F., Kristina A. Diekmann, and Catherine H. Tinsley (1994) The Decline and Fall of the Conglomerate Firm in the 1980s: The Deinstitutionalization of an Organizational Form. American Sociological Review 59, 547–70. Davis, Gerald F. and Henrich Greve (1997) Corporate Elite Networks and Governance Changes in the 1980s. American Journal of Sociology 103, 1–37. Davis, Gerald F. and E. Han Kim (2007) Business Ties and Proxy Voting by Mutual Funds. Journal of Financial Economics 85, 552–70. Davis, Gerald F. and Mark S. Mizruchi (1999) The Money Center Cannot Hold: Commercial Banks in the U.S. System of Corporate Governance. Administrative Science Quarterly 44(2), 215–39. Davis, Gerald F. and Suzanne K. Stout (1992) Organization Theory and the Market for Corporate Control: A Dynamic Analysis of the Characteristics of Large Takeover Targets. Administrative Science Quarterly 37, 605–33. Davis, Gerald F. and Tracy A. Thompson (1994) A Social Movement Perspective on Corporate Control. Administrative Science Quarterly 39, 141–73. De Meuse, Kenneth P., Paul A. Vanderheiden, and Thomas J. Bergmann (1994) Announced Layoffs: Their Effect on Corporate Financial Performance. Human Resource Management 33(4), 509–30. Dobbin, Frank and Dirk Zorn (2005) Corporate Malfeasance and the Myth of Shareholder Value. Political Power and Social Theory 17, 179–98. Dougherty, Deborah and Edward H. Bowman (1995) The Effects of Organizational Downsizing on Product Innovation. California Management Review 37 (4), 28–44. Durkheim, Emile (1961) The Elementary Forms of Religious Life. New York: Collier.

191

Frank Dobbin and Jiwook Jung Emerson, Richard M. (1962) Power-Dependence Relations. American Sociological Review 27(1), 31–41. Ferraro, Fabrizio, Jeffrey Pfeffer, and Robert I. Sutton (2005) Economics Language and Assumptions: How Theories Can Become Self-Fulfilling. Academy of Management Review 30(1), 8–24. Feyerabend, Paul (1988) Against Method. Verso. Flanagan, David J. and K.C. O’Shaughnessy (2005) The Effect of Layoffs on Firm Reputation. Journal of Management 31(3), 445–63. Fligstein, Neil (1990) The Transformation of Corporate Control. Cambridge, MA: Harvard University Press. Fligstein, Neil and Peter Brantley (1992) Bank Control, Owner Control, or Organizational Dynamics: Who Controls the Large Modern Corporation? American Journal of Sociology 98(2), 280–307. Fligstein, Neil and Linda Markowitz (1993) Financial Reorganization of American Corporations in the 1980s. In: William Julius Wilson (ed.), Sociology and the Public Agenda. Beverly Hills: Sage Publications, 185–206. Fligstein, Neil and Doug McAdam (2011) Toward a General Theory of Strategic Action Fields. Sociological Theory 29(1), 1–26. Giddens, Anthony (1979) Central Problems in Social Theory: Action, Structure and Contradiction in Social Analysis. Berkeley: University of California Press. Gillan, Stuart L. and Laura T. Starks (2000) Corporate Governance Proposals and Shareholder Activism: The Role of Institutional Investors. Journal of Financial Economics 57, 275–305. Glynn, Mary Ann (2008) Beyond Constraint: How Institutions Enable Identities. In: Royston Greenwood, Christine Oliver, Kerstin Sahlin, and Roy Suddaby (eds), The Sage Handbook of Organizational Institutionalism. London and Thousand Oaks, CA: Sage, 413–30. Goffman, Erving (1974) Frame Analysis: An Essay on the Organization of Experience. Harvard University Press. Gourevitch, Peter, and James Shinn (2005) Political Power and Corporate Control: The New Global Politics of Corporate Governance. Princeton, NJ: Princeton University Press. Gramsci, Antonio (1971) Selections from the Prison Notebooks. New York: International. Del Guercio, Diane and Jennifer Hawkins (1999) The Motivation and Impact of Pension Fund Activism. Journal of Financial Economics 52, 293–340. Hall, Peter and David Soskice (2001) Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. New York: Oxford University Press. Hall, Peter A. and Rosemary C. R. Taylor (1996) Political Science and the Three New Institutionalisms. Political Studies 44, 936–58. Halliday, Terence C. and Bruce G. Carruthers (2009) Bankrupt: Global Lawmaking and Systemic Financial Crisis. Stanford University Press. Hirschman, Albert O. (1977) The Passions and the Interests: Political Arguments for Capitalism before Its Triumph. Princeton, NJ: Princeton University Press. Jacoby, Sanford M. (2006) Principles and Agents: CalPERS and Corporate Governance Change in Japan.

192

Social Construction of Interest in New Economic Sociology Jensen, Michael C. and William H. Meckling (1976) Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics 3, 305–60. Johnson, Cathryn, Timothy J. Dowd, and Cecilia L. Ridgeway (2006) Legitimacy as a Social Process. Annual Review of Sociology 32(1), 53–78. Khurana, Rakesh (2002) Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs. Princeton, NJ: Princeton University Press. Khurana, Rakesh (2007) From Higher Aims to Hired Hands: The Social Transformation of American Business Schools and the Unfulfilled Promise of Management as a Profession. Princeton, NJ: Princeton University Press. Kuhn, Thomas (1962) The Structure of Scientific Revolutions. Chicago: University of Chicago Press. Lowi, Theodore J. (1969) The End of Liberalism: Ideology, Policy and the Crisis of Public Authority. New York: Norton. Lukacs, Georg (1923) History and Class Consciousness. Cambridge, MA: MIT Press. Lukes, Steven (1974) Power: A Radical View. London: Oxford University Press. Marx, Karl (1894) Das Kapital. New York: International. Marx, Karl (1963) The Eighteenth Brumaire of Louis Bonaparte. New York: International. Marx, Karl (1974) The German Ideology. New York: International. Meyer, John W. (1994) Rationalized Environments. In: W. Richard Scott and John W. Meyer (eds), Institutional Environments and Organizations: Structural Complexity and Individualism. Thousand Oaks, CA: Sage Publications, 28–54. Meyer, John W., John Boli, and George M. Thomas (1987) Ontology and Rationalization in the Western Cultural Account. In: George M. Thomas, John W. Meyer, Francisco Ramirez, and John Boli (eds), Institutional Structure: Constituting State, Society, and the Individual. Newbury Park: Sage, 12–37. Meyer, John W. and Brian Rowan (1977) Institutionalized Organizations: Formal Structure as Myth and Ceremony. American Journal of Sociology 83, 340–63. Miliband, Ralph (1969) The State in Capitalist Society. London: Weidenfeld and Nicolson. Mintz, Beth and Michael Schwartz (1985) The Power Structure of American Business. Chicago: University of Chicago Press. Mizruchi, Mark S. (1982) The American Corporate Network, 1904–1974. Sage Publications. Mizruchi, Mark S. (1996) What Do Interlocks Do? An Analysis, Critique, and Assessment of Research on Interlocking Directorates. Annual Review of Sociology 22, 271–98. Palmer, Donald, Brad M. Barger, Xueguang Zhou, and Yasemin Soysal (1995) The Friendly and Predatory Acquisition of Large U.S. Corporations in the 1960s: The Other Contested Terrain. American Sociological Review 60, 469–99. Perrow, Charles (2002) Organizing America: Wealth Power and the Origins of Corporate Capitalism. Princeton, NJ: Princeton University Press. Pfeffer, Jeffrey and Gerald R. Salancik (1978) The External Control of Organizations: A Resource Dependence Perspective. New York: Harper and Row. Polanyi, Karl (1944) The Great Transformation: The Political and Economic Origins of Our Time. New York: Rinehart.

193

Frank Dobbin and Jiwook Jung Pralahad, C. K. and Gary Hamel (1990) The Core Competencies of the Corporation. Harvard Business Review 68, 79–91. Prechel, Harland (2000) Big Business and the State: Historical Transitions and Corporate Transformations, 1880s–1990s. Albany: SUNY Press. Prechel, Harland and Theresa Morris (2010) The Effects of Organizational and Political Embeddedness on Financial Malfeasance in the Largest U.S. Corporations Dependence, Incentives, and Opportunities. American Sociological Review 75(3), 331–54. Roy, William (1997) Socializing Capital: The Rise of the Large Industrial Corporation in America. Princeton, NJ: Princeton University Press. Schutz, Alfred (1967) The Phenomenology of the Social World. Evanston, IL: Northwestern University Press. Shenhav, Yehouda A. (2000) Manufacturing Rationality: The Engineering Foundations of the Managerial Revolution. New York: Oxford University Press. Smith, Adam (1970 [1776]) The Wealth of Nations. Baltimore, MD: Penguin. Strang, David, and John W. Meyer (1993) Institutional Conditions for Diffusion. Theory and Society 22, 487–511. Swedberg, Richard (2005) Can There Be a Sociological Concept of Interest? Theory and Society 34(4), 359–90. Thelen, Kathleen (1993) Institutional Legacies: Patterns of Labor Incorporation and Contemporary Shopfloor Politics. Thelen, Kathleen (2004) How Institutions Evolve: The Political Economy of Skills in Germany, Britain, the United States, and Japan. New York: Cambridge University Press. Thelen, Kathleen and Svein Steinmo (1992) Historical Institutionalism in Comparative Politics. In: Svein Steinmo, Kathleen Ann Thelen, and Frank Longstreth (eds), Structuring Politics: Historical Institutionalism in Comparative Politics. New York: Cambridge University Press, 1–32. Truman, David B. (1951) The Governmental Process: Political Interests and Public Opinion. New York: Knopf. Useem, Michael (1996) Investor Capitalism: How Money Managers Are Changing the Face of Corporate America. New York: Basic. Weber, Max (1946) From Max Weber: Essays in Sociology. New York: Galaxy. Weber, Max (1958) The Protestant Ethic and the Spirit of Capitalism. New York: Scribner. Weber, Max (1978) Economy and Society. Berkeley, CA: University of California Press. Weick, Karl E. (1993) The Collapse of Sensemaking in Organizations: The Mann Gulch Disaster. Administrative Science Quarterly 38, 628–52. Wilson, James Q. (1980) The Politics of Regulation. New York: Basic. Wright Mills, C. (1956) The Power Elite. New York: Oxford University Press. Wuthnow, Robert. (1987) Meaning and Moral Order: Explorations in Cultural Analysis. Berkeley, CA: University of California Press. Wuthnow, Robert (1989) Communities of Discourse: Ideology and Social Structure in the Reformation, the Enlightenment, and European Socialism. Cambridge, MA: Harvard University Press. Zuckerman, Ezra W. (1999) The Categorical Imperative: Securities Analysts and the Illegitimacy Discount. American Journal of Sociology 104, 1398–438.

194

8 Certifying the World Power Infrastructures and Practices in Economies of Conventional Forms Laurent Thévenot

Contemporary economies rest on heavy infrastructures of conventional forms. They rely on formal indicators, accounts and procedures, standards, benchmarks, good practices, etc. Formalization reaches everyday life, which, for the most part, consists of making and recombining formal statements. In a keynote address on “Shifting modes and loci of (e)valuation” at the 2013 Economic Sociology conference in Moscow, I used the venue to ironize on the fact that the present stage of capitalism resembles the Soviet Union—which I discovered as a child in the 1960s—on a key aspect: the central role dedicated to forms and formalities. If we are, to a certain extent, “back in the U.S.S.R.,” we might remember the lesson of this surreal experience. When formal cant is superimposed on the obliterated everyday reality, it generates double-language on a large scale, and split personalities. Yet, there are significant differences between heavily formalized economies. In contrast with inaccessible and centralized bureaucratic authorities, contemporary formalized objectives come close to agents. Human beings are expected to invest their energy—and even their whole personality—in achieving objectives that are made objective to be measureable.1 Critical observers highlight structural problems in the use of formal statements. Forms do not simply perform, at least not as stated by those who

1

On this issue, see in particular: Eliasoph 2011.

Laurent Thévenot

confuse formal accounts with realities. Therefore, documenting lies, double language and double accounting, and unveiling hidden reality behind formal accounts, are still major tasks in today’s economic sociology (E.S. in this text), as exemplified by Michael Power’s examination of the “audit society” (Power 1997) or Frank Dobbin’s more recent research on finance with Jiwook Jung (Jung and Dobbin 2012). Sociologists have for long exercised their critical capacity in doubting formalities and exposing the gap between them and informal practices. Theories of practice in general have been suspicious of formal conventions, a favorite target of their criticism being the legal scholars’ naïve belief in positive formalities. Network analysis also has contributed to restrain the focus on conventional forms, although it can be used with institutional norms, as exemplified in Victor Nee’s and Sonja Opper’s chapter of this volume (Chapter 6), which examines the link between networks and institutions via informal norms. But sticking to the only side of doubt and suspecting rightly that conventional forms operate at the expense of sincerity, authenticity, and actuality— that is, other possible coordinated behavior—bears the risk of overlooking the confident side of conventions and of their formalities. In his chapter of this volume (Chapter 5), Bruce Carruthers deliberately focuses on formal rules, observing legal templates and standardized forms as reliable “building blocks” that offer an open variety of combinations. When people convene, in the etymological meaning of coming together to the same meeting point, they realize the coordinative power of conventional forms. If we debase this face, we fail to grasp the decisive equipment of human commonalities, and inventions it allows. Current economies, because they are heavily loaded with conventional forms, demand that we encompass both sides of conventional forms in the same analytical framework. The first part of this chapter considers analytical resources that might be helpful to deal with economies of conventional forms. This formulation also points to the kind of economies brought by conventional forms of coordination, in the sense of economies of scale or scope. The last meaning corresponds to the French Convention School main orientation (Economie des convention; C.S. in this text), which will be situated in the context of E.S. and earlier philosophical and sociological writings on conventions and symbolic forms. The second part focuses on valuation, a key issue in the analysis of our object. The formation of value in organizations, markets, and standards is related to a plurality of valuable engagements with the world. The third part focuses on the profit and power that issue from the transmutation of valuations.

196

Certifying the World

Resources to Analyze Economies of Conventional Forms: Theories of Conventions and Economic Sociology French Convention School in the Context of Economic Sociology: an Introductory Comparison With regard to E.S., C.S. might have initially suffered from a somewhat eccentric position because of its origin, both cultural and disciplinary.2 Originating in France and in French, it has been slowly translated and made available to the new sociological domain of E.S., which was initially labeled in the U.S. Moreover, C.S. was created by a group of social scientists who were mostly economists. Commenting on the fact that French sociologists and economists might convene in a new orientation towards conventions, Richard Swedberg remarked that this singular collaboration could hardly be expected elsewhere, especially in the United States where, “in the absence of these contacts, economic sociology (as I see it) should definitely maintain its identity as a special type of sociology” (Swedberg 2006: 90; translated quotes of this article are taken from Swedberg’s original paper in English). Yet, we should not overestimate singularities of C.S.3 First, scholars who created this school developed a systematic criticism of mainstream economics. In his chapter of this volume (Chapter 1), Swedberg notes that “Neoclassical economists have a century-long tradition of prioritizing theory at the expense of empirical work” and that “theory-driven research tends to use standardized data and has little interest in ethnographic and related kinds of data,” preventing a creative way of theorizing. As is visible in the organization of Masters an Ph.D. courses and seminars related to C.S., ethnographical investigation has been constantly involved in most C.S. research while the aim remained to enlarge and rectify a theoretical approach. Second, each scholar supplemented his training in economics by investing in other social sciences, anthropology, and, particularly, sociology, in addition to political and moral philosophy for several of them. Third, the C.S. project was to overcome the strong disciplinary boundaries between economics and sociology by addressing fundamental issues that are shared by both disciplines (Eymard-Duvernay et al. 2006; Salais and Thévenot 1986). In the “Introduction” to this volume, Patrik Aspers, Nigel Dodd, and Ellinor Anderberg note that “there was no recognizable subfield of economic sociology in France” while referring to the impact of the Economie des conventions. The reason was not only the role

2 For a short introduction, see Thévenot 2006b. On relations to ES, see Biggart and Beamish 2003, Knoll 2013. On relations to organizational institutionalism, see Brandl Daudigeos Edwards and Pernkopf-Konhäusner 2014. 3 When introduced more widely in Germany, it was named “sociology of conventions” (DiazBone 2011a, 2011b; Diaz-Bone Rainer and Thévenot 2010).

197

Laurent Thévenot

played in this trend by (institutional) economics but also by theoretical models that more largely covered social, political, and moral issues. Invited to a conference on Economie des conventions as an outstanding actor of economic sociology and analyst of the relations between economics and sociology (Swedberg 1990), Swedberg structured his comments (Swedberg 2006) on three main notions borrowed from a position paper by C.S. authors: values, coordination, and rationality (Eymard-Duvernay et al. 2006; in English: Thévenot et al. 2005, chapter I.2). Here, I will continue the dialogue with him along these themes (see Table 8.1), valuation mostly being addressed in the next parts. CONVENTION OF COORDINATION, NETWORK TIE, INSTITUTION

C.S. and E.S. are both critical of ways of reducing the mutual dependency between agents: by an atomist individualism, at one end of the spectrum; by a direct determination from institutional constraints, at the other. Yet, E.S. and C.S. research strategies differ in the main categories they uses to deal with interdependency: network ties, institutions and institutional logics, or conventions of coordination for C.S. Swedberg remarked that coordination is currently not a concept in economic sociology, even if it is sometimes used in organizational theory (in the sense of inter-organizational coordination). [ . . . ] It is well understood in economic sociology that you may organize—or coordinate—some economic activity in different ways, depending on the circumstances. But again, the idea and problem of actually bringing together various activities into a new unity, which constitute the essence of what is meant by coordination, is little explored (Swedberg 2006: 85).

In C.S., coordination is not confused with order, but viewed as a problematic and uncertain. In an early step of C.S., “investments in (conventional) forms” of various lifespans, areas of validity and objective support, were viewed as leading to economies of coordination and associated with a cost—the sacrifice of other possible modes of coordination (Thévenot 1984). The Economies of Worth model (E.W.: Boltanski and Thévenot 1987, 1991, 2006) and the Worlds of Production model (Salais and Storper 1992; Storper and Salais 1997) went further in the analysis and differentiation of most legitimate conventions of coordination, while the subsequent elaboration of “regimes of engagements” extended the notion of coordination to coordination with oneself, and pushed the investigation below the level of most legitimate conventions, down to personal convenience (Thévenot 1990, 2006a). HUMAN AGENCY AND RELATIONS WITH THE MATERIAL WORLD

Agency is an issue which E.S., according to Swedberg, does not push further by comparison with C.S. He notes that, in the work of John Meyer (Meyer and 198

Certifying the World

Jepperson 2000), “the actor has more or less disappeared” (Swedberg 2006: 82). Granovetter remarked that “what looks to the analyst like nonrational behavior may be quite sensible when situational constraints, especially those of embeddedness, are fully appreciated” (Granovetter 1985: 506). In C.S., agency is situated in a material environment that has to be given a proper form to fit a convention of coordination. This realist anchoring of conventions met social studies of science, and research on the sociality of objects (Knorr Cetina 1997). Actor Network Theory was influential, as developed by Bruno Latour (1987) and Michel Callon (1986). C.S. notions of “qualification” and “quality conventions” were, in return, influential in Callon’s approach of markets (1998). Although quite different from C.S. “plurality of worlds,” Latour’s recent work came to identify a plurality of “existence modes” (Latour 2012). ACTION

C.S. and E.S. are both critical of the reduction of action to individual optimizing rationality. While A.N.T. rejects the vocabulary of action, and most currents of E.S. rely on unreflective habits, C.S. differentiates reflexive and habitual actions, the elaboration of regimes of engagement leading to further distinctions: publicly justifiable, individually planned, familiarly habituated, explorative.4 COGNITION, INFORMATION

Granovetter criticized the idea that an actor relies on “generalized information,” as he considers “information from a trusted informant that he has dealt with that individual and found him so [and] even better is information from one’s own past dealings with that person” to be better for him (Granovetter 1985: 490). This observation led to the well-known notion of embeddedness in “concrete personal relations and structures (or ‘networks’) of such relations in generating trust” (idem.). Agents’ cognition imports for E.S.: mainly taken for granted and shared cognition through classifications, scripts, schemas, routines.5 By contrast with the neoclassical economics approach of information asymmetry, C.S. gives a central place to information production and 4 They are not only regimes of valuing objects in the sense of Arjun Appadurai’s pioneering research on “the social life of things” (Appadurai 1986); see Thévenot 2011. The notion of engagement was also intended to offer new insights into identity (Thévenot 2013). There I meet Patrick Aspers’ original recasting of this notion in his chapter of this volume (Chapter 10), with his strong anchoring in phenomenology. Divergence might come from the sharp distinction he makes between “collective identity” and “unique identity,” whereas I try to differentiate, on the basis of various engagements, components of personal identity that are unequally prepared for commonality. 5 New developments depart from the C.S. classical approach to cognition. Within the mediainstitutional model that Knorr Cetina’s chapter of this volume (Chapter 4) offers for financial markets, “attentional integration” is a central issue for these “scopic markets.”

199

Laurent Thévenot

communication, investigating the prerequisite of giving form to the environment, to transform it and make it informational. Various “formats of information” are unequally prepared to commonality, from formalized public formats to deeply personal and informal reference points (Thévenot 2007). (E)VALUATION

Valuation is involved in C.S. cultural meanings. Thus, Viviana Zelizer’s approach of tensions between monetary evaluation and valuable intimacy (2005) was said to be, according to a French scholar’s comment, “le cœur dans les networks” (heart into networks: in French in Zelizer 2010: 5).6 C.S. puts a strong emphasis on (e)valuation modes, their plurality, and their equipment, with an early concern for emotions (Livet and Thévenot 1997). E.W. first pluralism of orders of worth refers to various specifications of the common good, while the second pluralism of regimes of engagement differentiates kinds of good according to their unequal readiness for commonality (Thévenot 1990, 2006a).7 Above the first level of “individuals competing and negotiating,” and the second level of “organizations in conflict and coordination,” the institutional logics project characterizes “institutions in contradiction and interdependency” which are “simultaneously material and symbolic” and involve valuation: “capitalism,” “democracy,” “family,” “religion,” and “science” (Friedland and Alford 1991: 240–1, 248). More recent writings on institutional logics point to the level of individual mechanisms (Thornton Ocasio and Lounsbury 2012). Roger Friedland himself went further in this direction in the empirical research he carried out with John Mohr, Henk Roose, and Paolo Gardinali on “The Institutional Logics of Love,” looking at “the relation between individuals themselves as sites in and through which institutional logics might be located” (Friedland, Mohr, Roose, and Gardinali 2014).8 POWER

Power is an important issue for E.S., and is found in asymmetrical positions within a field or a relation, or in the strength of network ties. In C.S., power is 6 In her chapter of this book (Chapter 9), Nina Bandelj prolongs Zelizer’s adhesion to “relational sociology,” giving a particular focus on “the emotional underpinnings of economic exchange.” 7 This extension of C.S. is presented in the second part of the collective paper on “Values, Coordination and Rationality” entitled “The Second Pluralism of Levels of Convention, From Public Coordination to Close Coordination” (Eymard-Duvernay et al. 2006: 37–43; in English, Thévenot et al. 2005). As suggested by the title, this extension of C.S. goes below the level of formalized conventions (Breviglieri and Stavo-Debauge 2006), down to the level of close coordination. 8 Multiple Correspondence Analysis reveals two axes which I find to be related to distinct regimes of engagements. Whereas the first is “amoral,” “grounded in the present and based on the experience of another person,” the second differentiates sexuality as “morally coded” and is “oriented towards the institution of marriage” (Friedland, Mohr, Roose, and Gardinali 2014: 22).

200

Certifying the World Table 8.1. Convention School and economic sociology: a comparative sketch Actor network

New institutionalism

Key category to deal convention of coordination with interdependency a. justifiable conventions of worth: inspiration, domestic, fame, civic, market, industrial b. from justifiable conventions to personal convenience

network link

legitimate taken for granted institution

Human agency and relation to the material world and others

human agent in situation, among things and material assemblages [dispositifs]

human and non-human actant

human agent

Action

a. reflexive/habitual b. publicly justifiable, individually planned, familiarly habituated, explorative

no action

unreflective habit

Cognition

a. cognitive forms, instruments and dispositifs b. plurality of information formats

calculus center

classifications, scripts, schemas, routines: taken for granted and shared cognition

(E)valuation

—no— a. orders of worth referring to the common good b. evaluations involving a good of a smaller scale in engagement under the public

Dynamics internal, when facing reality

a. reality test when qualifying for public worth b. testing moments in regimes of engagement

trial of strength —no— (of network ties)

Power

exploitation of coordinative and evaluative conventions and engagements

strength of network ties

Conventions a. Orders of worth b. Regimes of engagement

through cognition and culture

positions within fields

viewed as being based on coordinative and evaluative conventions, as we shall see in more detail in the section Profit and power from the transmutation of valuations.9 From the preliminary step of research on codification, Foucault’s analysis of power and knowledge (1966) has been influential.

9 In his chapter of this book (Chapter 7), Dobbin relevantly recalls the forgotten significance of ideology, for power analysis, which Marx unveiled. He contrasts structural power “to shape the perceived interests of others”—exemplified by Neil Fligstein (1990)—with ideological power “to make certain institutions and conventions seem inevitable.” Although C.S. was criticized for downplaying power issues, orders of worth—or other constitutive conventions—are rightly viewed as an ideological system by critical (economic) sociologists and by actors themselves when they are in the position of doubting conventions.

201

Laurent Thévenot

Conventions in practice and situation: challenging the collective/ individual and symbolic/material oppositions Social conventions are not a new topic in sociology. Sociology might even be said to be “over-conventionalized,” as it is “over-socialized” according to Mark Granovetter (1985). Howard Becker’s “art worlds” (1982) presented a fully fledged sociology of conventions, and many sociologists would agree that social conventions are “interchangeable with such familiar sociological ideas as norm, rule, shared understanding, customs, or folkways, all referring to the ideas and understanding people hold in common and through which they effect cooperative activity” (Becker 1982: 30). Becker is neither formalist nor holistic, and art worlds conventions “leave much to be resolved by reference to customary modes of interpretation on the one hand and by negotiation on the other” (ibid. 31). He points here to the classical problem of interpreting conventions in situation, and sees it solved by customs, another kind of convention, although of a more informal or practical type than others. Becker addresses another classical problem, the collective/individual tension that conventions raise, resolved in his understanding by dynamics of “negotiation” between strategic individuals. He makes room for the equipment of conventions, stating that “the understandings that shape the convention can be embodied in permanent equipment” (ibid. 57). Becker’s attractive synthesis combines the commonality of conventions with individuals negotiating on the basis of their interests. However, this smooth combination relies too strongly on the kind of commonality in the plural that the “liberal grammar” specifically offers (Thévenot 2014). Conventions are seen as extensions of contractual agreements between opting individuals. This view does not account for the variety of conventional forms, and the tensions they raise with personalized behaviors and ways human beings engage with a material environment. To grasp these tensions, I will now introduce authors who strongly diverge in their approaches to conventional features.

Individual Behavioral Imitation and Salient Meeting Points: David Lewis The philosopher David Lewis is well known for his convention theory. When economists look for a convention theory compatible with a strong methodological individualism and purified from any assumption of commonality, they turn to Lewis’ convention theory (1969). In the continuity of David Hume, Lewis tried to make endogenous the production of all sorts of conventions, on the unique basis of observable behaviors, from coordinative conventions at a meeting point, to money or even language. Lewis’ direction is certainly relevant for us as he looks at conventions from problems of coordination in an uncertain world. Swedberg noted: “an advantage with the concept of 202

Certifying the World

convention, as I see it, as compared to that of norm, is that the concept of convention is closely related to the idea of coordination and uncertainty” (Swedberg 2006: 86). Lewis’ intent is to take into account the relation between conventions and the material world used for coordination, be it a salience that serves for a meeting point, or a bodily gesture that can be imitated as that of a rower. However, one year only after the publication, Lewis had to significantly revise his theory on the suggestion of a critical colleague, Jonathan Bennett who contested that convening on language could result only from observable behaviors. Then, Lewis replaced “observable behaviors” by “actions and beliefs.” Olivier Favereau examined this move carefully and concluded that it strongly modifies the explanatory system by introducing a common world (Favereau 2008). Lewis could no longer pretend that language conventions are generated in a atomized world of individuals imitating material behaviors. Lewis’ addition also comforted Favereau’s own early distinction between two levels of conventions (Favereau 1986). Low-level conventions can rely on imitation of observable behaviors on meeting points, whereas more highlevel constitutive conventions have necessary recourse to common beliefs or evaluations, such as conventions of worth.10 In spite of Lewis’ failure to make his theory compatible with his claimed strong individualism,11 the attention he pays to the low level of conventional meeting points is relevant for a conception of the genesis of convention based on a material environment, its morphological affordances (Gibson 1979), and the form-giving processes that accentuate them.12 Points of references and salience prefigure the pre-eminence of “benchmarks”—originally a mark on a wall or pillar used as a reference point—in present-day economies. Following Thomas Schelling who underlined that most situations “provide some clue for coordinating behavior, some focal point for each person’s expectation of what the others expect him to expect to be expected to do” (Schelling 1980: 57), Lewis understands salience as a “basis of common knowledge that everyone will do his part of a coordination equilibrium” (Lewis 1969: 57). In his “genesis of technicity,” Gilbert Simondon, a philosopher less well known, although more original than Lewis in his conception of the relations between

10 “What we have is not a continuum, but a discontinuity between two logics: one founded on external imitation (A-conventions), the other on some common thought (B-conventions). In the latter case, agents have to forge some idea of the common world to which they belong and/or which they have to constitute, in order to coordinate” (Favereau 2008: 124–5). 11 While we referred to methodological individualism in our 1989 manifesto in Revue économique (Dupuy et al. 1989), several authors rightly criticized the ambiguity of this programmatic statement (Diaz-Bone 2012; Latsis 2006). As John Latsis (2006) clearly demonstrated, the room we gave to intersubjectivity was distancing ourselves from the strong version of methodological individualism. 12 For an original elaboration of “hold” [prise] somewhat linked to affordance, see Bessy and Chateauraynaud 2014 [1995].

203

Laurent Thévenot

human beings and their environment, names these singular points “keypoints which govern the relation between human being and the world,” the “magical universe” being the “primitive mode of structuring” that distinguishes “figure from ground by marking key-points in the universe” in “the most primitive and most significant [prégnante] of organizations: that of the reticulation of the world into privileged places and privileged moments” (Simondon 1989 [1958]: 165, 168 (my translation)).

Symbolic Forms as Idealist and Delirious Collective Representations: Emile Durkheim By contrast with former authors, several classical sociologists insisted on the proper character of formalities. Georg Simmel underlined that the conventional uniform does not reflect on the person (Simmel 1987 [1977]: 418), Niklas Luhmann developed a key notion of code and Max Weber, as a former law scholar, could not underestimate the role of legal forms.13 I would rather turn to the classic who elaborated the most radical characterization of confidence in symbolic forms, in support of institutions. At the opposite to previously mentioned philosophers, Emile Durkheim focuses on abstraction and idealization processes.14 In Les formes élémentaires de la vie religieuse (Durkheim 1960 [1912]), Durkheim offers a view of symbolic forms and codes as markedly distinct from individual perceptual access to reality. He gives the formality of convention a place and origin which helps to understand the way human beings stick to a convention’s face value or “letter”—in the sense of “the letter of the law”— when they are relying confidently on conventional markers, with eyes shut to any other reality, as in the use of benchmarks (Bruno and Didier 2013). Durkheim puts forward the “idealism” of “social thought” and the need to fix ideas on “material things as symbols” [choses matérielles qui les symbolisent]. Because the symbolic form breaks so sharply with individual perceptual experience, he writes about the “pseudo-delirium” [pseudo-délire] which is the basis of so many collective representations (Durkheim 1960 [1912]: 327). Durkheim’s analysis of symbolic forms is relevant for us, because of the 13 Weber’s influence in E.S. is considerable. In addition to Swedberg’s work, Carruthers’ chapter of this volume (Chapter 5) refers to Weber’s conception of legal forms as both constraining and enabling, and demonstrates the impact on financial products of formalities issued from legal templates and standards. 14 Referring to these idealized aspects of Durkheim’s collective representations, Beckert’s chapter of this volume (Chapter 2) suggests that the formalization of economics models allows coordination through expectations that actors share towards future states of the world, without consideration of their relevance as models of reality. Theoretical forms can thus contribute to the coordination of economic decisions by “providing an understanding of how other actors will decide.” Beckert underlines the difference between this statement and the current “claim that economic theories are performing the economy.”

204

Certifying the World

expanding “delirious” belief in the most formalized face of conventions, and their reduction to conventional benchmarks. By contrast with the smooth interactional dynamics of contract-like conventions, we have to take into account the position of blind trust in codes, categories, and formalities, that is particularly visible in ritual or ceremonial moments of judgment in the sense of adjudication (Thévenot 1990, 2006a: chapter 3).15 In such moments, people actually close their eyes to the circumstantial movements needed for coordination. This first position towards conventions—the side of blind faith—of actors who move back to markers, as if they were following the letter of the law, has a central role in contemporary attempts to certify the world.

The Letter of the Convention Put to the Reality Test in Situation: the Pragmatic Turn While inheriting Durkheim’s conception of symbolic forms as radically abstracted from perceptual and personal experience—the first face of the convention—C.S., and particularly E.W., went in a completely different direction when dealing with the dynamics of uncertain coordination. Put to the “reality test” (Boltanski and Thévenot 2006), coordination is opened up to doubt. Various theories of practice (Knorr Cetina et al. 2001), among them Bourdieu’s (1976 [1972]), expose what this first conventional face keeps hidden. Yet they unequally take uncertainty into account. The turn to practice does not necessarily lead to this account, when practice is itself viewed as social in the sense of collectively aligned. Latour’s “trial of strength” designates the moment of facing reality, which resists (Latour 1987). Trying to grasp critical situations, Boltanski and Thévenot were also influenced by the dynamics of breaches and impropriety that come from ethnomethodology and interactionism (Garfinkel 1967; Goffman 1974). The pictures of actors facing problems of adaptation to a milieu under conditions of uncertainty can be traced back to American pragmatism, which influenced previously mentioned sociological trends. This is the reason for coining the term “pragmatic turn,” and naming C.S. “a new pragmatist institutionalism” (Diaz-Bone 2011a), although the focus on interpretation also followed continental hermeneutical traditions (Dosse 1998).16

15 Since medieval times, legal vocabulary names judgment “arrêt” (stop), precisely because authorities’ decisions will stop inquiry, doubt, and dispute. 16 Biggart and Beamish wrote that “perhaps ironically, convention theory traces its roots to American pragmatism, as well as to Durkheimian sociology” (2003: 449). On the French “sociologie pragmatique,” see Thévenot and Stavo-Debauge 2015; Thévenot 2011.

205

Laurent Thévenot

Valuable Regimes of Engagement Valued in Organizations, Markets, and Standards From the specific features of C.S., we shall now concentrate on the relation between (e)valuation and coordination, and resulting analyses on the formation and transformation of valuations in organizations, markets, and standards. Extending the analytical grid by including this plurality of regimes of engagement takes into account a wider range of valuations. After research on orders of worth and the wider comparative perspective adopted in a collective program with Michèle Lamont (Lamont and Thévenot 2000), this extension offers a new contribution to the expanding domain of the sociology of evaluation, worth, and pricing (Beckert and Aspers 2011; Lamont 2012; Vatin 2009).17

Valuation Through Organizations and Markets: Quality Conventions Reducing Orders of Worth Valuation was initially introduced in C.S. from the link that E.W. established between most legitimate conventions of coordination and orders of worth. It led to new approaches to organizations and markets, and of their growing interrelations. Previous research by Eymard-Duvernay on “models of firm” in diverse industrial sectors (Eymard-Duvernay 1987) was refined by differentiating, inside the same organization, a multiplicity of modes of coordination supporting different “quality conventions” in the valuation of persons, things, and their relations (Eymard-Duvernay 2002; Storper and Salais 1997; Thévenot 2002). Since the very beginning, empirical research dealt with a variety of products, from credit (Wissler 1989a, 1989b) to camembert cheese (Boisard and Letablier 1989; Thévenot 1989). An interesting although unpublished case was, by coincidence, investigated independently by two researchers, with one using A.N.T. and the other C.S. (Thévenot 2006c). The first approach appeared to be quite appropriate to display the network of ties between actants involved in the extraordinarily successful innovation of a new creamy, low-fat cheese (“Pavé d’Affinois”). The C.S. approach offered an analysis of the particularly wide gamut of orders of worth involved in the dynamics of the firm.18 17 Although singularity seems to resist investments in conventional forms that support modes of coordination, Lucien Karpik has built on the C.S. notions of evaluation and judgment device or regime of coordination to demonstrate how singularities are integrated in markets, proposing a specific typology of coordination regimes based on the judgment devices used to value “singular” goods such as fine wines, movies, luxury goods, pop music, and legal services (Karpik 2010). 18 With an inventive idea that disrupts common sense (world of inspiration) and a positioning on a market of “rich” pricey cheeses as “Caprice des Dieux,” the innovator offers a low price and

206

Certifying the World

Resorting to actor network and translation approaches is useful in representing the multiple relations that contribute to the establishment of quality. And yet, A.N.T. cannot take the full measure of the tensions between valuable engagements, which have to be overcome for “translation” or “network” connection.19 In E.W., “compromises” make this plurality possible, or “relativization” (Boltanski and Thévenot 2006 [1991], V,9), which avoids critical tensions. This notion of compromise departs from bargaining or quid pro quo arrangements between individuals pushing forward their respective interests. It prevents critical tensions between objects stemming from different worlds, by aiming at a common good that transcends the two different forms of worth in presence and includes both of them. This notion has been used to compare organizations, and even to adopt a cross-national perspective avoiding reference to overall cultural characters. Measuring empirically the “degree of compromise” between industrial, market and domestic forms of worth in German and Russian comparable firms, Katharina Pernkopf-Konhaeusner and Julia Brandl found a higher degree of relatedness in the German firm (Pernkopf-Konhaeusner and Brandl 2010). Initially introduced by Eymard-Duvernay (1986), “quality conventions” have built a bridge between the formatting of work and product involved in the productive processes of organizations and the formatting required for market coordination. They pioneered a domain now well established, the “social construction of markets.” As quality conventions transfer forms of worth that are foreign to market value—and possibly in critical tension with it as domestic, civic, or green worth—the reduction of these forms of worth into qualities attributed to merchandise is an important feature of the development of capitalism beyond its former boundaries.20 It could not have reached the present stage without the huge infrastructure designed with the purpose of this transmutation of worth into market value: standard certification.

low-fat product which is seemingly “rich” because of a new particularly efficient technology, ultrafiltration. This technology removes the dripping phase, and makes the texture of the product particularly smooth (world of industrial efficiency). Moreover, the entrepreneur builds on local Charentes traditions for making and maturing cheese, and initially chooses small retailers who specialize in cheese and dairy products and have regular clients, benefiting from traditional know-how and taste (world of traditional domestic trust). Finally, he spreads its image through active public relations and creates events, in strong public relations (world of public renown). 19 John Law insists on the differentiation of “modes of ordering” in actor-networks (Law 1994). Harrison White’s most systematic research (White 1992) addresses the internal differentiation of networks. 20 On such a reduction that is inherent to the family of capital notions and to their extension, see Thévenot 2015a.

207

Laurent Thévenot

Valuation Through the Certification of Use-Values: Standards Reducing Regimes of Engagement Quality conventions show how merchandise comes to include, in reified properties, non-market orders of worth. The dominant position of market coordination is reinforced by absorbing other kinds of worth into the value of a commodity which appears, as Marx demonstrated, “so soon as it comes into communication with another commodity” (Marx 1887 [1867]: part 1, chapter 1, section 3 The Form of Value or Exchange-value a.1.2.a The nature and import of this form [of value]). When he unveils the fetishism of commodities, Marx opposes exchange-value and use-value, which he characterizes by its “palpable bodily form.” With this physical understanding of the thing in use contrasting with the equivalence involved in exchange-value, Marx misses the plurality of valuable relationships between human beings and their environment that lack the general equivalence of market value or of other orders of worth, and stay indistinctly mixed up in notion of informality.21 Marx’s enquiry has to be prolonged because of the current extension of capitalism that issues not only from market proliferation. This expansion results more indirectly from the intermediate operation of certification by standards, which encroaches the variety of valuable modes of close coordination and personalized relationships with the environment. Standardization orientation shifts from the value of efficient compatibility (industrial worth), to social, ethical, or political valuations. If we stick to the Marxian research program, the question would be the following: What transformation of usevalue—or rather of a plurality of valuable engagements with things—into some kind of equivalency form of value—a certified good, not directly a market good—results from this new kind of standardization process? The first investigation on the whole chain of standard setting and enforcement (Kessous 1997; Thévenot 1997) selected safety standards that are designed for highly customized, personalized, familiar, and even intimate things used by children and babies (baby stroller, playground, toys, etc.). We followed them from general committee discussions to technical committees, to devising of testing equipment, and implementation in practice. In standard-setting general committees, participants were involved in a public justification regime of engagement with the thing and referred to conflicting orders of worth, opposing civic worth, and domestic worth orientations on the education of children when discussing playground safety standards.

21 In his groundbreaking Ph.D. L’usage et l’habiter. Contribution à une sociologie de la proximité [Using and dwelling. Contribution to a sociology of closeness], Marc Breviglieri identified four “topics of use,” utilization, consumption, custom, and handling [utilisation, consommation, coutumes et maniement], which remained confused in Marx’s use-value (Breviglieri 1999: part I, chapter 4).

208

Certifying the World

However, such a contradictory debate about the common good, which commonly takes place in a political arena, is not encouraged by the organization of committees and their outcome, the objective measurement of some property of the standardized object. Standardization cannot reduce engagement for the common good to a physico-chemical property without involving, through a notion of “normal actions,” the other regime of engagement in an individual plan—or project. It is valuable in that it supports projection of the self in the future, making it foreseeable. The corresponding format of action and of agency—and the related functional formatting of the environment—can be made more formal in contractual agreements which presuppose such an underlying engagement. Standardizers thus refer to the “reasonably foreseeable” use of the item. This second regime of engagement is still insufficient to devise the standard because users have highly personal ways of handling things when becoming familiar with them. For instance, they may use a baby stroller as a shopping trolley, putting heavy loads its basket with the potential risk of knocking over the chair and the baby. This regime of engagement in familiarity is valuable because it supports the good of ease and a kind of agency—partly passive— which strongly differs from the agent projecting herself in the future supported by engaging in a plan. By contrast with functionalities that can be simulated in testing equipment, the familiar environment is formatted through personal and local grips depending on a specific habituation path. This regime is particularly reluctant to commonality and is more demanding than previous regimes in terms of coordination with others. As do many economists, sociologists usually overlook this engagement when they focus on strategic action that presumes engaging in a plan.22 In C.S., the “relational approach” is the one that reaches better than others this intricate mutuality. Conceiving standardization devices becomes particularly tricky when one has to take into account this mode of engaging in familiarity with the object. And yet, the safety value makes this account necessary as many accidents result from such familiar uses that depart from “normal” utilization. As the only output of the testing process should be a measurable benchmark, standardizers and testing laboratories have to devise weird chimeric machines and procedures with one foot in this imagined variety of familiar uses and the other in production of a quantitative measurement of physicochemical properties of the tested object, deprived of human engagement. The reduction is still more drastic with regards to a fourth mode of engagement that is relevant for babies as it is in our “informational 22 By contrast, research paying attention to “informal economy” and informal economies (Barsukova and Radaev 2012) has to cope with relations to the world and to others that require engagement in familiarity.

209

Laurent Thévenot

capitalism,” although for different reasons. Engaging in exploration maintains a kind of good which is excitement by surprise, human agency consists of discovering something new in the environment, and the environment—as the body itself—has to be prepared to relaunch surprise (Auray 2010; Auray and Vetel 2014). Information and communications technology contributes to such a preparation of our contemporary environment. Babies, and hopefully researchers of all ages, are particularly inclined to engage in this regime of exploration. Coming back to our initial reference to the Marx’s analysis of the formation of value as equivalence obtained by “communication,” which he contrasts with the palpable use-value, we now better understand the process of formation of value through standards and how this differs from market exchange. In place of the unique and naturalized notion of use-value, we differentiated a plurality of modes of “using” the world. What is valuable in each of them is not a thing in itself, nor a subjective belief, but an engagement with the world which implies dependency on its preparation. In the formation of the value of certification, what does the standardization process make of these valuable relations? First, it reduces their plurality of engagements to the plan, because the functional format of the world is the most easy to formalize in laboratory techniques, as it is to formalize in contractual techniques. Second, it reduces the very dynamics of engagement to what I called “the letter of the convention.” Impetus, doubt, adjustment, are left aside when reducing the engagement to its output: an objective. Moreover, the objective is transformed into an objective benchmark, which is viewed as a substantial property of the standardized item. The notion that standards make things uniform is misleading when certification is at stake (Busch 2011). Things—or services—get their value from communicating through the standards while they can remain quite different.

Profit and Power from the Transmutation of Valuations What consequences can be drawn from our analysis of conventionalized economies, in terms of profit and power? This last section offer some limited insights into this broad issue. Swedberg rightly criticized C.S. for not being talkative about the issue of profit (2006: 89). My answer is grounded on the plurality of valuation that rests on different coordination modes, their transformation originating profits and power.23 23 When conventions of coordination are viewed as prolonged by a relevant material world that qualifies for them (E.W.), or engagements as extending down to intimacy, power is distributed in these coordination modes and engagements with material dispositifs. This view is quite compatible

210

Certifying the World

Profit and Exploitation Out of Differentials of Valuation Forms Without drawing direct conclusions in terms of profit, C.S. research frequently underlines the comparative advantages—in terms of innovation in particular—of deeply composite firms that rely on a wide variety of conventions of coordination (Thévenot 1992). In uncertain contexts, this variety offers opportunities to benefit a wide discrepancy of events that composite organizations can absorb while creating value along various quality conventions. David Stark systematically developed this idea, bringing to the fore the “multiplicity of ordering principles” and of “portfolio management, in which actors responding to uncertainty by diversifying their assets, redefining and recombining resources that can be justified or assessed by more than one standard of measure” (Stark 1996) or “heterarchies” (Stark 2009). Although many organizational studies refer to E.W. compromises to look at a peaceful coexistence of different logics in corporations, here I would indicate research orientations that investigate the relations between compromises and profit, power or domination. In this direction, Benjamin Taupin departed from other organizational studies of the previous vein (namely Gomez and Jones 2000; Huault and Rainelli 2009; Patriotta Gond and Schultz 2011) in his research on credit rating agencies (Taupin 2012). He dealt with the paradox of the perpetuation of the system in spite of the huge crisis and amount of criticism. He showed that it was precisely the dispute involving opposing logics in a “circular figure” that triggers a self-perpetuating process, without any change being made to the compromise which still dominates (Taupin 2012: 546). Ann Westenholz documented another configuration that departs from peaceful integration and stabilization. Studying the composite arrangements of “commercial open source software communities” which bring together the civic, market, and industrial worlds, she found two contrasting answers to the tensions raised by this plurality (Westenholz 2012). She names the first “ordering coordination” between worlds on the basis of specific compromises (market-civic or market-industrial), and she uses “disordering coordination” to describe a situation devoid of such compromises between orders of worth, in which agreement is maintained only at the level of engaging in a plan, without search for coherence at the higher level of engaging in justification.24 Here, again, a plurality of valuations is reduced to the objective of the plan, which is involved in governing through objective objectives (Thévenot 2009, 2012).

with Foucault contemplating micro-power (Foucault 1980) in relations and techniques that are “colonized, used, inflected, transformed, displaced, extended, and so on by increasingly general mechanisms and forms of overall domination,” and understanding “how more general powers or economic benefits can slip into the play of these technologies of power” (Foucault 2003: 30–1). 24

On the limits of the notion of compromise, see also Knoll 2015.

211

Laurent Thévenot

The variety of configurations of compromises must be investigated to shed light on asymmetries that result in domination of one component over the other, with resulting profits and exploitation. Profit ensues from chains of transformation of valuation, depending on the integration of segments and the distance between the ultimate points of the chain of valuation transformation. In their paper entitled “Where do markets come from? From quality conventions!,” Olivier Favereau, Olivier Biencourt et François EymardDuvernay (Favereau et al. 2002) confront and connect the C.S. approach with White’s analysis of markets (2002). They bring together the “domestic quality convention” with White’s third type of “viable market,” which he names “paradox.” They assume that the paradox of a higher level of quality matching a lower level of cost should result from “the hidden presence of an important factor of production not totally compensated.” They name it “motivation,” adding that “except in pathological cases, that should not be too quickly dismissed as ‘exploitation’.” The reason is that “the gap between wages and productivity may be filled by a non pecuniary source of utility, which, by chance, is also an input in the process of production.” Then labor is “underpaid (in terms of money) but it is not undercompensated (in terms of utility)” (Favereau et al. 2002). This view should be discussed as the process generates profit on the underpaid labor. Paying one’s labor with one’s pleasure—a classical excuse for low-paid intellectual professionals—is a disputable issue. Apart from this rather traditional model of production, profit can be extracted from a chain of transformation of value on the basis of workers engaging in the regime of exploration in a whole new range of activities. Although many activities require it because of an ever-changing work environment and the pressure of urgency, it is poorly remunerated with some exceptions as finance. As mentioned before, ICT elicits this mode of engaging in exploration from users. Workers contributing to the value chain can be fully integrated into the firm. In a more ambiguous situation, such as the commercial open source software communities studied by Westenholz, workers have to face hard dilemmas about open source and closed source cooperation in software development (Westenholz 2012). An even more distant position in outsourcing is created by “crowdsourcing,” which solicits contributions from online participants for free, with only the possible reward of a prize. Interviews show that, in such cases, the boundary between professional and nonprofessional activity is blurred by engaging in a “fun” or “entertaining” or “amusing” and “playful” (“s’amuser”) action (Arfaoui 2013).25 Participants may be reflexive and aware of their exploitation, as one says: “to put 25 “I want to do it because it excites me (I love it, ‘ça me fait kiffer’ in slang), but it’s yet hard to do it during the week-end” (Arfaoui 2013: 7).

212

Certifying the World

consumers to work (‘faire bosser le consommateur’) [ . . . ] it’s voluntary servitude” (Arfaoui 2013: 13). Outside this crowdsourcing system, which commercially exploits “un(der) paid innovators” (Kleemann Voß and Rieder 2008), consumers are currently involved in the exploration of the potentialities of a new product such as software when released in a Beta version. My contention is that we need to look for profit generation in such confrontations of contrasted valuations. It is not only through price differentials that profit might emerge but through valuation regime differentials, under the condition of their transformation into market values. This transvaluation can raise tensions—because of differentials—in legal, ethical, or political terms. Continuing his investigation on organ transplantation (Steiner 2010), Philippe Steiner’s chapter of this volume (Chapter 11) demonstrates that the chain of “organizational gift” for transplant surgery cannot be legally formatted as market exchange, but neither as a person-to-person Maussian gift: organization as a third party is needed for the transvaluation of the donor’s body organ into donee’s money. Chan’s ethnography of the introduction of life insurance in China in the 1990s (Chan 2009) shows agents selling policies to their close relatives until the 40 percent commission was publicized by the company to recruit more sellers. We could frame this issue as a differential of valuations regimes which can produce profit if the chain of transvaluation is maintained.26 An important aspect of this transvaluation results from the fact that different valuation conventions or regimes involve distinct orientations of time. E.W. already differentiated clearly from market worth, which is presentist, the industrial convention of worth, which is future-oriented and materially grounded on technical investments. It clarifies the inner tension which stays within real economies and within theoretical economics. In recent decades, economies evolved in such a way that the main place for profit was displaced from industry to finance, with a change in the balance between the two orders of worth, and between their respective time orientations. The Fordian industrial-market compromise of stabilized mass production, in favor of the industrial worth and its future orientation, was unbalanced and eventually completely dominated by market worth.27 A similar evolution was followed 26 Transvaluation does not presuppose monetary equivalence, or even commensuration. On commensuration and power, see Espeland and Mitchell 1998. On the basis of her empirical research on environmental conflicts (Centemeri 2011), Laura Centemeri developed a whole innovative approach of in commensurability, see Centemeri 2012a, 2012b, 2014. 27 Three chapters of this book helpfully document the cognitive and practical instruments, which relating to economics, support relations to the future and expectations. While Beckert considers the “coordinating force” of “imaginaries of the future” brought by economic modeling (Chapter 2) in continuation of his examination of the “imaginative value in the economy” (Beckert 2011), Knorr Cetina puts the engagement in promises at the core of her analysis of financial actors (Chapter 4), and Nigel Dodd sees utopian images of the future as an important aspect in the development of contemporary monetary forms such as the euro and Bitcoin (Chapter 3).

213

Laurent Thévenot

by economics, which, as Swedberg shows in his chapter of this volume (Chapter 1), have had decisive consequences in the history of European construction.28 While the initial Saint-Simon model was deeply in favor of industrial worth, later E.U. development has been much more exclusively oriented towards the market worth. Differentials between what is made commensurate with monetary equivalence and what is left aside, in particular between the valuation based on engaging in a plan and regimes of exploration or familiar attachment29 can contribute to the analysis of exploitation and profit. In the transmutation and transvaluation processes that generate profit, standard-value plays an important role which we shall now consider.

Governing Through Certifying-Standard-Value: Which Political Economy? A step further in the reduction of valuation modes to qualities of market goods results from the inclusion of a wide range of political and moral values. Instead of publicly and collectively engaging, as citizens, in support of a cause that qualifies for the common good, individuals are transformed into responsible consumers choosing products that are marketed as contributing to this cause. In such a dominant position, market worth not only competes with, or encroaches other forms of worth in a political debate, but de facto embraces them all as mere properties of market goods. In their book Brand Aid. Shopping Well to Save the World, Ann Richey and Stefano Ponte (2011) nicely document the profit resulting from “red products” labeling. This is an extreme and particularly profitable case of the reduction of a moral good (fight AIDS) to a quality of market goods, without any consequences on the value chain, except the small contribution given by the firm to the cause. In other cases, certification is supposed to have an impact on the deeds of all the actors involved. This is why we can name it governing through certificated standard-value. Instead of separate market and productive organizations, chains of transformation of values offer a better representation as they join markets and organizations. The notion of “global value chain” was initially developed to grasp relations between producers, subcontractors, retailers, etc., figuring out the dominant positions in the chain. Stefano Ponte and Peter Gibbon (Ponte and Gibbon 2005) relied on political economy and on C.S. to complement this approach by a more fine-grained analysis of the different conventions of coordination that shape the different segments of this chain. This contributes to characterization of a mode of “governing through standards” (Thévenot 1997, 2009; Ponte et al. 2011), which is part of what today’s 28 29

214

On this topic, see also Robert Salais’ critical essay on the rape of Europe (Salais 2013). Regarding ecological concerns, see on this point, Centemeri 2012a.

Certifying the World

economies are based on. In a quite different area, another line of research investigates how relations to inhabited environments and to nature (Breviglieri 2012; Centemeri 2014) are transformed by the objectives of present-day urban planning and certification of habitat and cities, showing how governing through certification covers a broadening variety of domains of life (Breviglieri 2013). Governing through standards first complemented market competition coordination and later became a coordination infrastructure in itself. The resulting displacement of power loci from economics to politics required remedy of the lack of political legitimacy that debased former standard setting procedures. In ongoing research with Emmanuelle Cheyns, which benefits other scholars using C.S. on the same object (Cheyns 2011; Silva-Castañeda 2012; Thévenot 2015b), we are studying the case of a global government through certification standards. At a world level, outside the authority of nation-states, it is intended to coordinate all actors of a value chain in an agro-environmental business such as coffee, soy, or palm oil. This governing structure does not produce law but soft law regulations, a private voluntary sustainable palm oil certification. Political legitimacy is pursued through multi-stakeholder roundtables, which are assumed, in conformity with the liberal political grammar, to give an equal voice to all “stakeholders,” from Unilever to the Indonesian small farmer. Thus, these “global multi-stakeholder roundtables” combine the liberal grammar and the mode of governing through standards. The usual political/economical distinction relates to two different types of places and modes of formation of value. Political structures of democracy, either representative or participative, are assumed to confer to decisions a political value that contributes to the common good, on the basis of a plurality of valuations that citizens express in a public space of deliberation. By contrast, markets are the place of formation of market value, as measured by a price, from individual choices of purchase expressed by consumers (without public space and neither deliberation). Governing through certification standards affects each of the two places and modes of formation of value. It connects them together in a new kind of compound, a new object of political economy. This link not only consists of markets penetrating politics through lobbying, but also rests on a notion that is more political than competition and stays in the core or sovereignty, security, to which nation-states legal and police infrastructures are traditionally dedicated. Promoters of this new mode of governing with soft laws argue that it is more reactive and closer to practice than law. Although the analysis of this mode of governing may include more and more references to rights and international regulations, under the pressure of social NGO that are among stakeholders, observations of roundtables demonstrate the reduction of the range of 215

Laurent Thévenot

valuations which can be taken into account, and which import to “smallholders” in particular. Because of the pre-eminence of engagement in a plan and the additional reduction to an objective definition of the objective of the plan, justifiable engagements for less unequal profit sharing, or valuable familiar engagements with land and habits of growing or dwelling, are excluded from debates and elaboration of the standard (Cheyns 2011). In his chapter of this volume (Chapter 5), Carruthers also underlines the reduction that governing with standards operates of political considerations: “The narrow private interests that dominated ISDA ignored the broader social interest that a market society has in a stable and functioning financial system. Collective interests that could have been recognized through public laws and regulations were excluded for decades.” In the conventionalization and formalization of economies which go together with state deregulation, the last step of the movement demonstrates an overweening ambition. Nurtured by growing anxieties towards uncertainties and catastrophes, the contemporary project of certifying the world offers the promise of security in a growing range of our relations to the world and to others. It might add a new risk: that this certified world be certified insane or, in this last sense of the term, certifiable.

References Appadurai, Arjun (ed.) (1986) The social life of things Commodities in cultural perspective. Cambridge: Cambridge University Press. Arfaoui, Mehdi (2013) L’engagement participatif en régime numérique. Le cas d’une plateforme de crowdsourcing. Mémoire pour le master de sociologie. Paris: Ecole des Hautes Etudes en Sciences Sociales. Auray, Nicolas (2010) Les technologies de l’information et le régime exploratoire. In: D Pek Van Andel (ed.) La sérendipité dans les arts, les sciences et la décision. Boursier. Paris: Hermann, 329–43. Auray, Nicolas and Bruno Vétel (2014) L’exploration comme modalité d’ouverture attentionnelle: le cas d’un jeu freemium. Réseaux 182, 153–86. Barsukova, Svetlana and Radaev, Vadim (2012) Informal economy in Russia: A brief overview. Economic Sociology 13(2), 4–12. Becker, Howard (1982) Art Worlds. University of California Press: Berkeley. Beckert, Jens (2011) The Transcending Power of Goods: Imaginative Value in the Economy. In: Jens Beckert and Patrik Aspers (eds), The Worth of Goods: Valuation and Pricing in the Economy. New York: Oxford University Press, 106–28. Beckert, Jens and Patrik Aspers (eds) (2011) The Worth of Goods: Valuation and Pricing in the Economy. New York: Oxford University Press. Bessy, Christian and Francis Chateauraynaud (2014) Experts et faussaires. Pour une sociologie de la perception. 2nd edn, with a new afterword (first edition 1995). Paris: Editions Petra.

216

Certifying the World Biggart Nicole Woolsey and Thomas D. Beamish (2003) The Economic Sociology of Conventions: Habit, Custom, Practice, and Routine in Market Order. Annual Review of Sociology 29, 443–64. Boisard, Pierre and Marie-Thérèse Letablier (1989) Un compromis d’innovation entre tradition et standardisation dans l’industrie laitière. In: Luc Boltanski and Laurent Thévenot (eds), Justesse et justice dans le travail. Paris: Presses Universitaires de France et Centre d’Etudes de l’Emploi, 209–18. Boltanski, Luc and Laurent Thévenot (1987) Les économies de la grandeur. Paris: Presses Universitaires de France et Centre d’Etudes de l’Emploi. Boltanski, Luc and Laurent Thévenot (2006 [1991]) On justification. Economies of worth. Catherine Porter trans., 1st French edn 1991. Princeton: Princeton University Press. Bourdieu, Pierre (1976 [1972]) Outline of a Theory of Practice. Richard Nice trans. Cambridge: Cambridge University Press. Brandl, Julia, Thibault Daudigeos, Tim Edwards, and Katharina Pernkopf-Konhäusner (2014) Why French Pragmatism Matters to Organizational Institutionalism. Journal of Management Inquiry 23(3), 314–18. Breviglieri, Marc (1999) L’usage et l’habiter. Contribution à une sociologie de la proximité. Thèse de Sociologie. Paris: EHESS, 460pp. Breviglieri, Marc (2012) L’espace habité que réclame l’assurance intime de pouvoir: Un essai d’approfondissement sociologique de l’anthropologie capacitaire de Paul Ricur. Études Ricoeuriennes /Ricoeur Studies 3(1), 34–52. Breviglieri, Marc (2013) Une brèche critique dans la ‘ville garantie’? Espaces intercalaires et architectures d’usage. In: Elena Cogato Lanza, Luca Pattaroni Luca, Mischa Piraud, and Barbara Tirone (eds), De la différence urbaine. Le quartier des Grottes. Genève: MétisPresses, 213–36. Breviglieri, Marc and Joan Stavo-Debauge (2006) Sous les conventions. Accompagnement social à l’insertion: entre sollicitude et sollicitation. In: François EymardDuvernay (ed.), L’économie des conventions. Méthodes et résultats, tome II, Développements. Paris, La Découverte, 129–44. Bruno, Isabelle and Emmanuel Didier (2013) Benchmarking. L’Etat sous pression statistique. Paris: La Découverte. Busch, Lawrence (2011) Standards. Recipes for reality. Cambridge: MIT Press. Callon, Michel (1986) Some elements of a sociology of translation: domestication of the scallops and fishermen of St. Brieuc Bay. In: John Law (ed.), Power, Action and Belief: A New Sociology of Knowledge. Keele: Keele Sociological Review Monograph, 196–229. Callon, Michel (ed.) (1998) The laws of the market. Oxford: Blackwell. Centemeri, Laura (2011) Retour à Seveso. La complexité morale et politique du dommage à l’environnement. Annales, Histoire, Sciences Sociales 66 (1), 213–40. Centemeri, Laura (2012a) The Contribution of the Sociology of Quantification to a Discussion of Objectivity in Economics. In: J.M Castro Caldas and V. Neves (eds), Facts and Values in Economics. Routledge: London, 110–25. Centemeri, Laura (2012b) What kind of a knowledge is needed about toxicant-related health issues? Some lessons drawn from the Seveso dioxin case. In: S. Boudia and N. Jas (eds), Powerless Science? The Making of the Toxic World in the Twentieth Century. Oxford and New York: Berghahn Books.

217

Laurent Thévenot Centemeri, Laura (2014) Reframing problems of incommensurability in environmental conflicts through pragmatic sociology. From value pluralism to the plurality of modes of engagement with the environment. Environmental values 24(3), 299–320. Chan, Cheris Shun-ching (2009) Invigorating the Content in Social Embeddedness: An Ethnography of Life Insurance Transactions in China? American Journal of Sociology 115, 712–54. Cheyns, Emmanuelle (2011) Technical rationality and (de)politicisation of standards. Multi-stakeholder initiatives in sustainable agriculture. In: Stefano Ponte, Stefano, Peter Gibbon, and Jakob Vestergaard (eds), Governing through Standards. Origins, Drivers and Limitations. London: Palgrave, 201–35. Diaz-Bone, Rainer (2011a) The Methodological Standpoint of the économie des conventions. Historical Social Research 36(4), 43–63. Diaz-Bone Rainer (ed.) (2011b) Soziologie der Konventionen. Grundlagen einer pragmatischen Anthropologie. Frankfurt: Campus Verlag. Diaz-Bone, Rainer (2012) Elaborating the Conceptual Difference between Conventions and Institutions. Historical Social Research 37(4), 64–75. Diaz-Bone Rainer and Laurent Thévenot (2010) Die Soziologie der Konventionen. Die Theorie der Konventionen als ein zentraler Bestandteil der neuen französischen Sozialwissenschaften. Trivium 5. December 5, 2010. http://trivium.revues.org/ index3557.html. Dosse, François (1998) Empire of meaning : the humanization of the social sciences. Minneapolis: University of Minnesota Press. Dupuy, Jean-Pierre et al. (1989) Introduction. Revue économique (special issue on “L’économie des conventions”), 40(2). Durkheim, Emile (1960 [1912]) Les formes élémentaires de la vie religieuse. Paris, Presses Universitaires de France. Eliasoph, Nina (2011) Making Volunteers: Civic Life After Welfare's End. Princeton: Princeton University Press. Espeland, Wendy N. and Mitchell L. Stevens (1998) Commensuration as a Social Process. Annual Review of Sociology 24, 313–43. Eymard-Duvernay, François (1986) La qualification des produits. In: Robert Salais and Laurent Thévenot (eds), Le travail. Marché, règles, conventions. Paris: INSEEEconomica, 239–47. Eymard-Duvernay, François (1987) Introduction: les entreprises et leurs modèles. In: François Eymard-Duvernay (ed.), Entreprise et produit. Paris: Presses Universitaires de France et Centre d’Etudes de l’Emploi, V–XXII. Eymard-Duvernay, François (2002) Conventionalist approaches to enterprise. In: Olivier Favereau and E. Lazega (eds), Conventions and structures in economic organization : markets, networks and hierarchies. Cheltenham: Edward Elgar, 60–78. Eymard-Duvernay, François, Olivier Favereau, André Orléan, Robert Salais, and Laurent Thévenot (2006) Valeurs, coordination et rationalité: trois thèmes mis en relation par l’économie des conventions. In: François Eymard-Duvernay (ed.), L’économie des conventions. Méthodes et résultats tome I Débats. Paris: La Découverte, 23–44.

218

Certifying the World Favereau, Olivier (1986) La formalisation du rôle des conventions dans l’allocation des ressources. In: Robert Salais and Laurent Thévenot (eds), Le travail: marché, règles, conventions Paris: INSEE-Economica, 249–67. Favereau, Olivier (2008) The Unconventional, but Conventionalist, Legacy of Lewis’s ‘Convention’. Topoi 27, 115–26. Favereau, Olivier, Olivier Biencourt, and François Eymard-Duvernay (2002) Where do markets come from? From (quality) conventions!. In: Olivier Favereau and E. Lazega (eds), Conventions and structures in economic organization: markets, networks and hierarchies. Cheltenham: Edward Elgar, 213–52. Foucault, Michel (1966) The order of things: an archaeology of the human sciences. New York: Pantheon Books. Foucault, Michel (1980) Power/Knowledge. New York: Pantheon Books. Foucault, Michel (2003) Society must be defended. Lectures at the Collège de France 1975–1976. New York: Picador. Fligstein, Neil (1990) The Transformation of Corporate Control. Cambridge, MA: Harvard University Press. Friedland, Roger and Robert R. Alford (1991) Bringing society back in: Symbols, practices, and institutional contradictions. In: Walter W. Powel and Paul J. DiMaggio (eds), The new institutionalism in organizational analysis. Chicago: University of Chicago Press, 232–63. Friedland, Roger, John Mohr, Henk Roose, and Paolo Gardinali (2014) The Institutional Logics of Love: Measuring Intimate Life. Theory and Society, 43(3–4), 333–70. Garfinkel, Harold (1967) Studies in Ethnomethodology. Englewood-Cliffs, NJ: Prentice Hall. Gibson, James (1979) The Ecological Approach to Visual Perception. Boston: HoughtonMifflin. Goffman, Erving (1974) Frame analysis. An essay on the organization of experience. Boston: Northeastern University Press. Gomez, Pierre-Yves and Brittany C. Jones (2000) Conventions: an interpretation of deep structure in organizations. Organization Science 11(6), 696–708. Granovetter, Mark (1985) Economic Action and Social Structure: The Problem of Embeddedness. American Journal of Sociology 91, 481–510. Huault, I. and H. Rainelli (2009) Market shaping as an answer to ambiguities: the case of credit derivatives. Organization Studies 30(5), 549–75. Jung, Jiwook and Frank Dobbin (2012) Finance and Institutional Investors. In: Karin Knorr Cetina and A. Preda (eds), The Oxford Handbook of the Sociology of Finance. Oxford: Cambridge University Press, 52–74. Karpik, Lucien (2010) Valuing the Unique: The Economics of Singularities. Princeton: Princeton University Press (trans. by Nora Scott). Kessous, Emmanuel (1997) Le marché et la sécurité. La prévention des risques et la normalisation des qualités dans le marché unique européen. Thèse pour le doctorat de Sciences économiques, Economie des institutions. Paris: Ecole des Hautes Etudes en Sciences Sociales, 556 pp. Kleemann F., G. Voß and K. Rieder (2008) Un(der) paid innovators: The commercial utilization of consumer work through crowdsourcing. Technology & Innovation Studies 4(1), 5–26.

219

Laurent Thévenot Knoll, Lisa (2013) Justification, Conventions, and Institutions in Economic Fields. Economic Sociology 14(2), 39–45. Knoll, Lisa (2015) The Hidden Regulation of Carbon Markets. Historical Social Research 40(1), 132–49. Knorr Cetina, Karin (1997) Sociality with Objects. Social Relations in Postsocial Knowledge Societies. Theory, Culture & Society 14(4), 1–30. Knorr Cetina, Karin, T. Schatzki, and Eike v. Savigny (2001) The Practice Turn in Contemporary Theory. London: Routledge. Lamont, Michèle (2012) Toward a Comparative Sociology of Valuation and Evaluation. Annual Review of Sociology 38(21), 1–21. Lamont, Michèle and Laurent Thévenot (eds) (2000) Rethinking Comparative Cultural Sociology: Repertoires of Evaluation in France and the United States. Cambridge: Cambridge University Press. Latour, Bruno (1987) Science in Action: How to Follow Scientist and Engineers through Society. Cambridge: Harvard University Press. Latour, Bruno (2012) Enquête sur les modes d’existence. Une anthropologie des modernes. Paris: La Découverte. Latsis, John (2006) Convention and Intersubjectivity: New Developments in French Economics. Journal for the Theory of Social Behaviour 36(3), 255–77. Law, John (1994) Organizing Modernity. Oxford: Blackwell. Lewis, David (1969) Convention. A Philosophical Study. Cambridge: Harvard University Press. Livet, Pierre and Laurent Thévenot (1997) Modes d’action collective et construction éthique; les émotions dans l’évaluation. In: Jean-Pierre Dupuy and Pierre Livet (eds), Les limites de la rationalité, tome 1, Rationalité, éthique et cognition. Paris: La Découverte, 412–39. Marx, Karl (1887[1867]) Capital, a Critique of Political Economy, Vol. 1, Book One, The Process of Production of Capital (trans. by Samuel Moore and Edward Aveling, ed. by Frederick Engels). Moscow: Progress Publishers, 1954, http://www.marxists.org/arch ive/marx/works/1867-c1/. Meyer, John and Ronald Jepperson (2000) The ‘Actors’ of Modern Society: The Cultural Construction of Social Agency. Sociological Theory 18, 100–20. Patriotta, G., J-P. Gond, and F. Schultz (2011) Maintaining Legitimacy: Controversies, Orders of Worth, and Public Justifications. Journal of Management Studies 48(8), 1804–36. Pernkopf-Konhaeusner, Katharina and Julia Brandl (2010) How should human resources be managed? From comparing models of staff development in a German and Russian professional service firm: a conventionalist approach. European Journal of Cross Competence and Management 1(4), 356–77. Ponte, Stefano and Peter Gibbon (2005) Quality standards, conventions and the governance of global value chains. Economy and Society 34(1), 1–31. Ponte, Stefano, Peter Gibbon, and Jakob Vestergaard (eds) (2011) Governing through Standards. Origins, Drivers and Limitations. Palgrave: Macmillan. Power, Michael (1997) The Audit Society. Rituals of Verification. Oxford: Oxford University Press.

220

Certifying the World Richey Lisa Ann and Stefano Ponte (2011) Brand Aid. Shopping Well to Save the World. Minneapolis: University of Minnesota Press. Salais, Robert (2013) Le Viol d’Europe. Enquête sur la disparition d’une idée. Paris: Presses Universitaires de France. Salais, Robert and Michael Storper (1992) The four ‘worlds’ of contemporary industry. The Cambridge Journal of Economics 2, 169–94. Salais, Robert et Laurent Thévenot (eds) (1986) Le travail; marchés, règles, conventions. Paris: INSEE-Economica. Schelling, Thomas (1980) The Strategy of Conflict (reprint, illustrated and revised. ed.). Cambridge: Harvard University Press. Silva-Castañeda, Laura (2012) A forest of evidence: third-party certification and multiple forms of proof—a case study on oil palm plantations in Indonesia. Agriculture and Human Values 29, 361–70. Simmel, Georg (1987) Philosophie de l’argent. Paris: Presses Universitaires de France (trans. S. Cornille and P. Ivernel of Philosophie des Geldes, 1977). Simondon, George (1989 [1958]) Du mode d’existence des objets techniques. Paris: Aubier (préface by J. Hart, postface by Y. Deforge, first edition 1958). Stark, David (1996) Recombinant Property in East European Capitalism. American Journal of Sociology 101(4), 993–1027. Stark, David (2009) The Sense of Dissonance: Accounts of Worth in Economic Life. Princeton: Princeton University Press. Steiner, Philippe (2010) La transplantation d’organes. Un commerce nouveau entre les êtres humains. Paris: Gallimard. Storper, Michael and Robert Salais (1997) Worlds of Production. The Action Frameworks of the Economy. Cambridge MA: Harvard University Press. Swedberg, Richard (ed.) (1990) Economics and Sociology. Princeton: Princeton University Press. Swedberg, Richard (2006) La sociologie économique rencontre l’économie des conventions. In: François Eymard-Duvernay (ed.), L’économie des conventions. Méthodes et résultats, tome I, Débats. Paris: La Découverte, 77–92. Taupin, Benjamin (2012) The more things change . . . Institutional maintenance as justification work in the credit rating industry. M@n@gement 15(5), 528–62. Thévenot, Laurent (1984) Rules and implements: investment in forms, Social Science Information 23(1), 1–45. Thévenot, Laurent (1989) Economie et politique de l’entreprise; économies de l’efficacité et de la confiance. In: Luc Boltanski and Laurent Thévenot (eds), Justesse et justice dans le travail. Paris: Presses Universitaires de France et Centre d’Etudes de l’Emploi, 135–207. Thévenot, Laurent (1990) L’action qui convient. In: Patrick Pharo and Louis Quéré (ed.), Les formes de l’action. Paris: Ed. de l’EHESS (Raisons pratiques 1), 39–69. Thévenot, Laurent (1992) Les différentes natures de l’innovation. Une approche de la dynamique des organisations. In: P.J. Bernard and J.-P. Daviet (eds), Culture d’entreprise et innovation. Paris: Presses du CNRS, 309–28. Thévenot, Laurent (1997) Un gouvernement par les normes; pratiques et politiques des formats d’information. In: Bernard Conein and Laurent Thévenot (eds), Cognition et information en société. Paris: Ed. de l’EHESS (Raisons Pratiques 8), 205–41.

221

Laurent Thévenot Thévenot, Laurent (2002) Conventions of co-ordination and the framing of uncertainty. In Edward Fullbrook (ed.), Intersubjectivity in Economics. London: Routledge, 181–97. Thévenot, Laurent (2006a) L’action au pluriel. Sociologie des régimes d’engagement. Paris: La Découverte. Thévenot, Laurent (2006b) Convention school. In: Jens Beckert and Milan Zafirovski (eds), International Encyclopedia of Economic Sociology. London: Routledge, 111–15. Thévenot, Laurent (2006c) Innovating in ‘Qualified’ markets. Quality, Norms and Conventions. Unpublished paper presented at the conference Systems and Trajectories of Agricultural Innovation. Berkeley: University of California. Thévenot, Laurent (2007) The plurality of cognitive formats and engagements: moving between the familiar and the public. European Journal of Social Theory 10(3), 413–27. Thévenot, Laurent (2009) Governing Life by Standards. A View from Engagements. Social Studies of Science 39(5), 793–813. Thévenot, Laurent (2011) Powers and oppressions viewed from the sociology of engagements: in comparison with Bourdieu’s and Dewey’s critical approaches of practical activities. Irish Journal of Sociology 19(1), 35–67. Thévenot, Laurent (2012) Law, economies and economics. New critical perspectives on normative and evaluative devices in action. Economic Sociology 14(1), 4–10. Thévenot, Laurent (2013) The human being invested in social forms. Four extensions of the notion of engagement. In: Margaret Archer and Andrea Maccarini (eds), Engaging with the World. Agency, Institutions, Historical Formations. London and New York: Routledge, 162–80. Thévenot, Laurent (2014) Voicing concern and difference. From public spaces to common-places. European Journal of Cultural and Political Sociology 1(1), 7–34. Thévenot, Laurent (2015a) Vous avez dit ‘capital’? Extension de la notion et mise en question d’inégalités et de pouvoirs de domination. Annales Histoire Sciences Sociales 70(1), 69–80 (forthcoming in English in the edition online). Thévenot, Laurent (2015b) Making commonality in the plural, on the basis of binding engagements. In: Paul Dumouchel Paul and Reiko Gotoh (eds), Social Bonds as Freedom: Revising the Dichotomy of the Universal and the Particular. New York: Berghahn, 82–108. Thévenot, Laurent, François Eymard-Duvernay, Olivier Favereau, André Orléan, and Robert Salais (2005) Values, Coordination and Rationality: The Economics of Conventions. In: Anton Oleinik (ed.), The Institutional Economics of Russia’s Transformations. Aldershot (UK): Ashgate, 21–44. Thévenot, Laurent and Joan Stavo-Debauge (2015) Sociologie pragmatique. In: Christophe Le Digol (ed.) Dictionnaire de sociologie, Paris: Encyclopedia Universalis, online (forthcoming). Thornton, Patricia, William Ocasio, and Michael Lounsbury (2012) The Institutional Logics Perspective: A New Approach to Culture, Structure, and Process. New York: Oxford University Press. Vatin, François (2009) Evaluer et valoriser : Une sociologie économique de la mesure. Toulouse: Presses Universitaires du Mirail.

222

Certifying the World Westenholz, Ann (ed.) (2012) The Janus Face of Commercial Open Source Software Communities. Copenhagen: Copenhagen Business School Press. Wissler, André (1989a) Les jugements dans l’octroi de crédit. In: Luc Boltanski and Laurent Thévenot (eds), Justesse et justice dans le travail. Paris: Presses Universitaires de France et Centre d’Etudes de l’Emploi, 67–119. Wissler, André (1989b) Prudence bancaire et incertitude. In: François EymardDuvernay (ed.), Innovation et ressources locales. Paris: Presses Universitaires de France et Centre d’Etudes de l’Emploi, 201–37. White, Harrison C. (1992) Identity and control : A Structural theory of Social Action. Princeton: Princeton University Press. White, Harrison C. (2002) Markets from networks: socioeconomic models of production. Princeton, Princeton University Press. Zelizer, Viviana (2005) The Purchase of Intimacy. Princeton: Princeton University Press. Zelizer, Viviana (2010) Economic Lives: How Culture Shapes Economy. Princeton: Princeton University Press.

223

Part III Enacting Economic Relations

9 Thinking about Social Relations in Economy as Relational Work Nina Bandelj

Introduction That social relations matter is a trademark contribution of economic sociology. By and large, the importance of social relations has been captured by the notion of embeddedness, deriving from Granovetter’s (1985) seminal argument that economic behavior, as human behavior in general, is embedded in networks of social relations. That is, economic actors are not atomistic decision-makers; the social relations they have with one another exert the foremost impact on their economic behavior. This formulation has been embraced by many economic sociologists who continue to show the influence of social ties and networks on various economic outcomes. This research has largely treated social relations as distinct from economic relations (aka arm’s length ties), and examined how network embeddedness matters for economic outcomes. Other variants of this research, propelled by formal network analysis, have treated social ties/networks as congealed properties of individual actors (such as structural autonomy or network centrality) in an attempt to specify structural features of the social context in which rational economic decision-making happens. In contrast with a practice in economic sociology where relations are effectively treated as properties of individual actors, the goal of this chapter is to rethink relationality in economy as a dynamic process of negotiating economic relations between actors, shaped by affect, meaning, and asymmetries in power, as well as third parties, organizational structures, and institutions. I build on recent conceptual innovations by Viviana Zelizer (2005, 2010, 2012) and her focus on relational work, that is, the effort by which people

Nina Bandelj

try to find appropriate matches between social relations, economic transactions, and media of exchange. I build on this interpretation, which was initially grounded in how people negotiate their intimate and economic lives, to think about economic relations more generally. I conceive of relationality as central to economy. However, rather than focusing on a congealed structure of dyadic or network relations, which has dominated economic sociology, I focus on how economic interaction has to be worked out—thus relational work. As such, I emphasize the importance of meaning-making of actors engaged in relational work, but also incorporate attention to emotional embeddedness (Bandelj 2009) and power asymmetries (Bandelj 2012). I recognize that relational work is shaped by third parties, organizational and institutional contexts. At the level of economic organizations or states, relational work can be performed by organizational/state representatives on behalf of their organizations, so its study does not need to be confined to micro-interactional processes. The chapter analytically compares the concept of relational work to that of networks, and reviews empirical research that applies these concepts. In the last part of the chapter, I elaborate how a focus on relational work contributes to theorizing in economic sociology, by making three advances. First, it allows for an integrated analysis of economic life that does not privilege individual social forces (be it social ties, culture, or power) but asks the analyst to consider them all at the same time. Second, paying attention to relational work highlights the crucial role of emotions in the economy more than sociologists have acknowledged thus far. Third, tracing how relational work is worked out in economic transactions helps analysts scrutinize the micro-foundations of economic action and pushes us to fundamentally rethink the theory of action that underlies economic sociological inquiry (see the Introduction to this volume by Aspers, Dodd, and Anderberg), to depart from the notion of “rational man” to think about “practical women and men.”

Relationality as Networks The focus on networks in the economy is often traced to Mark Granovetter’s 1985 manifesto, and his pronouncement of the field of “the new economic sociology” in that same year (Smelser and Swedberg 1994; Granovetter and Swedberg 2001). However, it was Granovetter’s advisor at Harvard, Harrison White, who grandfathered the network tradition in economic sociology1 and 1 It has to be noted that in his later work, White took, what Mische (2011) calls a linguistic turn, and that has marked quite a different take on relationality in economic life that focuses more on meaning and identities.

228

Social Relations in Economy as Relational Work

who introduced his graduate student Granovetter to the concept of embeddedness (Krippner et al. 2004). White published two seminal articles using blockmodeling techniques of network analysis (Boorman and White 1976; White et al. 1976). He later wrote a central piece for new economic sociology on “Where Markets Come From,”2 proposing that, “markets are selfreproducing social structures among specific cliques of firms and other actors who evolve roles from observations of each other's behavior” (White 1981: 518). Producers continually monitor the action of others by watching and signaling to one another rather than their consumers. This statement grounded a social structural approach to economy that found its most felicitous expositions in the application of network analysis techniques to the issues of economy. One of the central figures in the formal study of networks in the economy, Ronald Burt, also published a series of articles on networks in the 1970s. Burt’s early research exposed the power of social network analysis, using economic phenomena as research sites, including diffusion of innovations (Burt 1973), profits in the manufacturing industry (Burt 1979a: 120), and interorganizational directorates (Burt et al. 1980). In the early 1990s, Burt (1992) wrote his exposition of the famous structural holes argument, arguing that positions, which bridge structural holes, or space between unconnected actors, provide more profits and other advantages than other positions. Therefore, rational actors, acting as tertius gaudens, can strategically position themselves to augment advantage. Wayne Baker was another networks researcher who entered the scene in the early 1980s, emphasizing the role of social structure in economic process. In his study of national securities markets, Baker (1984) distinguished between expansive and restrictive micronetworks of traders, which differentially shape communication among actors and their opportunistic behavior, and therefore have varied effects on macronetworks and option price volatility. Later applications of network analysis to financial markets include Zuckerman’s (2004: 405) attempt to show how “structural sociology may illuminate the structural bounds on market efficiency.” Zuckerman uses the measures of stock’s position in the network of coverage by securities analysts to show that incoherent stocks are traded more often than others, whereby coherence refers to congruence in classification of a stock by security analysts. One of the dominant streams in network analyses grew out of Burt’s writing on interlocking directorates (Burt 1979a, 1979b, 1980; Burt et al. 1980), or situations when a person affiliated with one organization sits on the board of another organization, as well as Michael Useem’s (1982, 1984) research on the 2 That paper had been presented at the American Sociological Association meetings in 1978, entitled “Markets as Social Structures” (Azarian 2006).

229

Nina Bandelj

overlapping spheres of politics and business. Following both economic and political concerns expressed in these early studies, a sizable work in economic sociology and organizational studies has advanced research on interlocking directorates and corporate elites (Mizruchi and Bunting 1981; Mariolis and Jones 1982; Palmer 1983; Galaskiewicz et al. 1985; Mizruchi and BrewsterStearns 1988; Lang and Lockhart 1990; Davis and Stout 1992; Westphal and Zajac 1997; Westphal and Milton 2000; Palmer and Barber 2001; Burris 2005; Mizruchi et al. 2006; Westphal and Stern 2006). In 1990, Walter Powell published an influential article that cemented networks across organizations as a separate form of socioeconomic organization, distinct from hierarchies (firms/organizations) and markets (Powell 1990). This was another piece that pulled attention to social ties among economic actors, particularly organizations. Powell himself has used network methods to examine interindustry collaborations, networks or learning and innovation (Powell et al. 1996, 2005; Whittington et al. 2009). Others have studied strategic alliances and interfirm cooperations (Gulati 1995; Gulati and Gargiulo 1999). Gulati (1995) provides an important account of the pattern of network tie formation. Examining alliance formation across several industries, he argues that the pattern of alliances at time t depends on the pre-existing pattern of alliances at time t-1, which implies that the majority of cooperations are a product of previously established network ties among organizations. Another stream of this interorganizational research investigates the importance of networks in the Japanese economy (Gerlach 1992; Lincoln et al. 1992, 1996). Romo and Schwartz (1995) used the notion of structural autonomy, to examine migration of manufacturing plants in New York state, from 1960 to 1985. They found that only those core establishments with the greatest structural autonomy can migrate out of regional production areas but not others, even if those also face high costs at current location compared with other viable sites. In the early 1990s, we also saw emergence of work that applies network embeddedness to migrant economies. Aldrich and Waldinger (1990) found that in ethnic communities connections provide financial capital and referrals to immigrants starting economic ventures. Bailey and Waldinger (1991) use enclave theory to explore the New York garment industry, and found that access to this industry depends on informal social ties forged within ethnic enclaves rather than through formal network recruitment. Portes and Sensenbrenner (1993) used the umbrella notion of embeddedness and its narrower cousin social capital, to explore different forms in which social structures affect immigrant economic action, pointing to both positive and negative consequences of social capital. Later work by Portes et al. (2002) shows the rise of transnational entrepreneurs, which is based on “the mobilization of cross-country social networks” as an alternative way of economic adaptation of immigrants. 230

Social Relations in Economy as Relational Work

Brian Uzzi (1996: 674) was one of the first to “advance the concept of embeddedness beyond the level of a programmatic statement,” and to examine the influence of embedded ties on economic performance. While Ronald Burt (1992) argued that the more structurally autonomous firms (i.e. those with less redundant ties leading to the same alters) will obtain larger profits, Uzzi (1996, 1997) explicated the relationship between network ties and efficiency. In his work on the New York garment industry, Uzzi found that firms employ both “embedded” and “arm’s length” ties, and that relying on a mix of both kinds of ties extends most a firm’s probability of survival. Based on this finding, Uzzi pointed to “the paradox of embeddedness,” suggesting an inverse-U curvilinear relationship between firm performance and reliance on embedded ties, where network embeddedness has positive effects on firm performance up to a certain threshold, but over-embeddedness has its downsides. Uzzi later conducted studies on the role of networks for firm financing (Uzzi 1999) and for determinants of prices (Uzzi and Lancaster 2004), among other research on networks and complexity theory. Another important strand of network research developed a focus on social ties as a source of social capital for individuals, helping them to conduct consumer transactions (DiMaggio and Louch 1998) and, primarily, to find jobs (Granovetter 1974; Fernandez et al. 2000; Yakubovich 2005). This research follows Granovetter’s early work on Getting a Job (1974), which applied his core concept of the strength of weak ties (Granovetter 1973) to the labor market. In particular, network analysis of the labor markets has focused on networks as a source of information and influence and documented the role of referrals in recruitment. Castilla (2005) showed that referral ties at a customer service center at a large financial organization in the U.S. increased both immediate productivity and long-term performance and firm attachment of employees. Yakubovich (2005) directly tested the strength of the weak ties hypothesis on data in a Russian labor market to find supporting results. One has to note that the literature on labor markets rarely uses the concept of embeddedness but rather the idea of social capital, to zero in on the advantages that one garners from one’s social ties, such as getting a job. Some of the studies published after 2000, which examined network embeddedness in economy, and appeared in the American Sociological Review or American Journal of Sociology, include research on the role of social networks in transition economies of China (Keister 2001; Zhou et al. 2003; Peng 2004), and Eastern Europe (Stark and Vedres 2006, 2012; Vedres and Stark 2010). Olav Sorenson has a study on the role of networks for fledgling entrepreneurs (Sorenson and Audia 2000) and for venture capitalists’ investments that span geographical limits (Sorenson and Stuart 2001). Henning Hillmann’s (2008) work uses historical analysis to examine the link between credit networks and political mobilization in Revolutionary Vermont, and Hillmann and Aven 231

Nina Bandelj

(2011) use quantitative information on corporate partnerships in late imperial Russia to examine the role of reputation and brokerage on mobilization of capital. In this volume, Victor Nee and Sonja Opper (Chapter 6) put forward an analysis that aims to integrate networks and institutions by conceiving of social ties as principal-agent relations, which depend on incentives and interests but also on following established social norms and reputations. Clearly, focus on social networks in economic processes has stimulated a rich body of research, which has established the network perspective as the dominant stream in economic sociology in the 1980 to 2000 period (Swedberg 1997; Convert and Heilbron 2007; Aspers, Dodd and Anderberg, Introduction to this volume). Although this research provides a powerful antidote to atomistic explanations of economic exchange (for review see Smith-Doerr and Powell 2005), it has also been subject to extensive critique. One of the most powerful critiques launched against network analyses of economic life has been its lack of focus on the content of ties, or as Powell and Smith-Doerr (1994: 371) have argued, “a certain primacy of method over substance,” which leads to an overemphasis on the structural determinants of economic life. Following the “anti-categorical imperative” (Emirbayer and Goodwin 1994: 1414), the focus of network studies is not on the attributes/categories/motives of actors but on the structure of relationships, such as the strength of ties between actors, degree of centrality and autonomy of their network position, or density of networks in which they are embedded.3 Because of this focus on the structure of relationships, which are, as Fligstein (1996: 657) critiqued, “sparse social structures,” network studies have slighted the importance of the political and cultural content of ties (Stinchcombe 1989; Emirbayer and Goodwin 1994; Fligstein 1996, 2002; Bandelj 2002). The charge about the lack of attention to the content of social ties is not completely justified. For instance, the discussions about the importance of weak or strong ties for employment opportunities get at the kinds of relationships that may be more or less influential, either those with friends and family with whom one interacts frequently and has strong emotional bonds with, or those with acquaintances whom one sees sporadically and who circulate in different social circles. Thus, in my view the gist of the critique charged against structural4 network analysis of economic phenomena is not merely the lack of attention to the content of ties but rather inattention to the processes that underlie the formation, negotiation, reparation, or dissolution of economic 3 Paradoxically, researchers often use the derived measures of network position as properties of individual units of analysis and examine their effect on the behavior of these units. 4 There was an attempt to integrate meaning in networks (Fuhse 2009), following Harrison White’s later work, such as Identity and Control where he refers to networks as “phenomenological realities” and as “networks of meaning” (1992: 65, 67), composed of “stories” and “identities.” However, this approach rarely has been used in economic sociology.

232

Social Relations in Economy as Relational Work

relations, and how that process is shaped by emotions, meaning, power asymmetries, third parties, and organizational and institutional contexts. It is in this conceptual space that the idea of “relational work” makes a mark. The focus on relational work, as defined by Zelizer, addresses the content of social ties and how differential content, or kinds of ties, variably match with the media of exchange and the type of economic transaction. The starting point for Zelizer is often a social relation (an intimate tie) that gets invariably infused by some economic content, and how the nature of such relationship and the type of economic transaction and medium of exchange need to be all aligned in “good matches” (Zelizer 2010) to make sense to the involved parties. For instance, the practical gesture of opening a joint bank account might signal a certain level of commitment in an intimate relationship, and a certain expectation about the future of this socioeconomic relation, which may be absent in casual sexual encounters.5 My extension of Zelizer’s formulations takes as a starting point any economic transaction, such as an investment deal, job search, financial exchange, or an act of consumption, among others. Here, attention to relational work in which economic actors are engaged allows an analyst to process-trace the negotiation of their economic interaction. Part of relational work is to gather information, respond to affective impulses, and forge trust (or not), which all define how the ongoing economic situation is going to unfold. Basically, actors engage in interactional efforts, intentionally or not, that help clarify the nature of their social relations, specific economic exchange at hand, appropriate media of exchange, and their expectations of each other along all of these dimensions. Throughout, they are responding to emotional valences that arise from the process of economic interaction as well as “negotiating definitions of their equality or inequality” (Tilly 2006: 25). All this relational work ultimately impacts some relational economic outcome (such as closing an investment deal, hiring/getting a job, making a sale/purchase). In most cases, relational work is influenced by third parties, and the meso- and macro-organizational/institutional arrangements that impinge on it, including technological devices. As such, the focus on relational work can be integrated into organizational analysis in economic sociology and performativity studies (see Convert and Heibron 2007, Aspers, Dodd, and Anderberg, Introduction to this volume, for reviews). It is also aligned with the relational approaches to understanding economic inequality (Tilly 1998; Roscigno 2011; Vallas and Cummins 2014), and relational sociology, more broadly (Emirbayer 1997; Mische 2011).

5 Note, however, that in her later exposition of the concept, Zelizer (2012) broadens the argument from intimate to all kinds of economic transactions.

233

Nina Bandelj

Relationality as Relational Work Viviana Zelizer (2005: 28) first introduced the concept of relational work in her book, The Purchase of Intimacy, to capture the “process of differentiating meaningful social relations” by using “different payment systems,” often arguing over which form of payment is most appropriate, or matched, with the social relation. Zelizer proposed that through relational work participants forge “connected lives,” where spheres of intimacy and economy are intertwined. The idea of “connected lives” was coined as an alternative to the existing perspectives on the intersection of economy and intimacy, which Zelizer called the “nothing-but” and “hostile worlds” perspectives. The nothing-but perspective conceives of economic gestures in social relations as nothing-but cost–benefit analysis, or nothing-but expression of cultural norms, or nothing-but political dominance. The hostile worlds view conceives of intimacy and economy as two separate spheres, whose contact invariably leads to contamination. Zelizer elaborated the concept or relational work several years later, when a group of sociologists convened at a conference dedicated to relational work, organized by Fred Block (2012). In that rendition, Zelizer (2012: 146) defines the concept of relational work as . . . an alternative relational account of economic activity. In brief, in all economic action, I argue, people engage in the process of differentiating meaningful social relations. For each distinct category of social relations, people erect a boundary, mark the boundary by means of names and practices, establish a set of distinctive understandings that operate within that boundary, designate certain sorts of economic transactions as appropriate for the relation, bar other transactions as inappropriate, and adopt certain media for reckoning and facilitating economic transactions within the relation. I call that process relational work.

Zelizer goes further to define the notion of “relational packages,” which “consist of combinations among (a) distinctive interpersonal ties, (b) economic transactions, (c) media, and (d) negotiated meanings” (2012: 151). Researchers have been inspired by how participants in various segments of economic life combine social ties, economic transactions, and media of exchange. They have found the concept of relational work useful to explain practices as varied as egg donation (Haylett 2012), industry–university funding collaborations (Biscotti et al. 2012), philanthropic efforts that encourage monetary donations (Lainer-Vos 2014), or negotiation of supplier–producer relations in manufacturing (Whitford 2012), among others. For instance, Biscotti and co-authors describe how exchange participants in university–industry agricultural biotechnology research collaborations engage in relational work to maintain or enhance their institutional legitimacy and separation of how 234

Social Relations in Economy as Relational Work

knowledge is disseminated and commercialized in academy and industry. They do so through concrete practices of classifying and earmarking research monies from industry that would support the idea of academic independence, or by engaging in narrative reason-giving for their patenting activities that insists on protecting the integrity of academy from profit prerogatives of industry. In a quite different economic realm, Whitford (2012: 249) uses a case study of relationships in American manufacturing industries to showcase “relational work that managers do as they negotiate circumstances where either roles or norms are ambiguous.” Whitford claims that these managers cannot identify clearly the nature of relationships they have with suppliers. For Whitford, these are neither based on pure economic, arm’s length logic, nor embeddedness (partnership) logic, but engaged in what he terms “contradictory collaboration,” that is “collaboration in relationships that had long been marked by distrust” (ibid.: 249). For a yet different economic process of philanthropic donation, LainerVos (2014) uses relational work to describe how organizational actors negotiate the obstacles associated with diaspora-giving to construct gift-giving mechanisms that connect a very large number of people who have no personal acquaintance. Instead of treating relational work as a strictly interpersonal matter, Lainer-Vos finds the concept useful to describe the organizational efforts that social entrepreneurs invest in to shape individual-level gestures of donation. (See also Steiner, Chapter 11 of this volume, for the case of organ donation). Finally, there are also others who do not invoke the notion of relational work explicitly but discuss it in a broader context of the differentiation between hostile worlds and connected lives, or within various “circuits of commerce” (Zelizer 2004, 2010). This body of work includes, among others, Velthuis (2005) on pricing high art, Almeling (2007) on sale of genetic material, Anteby (2010) on exchange in cadavers, Mears (2010) on fashion modeling and pricing beauty, and Parrenas (2011) on intimacy/sex work. While the concept has inspired much research, critics have two concerns. The first results from an allegedly cultural bias in the concept, and the second is a critique of the concept’s potential broadness and thus lack of empirical specificity. The first group of critics has interpreted relational work in a reductionist manner, mainly as an effort to focus on relations by adding culture to the mix. This is what Rossman (2014) calls “rhetorical reframing of exchange.” In this case, the emphasis is on the narratives people create to align their cultural understandings of what is appropriate with economic exchange in relations, and may very well be called cultural work or meaning work. Although it may appear that the central point of relational work is to insert meaning into social relations, this is a misleading and reductionist 235

Nina Bandelj

interpretation. There is no doubt that Zelizer emphasizes negotiated meanings as integral to relational work, but this is not the concept’s defining feature. It is clear from Zelizer’s (2012: 146, emphasis added) definition of relational work that meaning-making is always conjoined with practice: “people erect a boundary [but also] mark the boundary by means of names and practices [and] establish a set of distinctive understandings and practices that operate within that boundary . . . .” Understandings and practices go hand-in-hand. Moreover, it is important not to conflate relational work with either boundary work or identity building. As I noted elsewhere (Bandelj 2012), “the focus of boundary work is on differentiation between entities, and in identity building it is on the construction of self. In contrast, . . . relational work is squarely focused on relationships. We could say that relationship management, not identity building [or cultural boundary work], is its primary target.” The second critique is launched against the generality of the concept of relational work. Aren’t all economic relations that involve people somehow characterized by relational work? If so, we should follow Swedberg’s (Chapter 1, this volume) instructions about theorizing, and go beyond coining a concept to developing typologies (i.e. specify different kinds of relational work) and then formulating propositions that link relational work to its various influences on economic outcomes. As concerns distinctions between kinds of relational work, at a very basic level we can discern relational work, which is more or less routinized, and requires more or less explicit negotiation.6 Hence, it is useful to distinguish situations where relational work will be more explicit, and less scripted, and therefore of potentially higher empirical significance. The factors to consider include, but are not limited to: a) uncertainty of situations; b) ambiguity in expectations about how an economic transaction could/ should be accomplished; c) misunderstanding of appropriate media of exchange for the specific relation/transaction at hand; d) challenges to power position among participants; e) variable goals among parties to relational work; and f) considerations of, or interventions by, third-parties, broader sets of relations, or institutions in which partners to an exchange are situated. The unscripted relational work is consequential for (at least) three types of issues. The first issue is the overcoming of uncertainty by building trust, as one 6 Note also that Zelizer (1994: 27) in her discussion of money earmarking, distinguishes situations in which earmarking is more visible/intense.

236

Social Relations in Economy as Relational Work

potential goal/outcome of relational work is to establish trust, repair broken trust, and in general gather more relevant information and affective impulses that would help actors proceed with the economic exchange in question. The second issue is power, as relational work can help overcome power asymmetries, or highlight how it is possible that some parties to the exchange exploit/ manipulate others. The third issue is cultural and moral (in)commensurability, as relational work can serve as a conduit in overcoming resistance to what are deemed taboo exchanges. These are the issues where attention to relational work can help us considerably in understanding economic outcomes. I describe each in turn.

Overcoming Uncertainty Caused by Lack of Information and Trust in Economic Relations Treaties on relational work outside of sociology (for review see Bandelj 2012), highlight that relationship management is fundamental to development of trust (Feldman and Khademian 2007; Lewicki and Bunker 1995; Tyler and Degoey 1996). To be sure, in his classic piece on embeddedness, Granovetter (1985) emphasized that the point of examining social relations is to figure out how trust is encouraged and malfeasance is discouraged in economic transactions. Much of the focus on social relations in the social networks literature takes more or less for granted that social relations are important because they provide trust, and therefore manage uncertainty and ambiguity in conditions of less than perfect information and unpredictable environmental change. However, little economic sociology explicitly examines the dynamics of how trust in economic relations is built and negotiated, and assumes that it remains unchanged throughout the course of the economic process. Therefore, crucial work remains to be done on how trust is achieved, mistrust is overcome, or what the consequences are of trust violations, or betrayal, in economic transactions. A focus on relational work allows for that. Findings from social psychology show that relational work may be important for joint problem-solving, achieving mutual respect and empathy, which is essential to being able to legitimize perspectives that differ from one’s own (Tyler 1989; Rosenberg 2007). Perceptions of another person’s empathic reactions have been shown to lead to higher levels of trust toward that person (Ickes 1993). Trust is therefore intertwined with emotions, and we can expect this to be a prominent part of relational work. As relations are ongoing and negotiated, sympathy and cultural matching between exchange parties can build positive emotional energy (Bandelj 2009), and, on the other hand, interruptions to the taken-for-granted nature of economic interactions, likely produce negative emotional reactions, such as shame, guilt, anger, or fear. Either kind of emotional valences influence the ongoing economic 237

Nina Bandelj

interaction. Affirming emotions are likely empowering to the extent that they propel parties to act and find a workable solution to accomplish economic exchange: to seal an investment deal, or to offer someone a job, for instance. Still, there may be downsides to high emotional rides that may leave participants blind to alternative courses of action that are more beneficial to them (similar to the adverse consequences of groupthink). It remains an empirical question how trust building and emotional embeddedness (Bandelj 2009) relate to each other, as well as how—as part of relational work—they lead to positive versus negative economic outcomes for either one or all parties involved. Overall, tracing how relational work happens can help an analyst discover how trust is built, broken trust possibly repaired, and, more generally, how parties to an exchange gather and process newly discovered cognitive information and interaction-induced affective impulses to help actors proceed with the economic exchange in question.

Dealing with Power Asymmetry in Economic Relations As it is important to highlight possible negative consequences of emotional currents in economic interactions, it is also important to acknowledge that relational work is not always about trust-building and empathy. Whitford (2012) characterizes contradictory collaboration among supplier–manufacturer relations as “hard-nosed bargaining and the strategic and cautious withholding of information as parties hedge by intermingling competitive and collaborative interactions” (p. 84). More starkly, when relational work is intentionally exploitative (consider Ponzi schemes), the consequences are negative. However, it is also likely that even well-intentioned relational work can contribute to opportunity hoarding (Tilly 1998), limiting opportunities to those outside of one’s group, not to mention leading to crony, patrimonial, or nepotistic economic relations, which have overall negative consequences for economies. Such cases also underscore that what relational work makes evident is a latent asymmetry of power between participants that gets worked out in negotiation and persuasion. The element of power derives from the reciprocal nature of interactions in which relational work is ongoing. Power is thus part and parcel of relational work, whether it is apparent in blunt physical force that one can exert over the other in a relation or conveyed through subtle linguistic expressions that give away the asymmetry between the participants in relational work who evaluate one another during relational work. As Roscigno (2011) states, in his elaboration of a relational theory of power: “Actors often gauge the worth and strength of exchange partners relative to perceptions of value–perceptions that may vary systematically as a function of historically and culturally proscribed status hierarchies, such as race/ethnicity 238

Social Relations in Economy as Relational Work

or gender” (Roscigno 2011: 352), and these influence (in)equality in economic relations. Impression formation and valuation of actors is anchored in institutionalized hierarchies of worth, or “institutionalization of categorical pairs” (Tilly 1998), which often leads to reinforcement of existing inequalities (see the case of hiring at elite institutions by Rivera 2012). Cases of exploitation, discrimination, dismissal, or manipulation in economic life arise as a consequence of relational work that relies on existing scripts/stereotypes, and/or is dictated by the more powerful individual in the relation. Negotiating economic relations, such as in hiring, sales, or investment, provides an interactional opportunity to counter possible initial disadvantage based on categorical inequality. Skillfulness at relational work, or relational skill (Bandelj 2012), may help compensate for the differences in human or financial or social capital, at least to some extent. Thus, although relational work often reinforces existing inequalities, it may also provide opportunities for reconfiguring of the power dynamic in these relations as the interaction/ negotiation process is ongoing. This is because the practice of economic interaction allows for improvisation, contingencies, and other components of practical action that rely as much on automatic as deliberate cognition (DiMaggio 1997), or fast not only slow thinking (Kahneman 2013). Focusing on relational work in unequal relations either to a) find the source of sustaining power and identify accompanying practices of exploitation or manipulation, or b) to possibly overcome potential disadvantage, is therefore another fruitful site for empirical work.

Surmounting Cultural and Moral Incommensurability in Economic Relations Finally, we should recognize that relational work is made particularly salient in economic exchanges involving “taboo” trades (Fiske and Tetlock 1997; Rossman 2014). Economic theory would lead us to believe that everything can be reduced ultimately to quantities evaluated on a single metric. Social relations, such as sex, marriage, divorce, or having children, are nothing but economic exchanges based on cost and benefit analysis (Becker 1996; Posner 1992). However, “people are extremely resistant to certain types of value trade-offs” and this is because “there are moral limits to fungibility,” because such “trade-offs would undercut (people’s) self-images and social identities as moral beings” (Fiske and Tetlock 1997: 256). Nevertheless, it is precisely Zelizer’s point of “connected worlds,” that even the most intimate or sacred social relations actual entail economic practices. How then are such “taboo” trade-offs achieved? Haylett’s (2012) study of egg donors provides a case in point. Donors told Haylett that they were initially motivated by monetary compensation, and such payments are non-negligible at about $8,000 per case. However, it is 239

Nina Bandelj

through the relational work in which fertility center staff members engage that donors are encouraged to think of their donation not as quid-pro-quo exchange of payment for service but as a gesture of help, or giving a gift, to infertile couples. It is through relational work, which involves both rhetoric/ narrative and behavioral practices, that a supposed taboo exchange takes place, by simultaneously preserving the “sanctity” of bringing children to this world, and reducing the contamination of this by a “profane” practice of paying money to have children. Staff are careful to structure interactions with donors, and prevent those between donors and clients, to solidify and enact a specific meaning of egg donation. Other instances of how relational work helps accomplish taboo exchanges include starting to sell life insurance in China (Chan 2009) and exchange in anatomical markets (Almeling 2007; Anteby 2010), but could also be applicable to markets like the funeral or baby adoption industry, in which actors need to find ways to marry monetary payments for death or babies, respectively. More generally, relational work is needed in market situations in which cultural and moral incommensurability needs to be surmounted: a) because it is literally banned (such as sale of organs in the United States), b) because it deemed socially distasteful and ostracized (such as profiting from someone’s death), or c) because it is against people’s own moral commitments (such as having a wife economically support her husband for a couple with traditional gender norms). In sum, describing the strategies of rhetorical, behavioral, and emotional efforts that define and sustain ties in taboo markets/exchanges, is an especially fruitful extension that will help theorize the empirical utility of the relational work concept.

Summary Network research has largely treated social relations as distinct from economic relations (arm’s length ties), and examined how the extent of embeddedness matters for economic performance. Other variants of this research, propelled by formal network analysis, have treated social ties/networks as congealed properties of individual actors (centrality, structural autonomy, etc.) in an attempt to specify structural features of the social context in which rational economic decision-making happens. In contrast with this practice in economic sociology where relations are effectively treated as properties and as external to the relatively autonomous economic sphere, the concept of relational work reinterprets relationality in economic life as a dynamic process of negotiating economic relations constituted—not only contextually constrained—by affect, meaning, asymmetries in power, thirdparty actions, and organizational and institutional structures, with their attendant technologies. 240

Social Relations in Economy as Relational Work

Aside from misinterpreting the concept as merely emphasizing the importance of meaning in social relations, the main criticism of the concept so far has been its potential over-expansiveness. It is easy to interpret that relational work encompasses all of the strategies people employ to intertwine their social and economic relations, and henceforth establish connected lives. With such co-constitution of sociality and economic exchange being a ubiquitous feature of social/economic life, it is hard to figure out the empirical utility of the relational work concept. I proposed that we find such empirical utility if we differentiate between different kinds of relational work and also their varied consequences on economic outcomes. One such potential differentiation is between scripted and unscripted relational work, with special attention paid to the unscripted relational work, given that it can facilitate, or constrain, in unexpected ways, the accomplishment of economic interactions. Unscripted relational work would capture rhetorical, behavioral, and emotional efforts in economic interactions that ensue during the process of interaction itself, and serve to clarify the very nature of exchange parties’ socioeconomic interactions and their specific expectations of each other. Unscripted relational work is judged to be particularly consequential for a) overcoming uncertainty in economic transactions (in particular working out the trust issue in non-routine situations); b) negotiating the equality or inequality in economic interactions; and c) overcoming the taboo nature of certain exchanges. In all these contexts, however, relational work will be impacted by relational skill of participants (Bandelj 2012), their gender (Fletcher 1999), and it will be shaped by third parties, be it individuals or institutions (Whitford 2012) that define the cultural, network, political, and technological characteristics of the situation in which relational work takes place. Different kinds of relational work will result in various economic outcomes. These sources of variation in relational work should be the focus of future empirical work on this subject.

Contributions to Theorizing in Economic Sociology Finally, what are the potential theoretical contributions of relational work for advancing economic sociology? In my view, the first trademark of this concept is to allow for a holistic analysis of economic life that pays attention not only to networks, or culture, or power, but all at the same time. Some economic sociologists have argued that most work in the field shows a bias in privileging one social force—be it networks, culture, or power—over others (Zelizer 1988; Krippner 2001; Fligstein 2002; Bandelj 2008). Economic sociologists engaged in network analysis (reviewed at the beginning of this chapter) have strongly emphasized the network embeddedness of economic 241

Nina Bandelj

exchange in social relations. Economic sociologists with a cultural bent have emphasized that economic actors attribute meaning to economic processes, partners in exchange, and media of exchange (e.g. Zelizer 1994; Dobbin 1994; Abolafia 1996; Wherry 2011). Most economic sociologists examining historical and macro processes have variously engaged in political economy, focusing on the role of politics, the state, and political-legal institutions (e.g. Carruthers 1996; Roy 1997; Prasad 2006; Krippner 2011). Economic life, however, is not just made of social ties, or infused by meaning, or influenced by power and conflict. Max Weber’s (1978: 3, 63) definition of economic action as social action was meant to emphasize that economic action is behavior invested with meaning that is oriented to some other actor, emphasizing both meaning-making and relationality. A few pages further, Weber (1978: 67) also argued that, “it is essential to include the criterion of power or control and disposal . . . in the sociological concept of economic action.” With its focus on the interactional efforts at negotiating economic relations, infused with sense-making, that have implications for power distribution between partners to an exchange, the concept of relational work is poised to serve economic sociology in overcoming the structural, cultural, or political reductionism. Meaning-making, relationality, and its potential power asymmetries should all be considered integral to economic processes, and analyzed jointly as such. Second, paying attention to relational work uncovers emotional underpinnings of economic exchange, which have received little attention in economic sociology. Collins’ (2004) theory of interaction ritual chains suggests that individuals always strive to maximize emotional energy in their encounters, and this is mediated by power and status. Dramaturgical approaches highlight emotional work that needs to be performed in occupational roles (Hochschild 1983). Other symbolic interactionist perspectives also suggest that positive emotions are generated when one’s view of one’s self is confirmed by others in interactions (Turner and Stets 2006). Any encounter has underlying, more or less intense, emotional currents, and involves participants who do emotion work and identity work. There is little reason to believe that economic encounters would lack these dimensions. In fact, a growing literature in behavioral economics pays attention to how emotions influence economic matters (for review see Rick and Loewenstein 2008). However, this research remains within the individualist, boundedly rational framework. In contrast, in my earlier work, I proposed the notion of emotional embeddedness, which captures that “emotions result from and are influenced by interactions between economic actors during the economic process where emotional currents and their visceral and physical manifestations come to the fore” (Bandelj 2009: 347). As such, emotions have potential to significantly influence the outcomes of economic interactions. Moreover, focusing on emotional 242

Social Relations in Economy as Relational Work

embeddedness allows us to see how economic actors employ action strategies that are not simply (boundedly) rational. This foresees the third contribution the concept of relational work can make to economic sociology research, namely to help us propose an alternative theory of economic action to the rational action framework. Given the processual nature of incessant negotiation of interpersonal relations enmeshed in affect and meaning-making, the theory of action which views partners to an economic exchange as rational actors with clear goals and stable preferences intent on maximizing utility is limiting. Given that “complexity and novelty are endemic features of modern, dynamic economies that create genuine uncertainty in economic action” (Beckert 2003: 2), many (if not most) situations in which relational work takes place are uncertain and ambiguous. Moreover, accomplishing relational work is a reciprocal process, so any misalignment in expectations and differences in interpretations between the participants exacerbate uncertainty and ambiguity. These are the kind of conditions where action is more open-ended, and creative/non-teleological (Joas 1996), rather than teleological, and (boundedly) rational. This has important implications for the theory of action in economic sociology. The focus on relational work departs from rational action and suggests that the pragmatist tradition (Whitford 2002; Boltanski and Thévenot 2006; Thévenot, Chapter 8 of this volume) and practical actor models are more useful in understanding economic processes (cf. DiMaggio and Powell 1991). Conceptualizing economic actors as practical actors allows for multiple procedural logics of economic action, aside from means/ends (bounded) rationality. As I proposed in my earlier work, these include 1) muddling through where means and/or ends are re-evaluated and reshaped in the course of the action process; 2) commitment-based action where attachment to certain means/strategies overrides the importance of goals; and 3) improvization where affective and cognitive responses to emergent situations help formulate strategies and goals (means and ends) on-the-fly (Bandelj 2008, 2009). Finally, the effort of examining the creation and negotiation of economic relations also underscores the socially constructed nature of economic life. Zeroing in on the formation, negotiation, and sometimes termination of economic relations helps reveal empirically how economic exchange is effectively worked out as a result of entirely social processes. This is in opposition to the common assumption that some economic relations are more social than others, because the former are overlaid with personal ties and the latter are arms’ length. More broadly, this echoes the opposition to viewing the economic and social domains as two separate spheres, but asserts that they are connected and mutually constitutive (Zelizer 2005). Relational work rests on the opposition to the separate spheres arguments, is grounded in connected 243

Nina Bandelj Table 9.1. Stylized comparison of network ties and relational work Relationality as networks

Relationality as relational work

Relationality conceptualized as social ties, which can be treated as properties of entities placed in networks

Relationality as a dynamic practical interactional effort, imbued with meaning and affect, with consequences for inequality, and structured by third parties, organizational and institutional forces Social relations are constitutive of economic action

Social relations provide a context for economic action Social relations serve to constrain or enable (boundedly) rational action

Aligns with the notion of network embeddedness of analytically autonomous economy, where we can differentiate between “arm’s length” and social relations

Economic actors are practical actors employing procedural varieties of action, including bounded-rationality, commitment, muddlingthrough, or improvization Aligns with the notion of economic embeddedness (Polanyi 1957) where economy and society are mutually constitutive and individuals lead “connected lives” (Zelizer 2005)

lives, and interactionally sustains the mutual constitution and elaboration of the economic and the social spheres. Because they share basic assumptions about the relationship between economy and society, the concept of relational work also could be fruitfully employed to uncover the micro-level dynamics of economic interactions that the macro-focused Polanyian economic embeddedness perspective has yet to tackle (Bandelj 2012). This would help foster a micro–macro link in economic sociology research, and allow more research on the micro-level of meaning in economic interactions, and meso-level on organizational linkages, to connect to the macro-level of socioeconomic organization and political economy. Table 9.1 summarizes these points in listing key differences between thinking about relationality in economy as network ties or relational work. In sum, economic sociology investigating relational work in economy can importantly advance economic sociological inquiry and push it to view the social not as the context for but as constitutive of the economic (see also Aspers, Chapter 10 of this volume). Moreover, such endeavors would explore further the role of emotions in economic life, and explicate an alternative to the rational action theory. Applications of relational work are particularly fruitful for investigating how trust is built or repaired, how unequal economic relations are perpetuated or overturned, and how supposedly taboo exchanges are nevertheless accomplished. These point to varieties of relational work that yield various economic outcomes. Future work is needed to further elaborate the concept analytically and empirically, pinpointing its limitations as well as potential, all by relying on hands-on empirical research that discovers how relational work comes to life. 244

Social Relations in Economy as Relational Work

References Abolafia, Mitchel (1996) Making Markets: Opportunism and Restraint on Wall Street. Cambridge, MA: Harvard University Press. Aldrich, Howard and Roger Waldinger (1990) Ethnicity and Entrepreneurship. Annual Review of Sociology 16, 111–35. Almeling, Rene (2007) Selling Genes, Selling Gender: Egg Agencies, Sperm Banks, and the Medical Market in Genetic Material. American Sociological Review 72(3), 319–40. Anteby, Michel (2010) Markets, Morals, and Practices of Trade: Jurisdictional Disputes in the U.S. Commerce in Cadavers. Administrative Science Quarterly 55, 606–38. Azarian, Reza (2006) The General Sociology of Harrison C. White: Chaos and Order in Networks. Palgrave Macmillan. Bailey, Thomas and Roger Waldinger (1991) Primary, Secondary, and Enclave Labor Markets: A Training Systems Approach. American Sociological Review 56, 432–45. Baker, Wayne E. (1984) The Social Structure of a National Securities Market. American Journal of Sociology 89, 775–811. Bandelj, Nina (2002) Embedded Economies: Social Relations as Determinants of Foreign Direct Investment in CEE. Social Forces 81, 411–44. Bandelj, Nina (2008) From Communists to Foreign Capitalists: The Social Foundations of Foreign Direct Investment in Postsocialist Europe. Princeton University Press. Bandelj, Nina (2009) Emotions in Economic Action and Interaction. Theory and Society 38, 347–66. Bandelj, Nina (2012) Relational Work and Economic Sociology. Politics and Society 40, 175–201. Biscotti, Dina, William B. Lacy, Leland Glenna, and Rick Welsh (2012) Constructing ‘Disinterested’ Academic Science: Relational Work in University-Industry Research Collaborations. Politics & Society 40(2), 273–308. Block, Fred (2012) Relational Work in Market Economies. Politics & Society 40(2), 135–44. Becker, Gary (1996) Accounting for Tastes. Cambridge, MA: Harvard University Press. Beckert, Jens (2003) Economic Sociology and Embeddedness. How Shall We Conceptualize Economic Action? Journal of Economic Issues 37, 769–87. Boltanski, Luc and Laurent Thévenot (2006) On Justification: Economies of Worth. Princeton, NJ: Princeton University Press. Boorman, Scott A. and Harrison C. White (1976) Social Structure from Multiple Networks. II. Role Structures. American Journal of Sociology 81, 1384–446. Burris, Val (2005) Interlocking Directorates and Political Cohesion among Corporate Elites. American Journal of Sociology 111, 249–83. Burt, Ronald S. (1973) The Differential Impact of Social Integration on Participation in the Diffusion of Innovations. Social Science Research 2(2), 125–44. Burt, Ronald S. (1979a) Disaggregating the effect on profits in manufacturing industries of having imperfectly competitive consumers and suppliers. Social Science Research 8(2), 120–43. Burt, Ronald S. (1979b) A Structural Theory of Interlocking Corporate Directorates. Social Networks 1, 415–35.

245

Nina Bandelj Burt, Ronald S. (1980) Cooptive Corporate Actor Networks: A Reconsideration of Interlocking Directorates Involving American Manufacturing. Administrative Science Quarterly 25, 557–82. Burt, Ronald (1992) Structural Holes: The Social Structure of Competition. Cambridge, MA: Harvard University Press. Burt, Ronald S., Kenneth P. Christman, and Harold C. Kilburn Jr. (1980) Testing a Structural Theory of Corporate Cooptation: Interorganizational Directorate Ties as a Strategy for Avoiding Market Constraints on Profits. American Sociological Review 45, 821–41. Carruthers, Bruce G. (1996) City of Capital: Politics and Markets in the English Financial Revolution. Princeton, NJ: Princeton University Press. Castilla, Emilio J. (2005) Social Networks and Employee Performance in a Call Center. American Journal of Sociology 110, 1243–83. Chan, Cheris Sun-ching (2009) Invigorating the Content in Social Embeddedness: An Ethnography of Life Insurance Transactions in China. American Journal of Sociology 115(3), 712–54. Collins, Randall (2004) Interaction Ritual Chains. Princeton, NJ: Princeton University Press. Convert, Bernard and Johan Heilbron (2007) Where did the new economic sociology come from? Theory and Society 36, 31–54. Davis, Gerald F. and Suzanne K. Stout (1992) Organization Theory and the Market for Corporate Control: A Dynamic Analysis of the Characteristics of Large Takeover Targets, 1980-1990. Administrative Science Quarterly 37, 605–33. DiMaggio, Paul (1997) Culture and Cognition. Annual Review of Sociology 23, 263–87. DiMaggio, Paul and Hugh Louch (1998) Socially Embedded Consumer Transactions: For What Kinds of Purchases Do People Most Often Use Networks? American Sociological Review 63, 619–37. DiMaggio, Paul J. and Walter W. Powell (1991) The New Institutionalism in Organisational Analysis. The New Institutionalism in Organisational Analysis. Chicago: University of Chicago Press. Dobbin, Frank (1994) Forging Industrial Policy: The United States, Britain, and France in the Railway Age. New York: Cambridge University Press. Emirbayer, Mustafa (1997) Manifesto for a Relational Sociology. The American Journal of Sociology 103(2), 281–317. Emirbayer, Mustafa and Jeff Goodwin (1994) Network Analysis, Culture, and the Problem of Agency. American Journal of Sociology 99, 1411–54. Feldman, Martha S. and Anne M. Khademian (2007) The role of the public manager in inclusion: Creating communities of participation. Governance: An International Journal of Policy, Administration, and Institutions 20, 305–24. Fernandez, Roberto M., Emilio Castilla, and Paul Moore (2000) Social Capital at Work: Networks and Employment at a Phone Center. American Journal of Sociology 105, 1288–356. Fiske, Alan Page and Philip E. Tetlock (1997) Taboo Trade-offs: Reactions to Transactions That Transgress the Spheres of Justice. Political Psychology 18(2), 225–97.

246

Social Relations in Economy as Relational Work Fletcher, Joyce (1999) Disappearing Acts: Gender, Power and Relational Practice at Work. Cambridge, MA: MIT Press. Fligstein, Neil (1996) Markets as Politics: a Political-Cultural Approach to Market Institutions. American Sociological Review 61, 656–73. Fligstein, Neil (2002) The Architecture of Markets: An Economic Sociology of Twenty-First Century Capitalist Societies. Princeton: Princeton University Press. Fuhse, Jan (2009) The Meaning Structure of Social Networks. Sociological Theory 27(1), 51–73. Galaskiewicz, Joseph, Stanley Wasserman, Barbara Rauschenbach, Wolfgang Bielefeld, and Patti Mullaney (1985) The Influence of Corporate Power, Social Status, and Market Position on Corporate Interlocks in a Regional Market. Social Forces 64, 403–31. Gerlach, Michael L. (1992) The Japanese Corporate Network: A Blockmodel Analysis. Administrative Science Quarterly 37, 105–39. Granovetter, Mark (1974) Getting a Job: A Study of Contacts and Careers. Cambridge: Harvard University Press. Granovetter, Mark (1985) Economic Action and Social Structure: The Problem of Embeddedness. American Journal of Sociology 91, 481–510. Granovetter, Mark and Richard Swedberg (2001) Introduction to the Second Edition. In: Mark Granovetter and Richard Swedberg (eds), The Sociology of Economic Life. Boulder: Westview Press. Granovetter, Mark S. (1973) The Strength of Weak Ties. American Journal of Sociology 78, 1360–80. Gulati, Ranjay (1995) Social Structure and Alliance Formation Patterns: A Longitudinal Analysis. Administrative Science Quarterly 40, 619–52. Gulati, Ranjay, and Martin Gargiulo (1999) Where do Interorganizational Networks Come From? American Journal of Sociology 104, 1439–93. Haylett, Jennifer (2012) One Woman Helping Another: Egg Donation as a Case of Relational Work. Politics & Society 40(2), 223–47. Hillmann, Henning (2008) Localism and the Limits of Political Brokerage: Evidence from Revolutionary Vermont. American Journal of Sociology 114, 287–331. Hillmann, Henning and Brandy Aven (2011) Fragmented Networks and Entrepreneurship in Late Imperial Russia. American Journal of Sociology 117, 484–538. Hochschild, Arlie (1983) The Managed Heart: Commercialization of Human Feeling. Berkeley, CA: University of California Press. Ickes, W. (1993) Empathic Accuracy. Journal of Personality 61, 587–610. Joas, Hans (1996) The Creativity of Action. Cambridge: Polity Press. Kahneman, Daniel (2013) Thinking, Fast and Slow. Doubleday, Canada. Keister, Lisa A. (2001) Exchange Structures in Transition: Lending and Trade Relations in Chinese Business Groups. American Sociological Review 66, 336–60. Krippner, Greta, Mark Granovetter, Fred Block, Nicole Biggart, Tom Beamish, Youtien Hsing, Gillian Hart, Giovanni Arrighi, Margie Mendell, John Hall, Michael Burawoy, Steve Vogel, and Sean O’Riain (2004) Polanyi Symposium: A Conversation on Embeddedness. Socio-Economic Review 2, 109–35. Krippner, Greta R. (2001) The Elusive Market: Embeddedness and the Paradigm of Economic Sociology. Theory and Society 30, 775–810.

247

Nina Bandelj Krippner, Greta R. (2011) Capitalizing on Crisis: The Political Origins of the Rise of Finance. Harvard University Press. Lainer-Vos, Daniel (2014) Brothers’ Keepers: The United Jewish Appeal and the Production of Jewish American National Attachments in the United States. Socio-Economic Review 12(3), 463–88. Lang, James and Daniel Lockhart (1990) Increased Environmental Uncertainty and Changes in Board Linkage Patterns. Academy of Management Journal 33, 106–28. Lewicki, Roy J. and Barbara B. Bunker (1995) Developing and Maintaining Trust in Work Relationships. In: Roderick M. Kramer and Tom R. Tyler (eds), Trust in Organizations. Thousand Oaks, CA: Sage Publications, 114–39. Lincoln, James R., Michael Gerlach, and Christina Ahmadjian (1996) Keiretsu Networks and Corporate Performance in Japan. American Sociological Review 61, 67–88. Lincoln, James R., Michael Gerlach, and Peggy Takahashi (1992) Keiretsu Networks in the Japanese Economy: A Dyad Analysis of Intercorporate Ties. American Sociological Review 57, 561–85. Mariolis, Peter, and Maria Jones (1982) Centrality in Corporate Interlock Networks: Reliability and Stability. Administrative Science Quarterly 27, 571–85. Mears, Ashley (2010) Pricing Looks: Circuits of Value in Fashion Modeling Markets. In: Patrik Aspers and Jens Beckert (eds), The Worth of Goods. Oxford University Press, 155–77. Mische, Ann (2011) Relational Sociology, Culture, and Agency. In: John Scott and Peter Carrington (eds), The Sage Handbook of Social Network Analysis. Thousand Oaks: Sage. Mizruchi, Mark and Linda Brewster-Stearns (1988) A Longitudinal Study of the Formation of Interlocking Directorates. Administrative Science Quarterly 33, 194–210. Mizruchi, Mark, Linda Brewster-Stearns, and Christopher Marquis (2006) The Conditional Nature of Embeddedness: A Study of Borrowing by Large U.S. Firms, 1973–1994. American Sociological Review 71, 310–33. Mizruchi, Mark S. and David Bunting (1981) Influence in Corporate Networks: An Examination of Four Measures. Administrative Science Quarterly 26, 475–89. Palmer, Donald (1983) Broken Ties: Interlocking Directorates and Intercorporate Coordination. Administrative Science Quarterly 28, 40–55. Palmer, Donald, and Brad M. Barber (2001) Challengers, Elites and Owning Families: A Social Class Theory of Corporate Acquisitions in the 1960s. Administrative Science Quarterly 46, 87–120. Parrenas, Rhacel S. (2011) Illicit Flirtations: Labor, Migration, and Sex Trafficking in Tokyo. Stanford, CA: Stanford University Press. Peng, Yusheng (2004) Kinship Networks and Entrepreneurs in China's Transitional Economy. American Journal of Sociology 109, 1045–74. Polanyi, Karl (1957) The Economy as Instituted Process. In: Karl Polanyi, Conrad Arensberg, and Harry Pearson (eds), Trade and Market in the Early Empires. Glencoe, IL: Free Press, 243–70. Portes, Alejandro, William J. Haller, and Luis Eduardo Guarnizo (2002) Transnational Entrepreneurs: An Alternative Form of Immigrant Adaptation. American Sociological Review 67, 278–98. Portes, Alejandro and Julia Sensenbrenner (1993) Embeddedness and Immigration: Notes on the Social Determinants of Economic Action. American Journal of Sociology 98, 1320–50.

248

Social Relations in Economy as Relational Work Posner, Richard A. (1992) Sex and Reason. Cambridge, MA: Harvard University Press. Powell, Walter W. (1990) Neither Market nor Hierarchy: Network Forms of Organization. Research in Organizational Behavior 12, 295–336. Powell, Walter W., Kenneth W. Koput, and Laurel Smith-Doerr (1996) Interorganizational Collaboration and the Locus of Innovation: Networks of Learning in Biotechnology. Administrative Science Quarterly 41, 116–45. Powell, Walter W. and Laurel Smith-Doerr (1994) Networks and Economic Life. In: Neil J. Smelser and Richard Swedberg (eds), The Handbook of Economic Sociology. Princeton University Press, 368–402. Powell, Walter, Douglas R. White, Kenneth W. Koput, and Jason Owen-Smith (2005) Network Dynamics and Field Evolution: The Growth of Inter-organizational Collaboration in the Life Sciences. American Journal of Sociology 110(4), 1132–205. Prasad, Monica (2006) The Politics of Free Markets: The Rise of Neoliberal Economic Policies in Britain, France, Germany, and the United States. University of Chicago Press. Rick, Scott and George Loewenstein (2008) The Role of Emotion in Economic Behavior. In: Michael Lewis, Jeannette M. Haviland-Jones, and Lisa Feldman Barrett (eds), Handbook of Emotions. Guilford Press, 138–56. Rivera, Lauren A. (2012) Hiring as Cultural Matching: The Case of Elite Professional Service Firms. American Sociological Review 77, 999–1022. Romo, Frank P. and Michael Schwartz (1995) The Structural Embeddedness of Business Decisions: The Migration of Manufacturing Plants in New York State, 1960 to 1985. American Sociological Review 60, 874–907. Roscigno, Vincent (2011) Power, Revisited. Social Forces 90(2), 349–74. Rosenberg, Shawn (2007) Rethinking Democratic Deliberation: The Limits and Potential of Citizen Participation. Polity 39, 335–60. Rossman, Gabriel (2014) Obfuscatory Relational Work and Disreputable Exchange. Sociological Theory 32(1), 43–69. Roy, William G. (1997) Socializing Capital: The Rise of the Large Industrial Corporation in America. Princeton, NJ: Princeton University Press. Smelser, Neil J. and Richard Swedberg (1994) The Sociological Perspective on the Economy. In: Neil J. Smelser and Richard Swedberg (eds), The Handbook of Economic Sociology. Princeton, NJ: Princeton University Press, 1–26. Smith-Doerr, Laurel and Walter Powell (2005) Networks and Economic Life. In: Neil Smelser and Richard Swedberg (eds), The Handbook of Economic Sociology, Second Edition. Princeton, NJ: Princeton University Press, 379–402. Sorenson, Olav and Pino G. Audia (2000) The Social Structure of Entrepreneurial Activity: Geographic Concentration of Footwear Production in the United States, 1940-1989. American Journal of Sociology 106, 424–62. Sorenson, Olav and Toby E. Stuart (2001) Syndication Networks and the Spatial Distribution of Venture Capital Investments. American Journal of Sociology 106, 1546–88. Stark, David and Balazs Vedres (2006) Social Times of Network Spaces: Network Sequences and Foreign Investment in Hungary. American Journal of Sociology 111, 1367–411. Stark, David and Balazs Vedres (2012) Political Holes in the Economy The Business Network of Partisan Firms in Hungary. American Sociological Review 77, 700–22.

249

Nina Bandelj Stinchcombe, Arthur L. (1989) An Outsider’s View of Network Analyses of Power. In: Robert Perucci and Harry Potter (eds), Networks of Power. New York: Aldine, 119–23. Swedberg, Richard (1997) New Economic Sociology: What Has Been Accomplished, What is Ahead? Acta Sociologica 40, 161–82. Tilly, Charles (1998) Durable Inequality. Berkeley and Los Angeles: University of California Press. Tilly, Charles (2006) Why? Princeton, NJ: Princeton University Press. Turner, Jonathan H. and Jan E. Stets (2006) Sociological Theories of Human Emotions. Annual Review of Sociology 32, 25–52. Tyler, Tom R. (1989) The Psychology of Procedural Justice: A Test of the Group Value Model. Journal of Personality and Social Psychology 67, 850–63. Tyler, Tom R. and Peter Degoey (1996) Trust in Organizational Authorities. In: Roderick M. Kramer and Tom R. Tyler (eds), Trust in Organizations. Thousand Oaks, CA: Sage Publications. Useem, Michael (1982) Classwide Rationality in the Politics of Managers and Directors of Large Corporations in the United States and Great Britain. Administrative Science Quarterly 27, 199–226. Useem, Michael (1984) The Inner Circle: Large Corporations and the Rise of Business Political Activity in the US and UK. Oxford University Press. Uzzi, Brian (1996) The Sources and Consequences of Embeddedness for the Economic Performance of Organizations: The Network Effect. American Sociological Review 61, 674–98. Uzzi, Brian (1997) Networks and the Paradox of Embeddedness. Administrative Science Quarterly 42, 35. Uzzi, Brian (1999) Embeddedness in the Making of Financial Capital: How Social Relations and Networks Benefit Firms Seeking Financing. American Sociological Review 64, 481–505. Uzzi, Brian and Ryon Lancaster (2004) Embeddedness and Price Formation in the Corporate Law Market. American Sociological Review 69, 319–44. Vallas, Steven and Emily Cummins (2014) Relational Models of Organizational Inequalities: Emerging Approaches and Conceptual Dilemmas. American Behavioral Scientist 58, 228–55. Vedres, Balazs and David Stark (2010) Structural Folds: Generative Disruption in Overlapping Groups. American Journal of Sociology 115, 1150–90. Velthuis, Olav (2005) Talking Prices: Symbolic Meanings of Prices on the Market for Contemporary Art. Princeton, NJ: Princeton University Press. Weber, Max (1978) Economy and Society: An Outline of Interpretive Sociology. Edited by Guenther Roth and Claus Wittich. Translated by Ephraim Fishoff et al. Berkeley: University of California Press. Westphal, James D. and Laurie P. Milton (2000) How Experience and Network Ties Affect the Influence of Demographic Minorities on Corporate Boards. Administrative Science Quarterly 45, 366–98. Westphal, James D. and Ithai Stern (2006) The Other Pathway to the Boardroom: Interpersonal Influence Behavior as a Substitute for Elite Credentials and Majority Status in Obtaining Board Appointments. Administrative Science Quarterly 51, 169–204.

250

Social Relations in Economy as Relational Work Westphal, James D. and Edward Zajac (1997) Defections from the Inner Circle: Social Exchange, Reciprocity, and the Diffusion of Board Independence in U.S. Corporations. Administrative Science Quarterly 42, 161–83. Wherry, Frederick (2011) The Culture of Markets. Cambridge, UK: Polity Press. White, Harrison C. (1981) Where do markets come from? American Journal of Sociology 87, 517–47. White, Harrison C. (1992) Identity and Control. Princeton, NJ: Princeton University Press. White, Harrison C., Scott A. Boorman, and Ronald L. Breiger (1976) Social Structure from multiple Networks. I. Blockmodels of roles and positions. American Journal of Sociology 81, 730–80. Whitford, Josh (2002) Pragmatism and the untenable dualism of means and ends: Why rational choice theory does not deserve paradigmatic privilege. Theory and Society 31, 325–63. Whitford, Josh (2012) Waltzing, Relational Work, and the Construction (or Not) of Collaboration in Manufacturing Industries. Politics & Society 40, 249–72. Whittington, Kjersten B., Jason Owen-Smith, and Walter W. Powell (2009) Networks, Propinquity, and Innovation in Knowledge-intensive Industries. Administrative Science Quarterly 54, 90–122. Yakubovich, Valery (2005) Weak Ties, Information, and Influence: How Workers Find Jobs in a Local Russian Labor Market. American Sociological Review 70, 408–21. Zelizer, Viviana (1988) Beyond the Polemics on the Market: Establishing a Theoretical and Empirical Agenda. Sociological Forum 3(4), 614–34. Zelizer, Viviana (1994) The Social Meaning of Money. New York: Basic Books. Zelizer, Viviana (2004) Circuits of Commerce. In: Jeffrey C. Alexander, Gary T. Marx, and Christine L. Williams (eds), Self, Social Structure, and Beliefs: Exploration in Sociology. Berkley and Los Angeles: University of California Press, 122–44. Zelizer, Viviana (2005) The Purchase of Intimacy. Princeton, NJ: Princeton University Press. Zelizer, Viviana (2010) Economic Lives: How Culture Shapes Economy. Princeton, NJ: Princeton University Press. Zelizer, Viviana (2012) How I Became a Relational Economic Sociologist and What does that Mean. Politics & Society 40(2), 145–74. Zhou, Xueguang, Qiang Li, Wei Zhou, and He Cai (2003) Embeddedness and Contractual Relationships in China’s Transitional Economy. American Sociological Review 68, 75–102. Zuckerman, Ezra W. (2004) Structural Incoherence and Stock Market Activity. American Sociological Review 69, 405–32.

251

10 Phenomenological Identity Theory in Economic Sociology Patrik Aspers

Introduction This chapter makes an argument for identity as a basic explanatory concept in economic sociology. The concept of identity has been used in economic sociology (e.g. White 2002; Zuckerman et al. 2003), but it is theoretically less clear. In this chapter I use identity to address the following empirical question about motivation of economic action: How can we understand and explain how people spend so much time and effort trying to become what they want when the risk of failure is high? This question is concerned with work, which, despite its central role in the works of Marx and Durkheim, has not been well integrated in new economic sociology. That today more and more people must work for free before, eventually, getting paid or hired for a job, is a hypothesis about what is becoming common in contemporary capitalism. Empirically, this chapter looks closely at people trying to become fashion models, fashion photographers, and yet other careers. These cases exemplify the large trend of work for free. The chapter, however, is mainly making a theoretical contribution, and much space is used to explain and develop the theoretical approach that I claim offers a structural analysis of existential questions. Focusing on the economy, it is shown that competing theories do not account for the motives and context of action that is needed to explain why people work for free and are engaged in activities that, for most, are economically futile.

Action in Economic Sociology Identity theory is an underdeveloped theoretical approach in economic sociology today. Although some texts focus on structure and institutions, most

Phenomenological Identity Theory in Economic Sociology

economic sociologists, as sociologists at large, see “traditional” action theory as the natural point of departure. It is the starting point of Weber (Swedberg 1998; Swedberg 2003), and it has been a central theme since Parsons (1968). Network theorists (e.g. White 1992) and those who build on the notion of culture (e.g. Zelizer 2011) also have stressed the role of action. Economic sociologists, thus, agree with mainstream economists, and with proponents of more recent developments, such as behavioral economics and economic psychology, that action is central. This agreement stems from the common root of action theories. Economic sociologists tend to use a theory that is best described as a refined version of “folk-psychology” (Hausman 1992).1 Despite the fundamental agreement on action, economic sociologists have often criticized the idea of Economic Man for being atomistic, simplistic, and essentially presuming man’s preferences and motivation rather than understanding and explaining his actions (cf. Taylor 1993: 319). Much effort has been spent by economic sociologists and others on rectifying the egoistic Economic Man, mainly by adding flesh and blood to its skeleton to create a more realistic model of a human being. But to just add “social” to this man neither alters how we view action nor man. Mark Granovetter’s attempt to present a sociological starting point of man is the most notable example of how network theory deals with the issue of rectifying Economic Man. Granovetter argues that economic action neither is as fully embedded as the over-socialized man, nor as independent as is suggested by neoclassical economics. He points out that both approaches, “have in common a conception of action and decision carried out by atomized actors” (Granovetter 1985: 485). Granovetter’s famous statement is that actors’ attempts of “purposive action are instead embedded in a concrete, ongoing system of social relations” (Granovetter 1985: 487). This ongoing system is made up of “concrete personal relations and structures (or ‘networks’)” (Granovetter 1985: 490). But although Granovetter mentions “identity” (1985: 491) as one aspect to be included when analyzing action, it is still man as an atom, although related to others, that is the point of departure.

Relation to Existing Identity Approaches Action theories tend to presume actors, and explain their behavior using preferences, relations, or structure. To use the notion of identity, I propose a 1 These action theories tend to assume autonomous agents, and at least the economic rational action theory (Coleman 1990; Elster 1989) is essentially a decision theory turned into an assumption of real actors. This theory boils down to the notion of Economic Man. See also Joas (1997) for a detailed discussion of action theory.

253

Patrik Aspers

much stronger thesis than that the atom is embedded in relations, namely that one is these relations. Actors do not first exist as atoms, who only later become embedded. It is rather the other way around: one becomes what we today call a subject as a result of relations. The research on identity spans from micro-oriented studies, often using social psychology, to macro-oriented studies, such as analyses of social movements.2 This research on identity is of course largely found outside of economic sociology. It covers much empirical ground, but as Brubaker and Cooper point out: “If identity is everywhere, it is nowhere” (Brubaker and Cooper 2000: 1). If their review is taken together with Karen Cerulo’s (1997) large review of “identity construction” and Howard’s (2000) review of the social psychology of identity, we get an overview of identity work in sociology and adjacent fields. Ideas of identity and self, as presented in the works by Cooley (1998) and Mead (1934) or other symbolic interactionists, such as Goffman (1968), are largely integrated in contemporary research. Integrated, too, is Erik Eriksson’s theory of identity focusing on ego, the distinctions making egos different from one another, and the social roles of actors. See Burke and Stets (2009) for a more extensive presentation of a strong version of the social psychological approach. Relationally oriented research on identity is also found in economic sociology, such the works of White (1992) and, Zuckerman (e.g. Zuckerman et al. 2003). The ideas of this chapter draw and connect mainly to this structural sociological literature. The economists Akerlof and Kranton have used the term identity, which they value because it “yields predictions, supported by existing evidence, that are different from those of existing economic models” (2000: 716). But their theory, however, is only a proxy for what is reduced ultimately to the utility calculation (Akerlof and Kranton 2010). Their usage, in other words, is merely a form of imperialism that dilutes the term of its unique meaning. Unfortunately, much work using the notion of identity lacks precision and it is rare to find a precise and useful definition of identity, which is the 2 Identity means that A is A. This refers back at least to Hume who claimed that one (being) is the same (being) over time. To say that A is A, is different from saying that A is the same as A (Heidegger 2006). Identity in the first sense means that, for example, the long-time friend I have in front of me is the same as the one I met yesterday, and the latter refers to the fact that my friend and I are both Swedish and may share this identity. Although each of us is an instance of a given class over time, it is, strictly speaking, the class that is the identity; the class is the same class over time. There are a set of traits that constitute the collective identity, which remains similar enough over time to speak of an identity. Sameness is thus the condition that more than one can share a collective identity, but it does not refer to identity itself. The actors, so to speak, are just instances of an identity. Identity stands in contrast to difference, that is that A is not everything. Much identity theory has forgotten that identity presumes difference. Only given that A is not everything else, but that there are many things which A is not, does the notion of identity make sense. That A is A does not mean that A cannot change. Over time, A can change, but it at least is more stable than its environment; identity refers to a form of relative social constructivism rather than an essential condition, which suggests that an identity is only stable in relation to the stability of the environment.

254

Phenomenological Identity Theory in Economic Sociology

condition of a full theory. This is the first problem with existing identity approaches. A second problem is that the social psychological approach to actions overemphasizes actors’ control over their identities, and a social identity is said to be “a person’s identification with a social group” (Burke and Stets 2009: 118); but what if others identify “a person” with a social group although that person is not? To focus on the psychological state of ego means that the structural conditions of identity are played down. A third problem is that identity “theories” are not general enough. The majority of studies are about identity, person, and self, which means that, for example, organizational identities are neglected. A consequence is that the research does not combine the level of organizational identity with personal identity. Although organizational identity as such is discussed by several authors (e.g. Hatch and Schultz 2002, 2004), it is not well theorized. The fourth problem is that almost all works presume what they claim to explain, namely the self. This may not be apparent, but even some symbolic interactionist theories implicitly start with an ego, who reaches out and interacts with the world—including other egos. The important point of Mead, that the social precedes the individual, is not clear. These theories try to explain personality rather than seeing identity as a structural condition. Despite the attempt to construct a relational identity approach, even Harrison White’s work on identity and action boils down to egological assumptions (Aspers and Kohl 2013). If we look at the current social psychological literature on identity, and let Stryker and Burke be the paradigmatic example, identity is seen as parts of a self, “composed of the meanings that persons attach to the multiple roles they typically play in differentiated contemporary societies” (Stryker and Burke 2000: 284). They claim to combine the identity approach of Stryker that focuses on how structure affects self, and the approach of Burke that focuses on internal dynamics of self-processes. In both traditions, however, the self is central, and essentially assumed. The approach that Burke has developed assumes the actor, and sees social structure as a consequence of actions: “The task we have set out for ourselves in this book is to introduce a basis for understanding social structure, in the sense that we have begun to outline, as arising from the actions of individual agents or actors and as a feeding back to those agents to change them and the way they operate” (Burke and Stets 2009: 6). What they offer is a psychological and egological approach to identity: “Identities are the set of meanings people hold for themselves that define ‘what it means’ to be what they are as persons, as role occupants, and as group members” (Burke 2004: 5; italicized to emphasize the psychological stance). The approach is not inherently relational, and plays down the role of others, and how they ascribe meaning to the self. 255

Patrik Aspers

The above-mentioned problems should be addressed by a useful identity theory of action. I offer an alternative, first by grounding identity in ontology, which opens up for existential questions which must be understood in relation to structure, then by showing how this ontology offers a foundation for a fine-tuned approach of identity.

Relational Ontology I present a phenomenological identity approach grounded in the work on ontology of Martin Heidegger (Aspers and Kohl 2013). Heidegger stresses the role of relations at the ontological level. Ontology, to follow Heidegger, is a matter of man, or to use his German term, Dasein, which means being-there. Man is essentially with other men in-the-world; this is constitutive of man (Heidegger 2001a: 84–5). Heidegger’s point is that being together (Miteinandersein) is the condition of understanding oneself (Heidegger 2001a: 87). This inherently relational understanding of man rejects egological approaches that start from the already existing subject or ego. In other words, the psychological approach (Heidegger 1978b: 190) and its classical epistemic distinction that can be traced back at least to Descartes, between subject and world—res cogitans and res extensa—is replaced with an ontology in which man already is in the world. Man (Dasein) is constituted as being in-the-world (Heidegger 2001b: 81), involved with different practices and meeting others. An additional advantage is that Heidegger opens up for questions of existentiality, which is rarely done in the social sciences.3 I focus on these necessary relations to other men and things, and what makes man (Dasein) what he is.4 It is thus not so that things exist first, and then man; things exist first of all in a relational structure of possible activities for purposes (Um-zu-Zusammenhang) through which we understand the world (Heidegger 1975: 231ff). Dasein is born into an already existing world. This is an ontological condition; and, as will be shown, is “translated” into empirical identities. The relational structure refers to the inherent “social” dimension of Dasein. It is in this way that Heidegger turns the epistemic-ontological perspective around and rejects the atom as the starting point. Dasein is always with others.

3

Existentiality is here not to be confused with Sartre’s (2003) interpretation of Heidegger. Given this in-the-world-being of man, there is a fundamental difference between the man-toman relation and the man-to-thing relation. This is an ontological difference, and Heidegger identifies two different forms of relations; the “categorical,” which refers to man–thing relations, and the “existential” which refers to man–man relations. 4

256

Phenomenological Identity Theory in Economic Sociology

It is this “relational ontology,” to repeat, that is its constitution.5 Heidegger says, moreover, that one is given to one’s self (Heidegger 2001b: 129). It follows that the “subjective” feelings, empathy and much more are only derivatives of the more basic Mitsein relation. Heidegger says that the “I-You” as well as the sex-relation presupposes the we-relation of Mitsein (being with) (Heidegger 2001a: 145–6). This represents a “taken for grantedness” of others, or in Heidegger’s (2001a: 84–5) words “Being and Being are together” (“Dasein und Dasein sind Miteinander”). It is, hence, because we first are together that we can be alone. Man’s constitution with others is noticeable in a direct way and in an indirect way (Heidegger 1979: 45). In a direct way we meet others when they, for example, are involved in work while being in-the-world. This can, for example, be a booker of fashion models. But it can be any type of activity, even if it just means to do nothing, that is hanging around. In an indirect way, man is constituted in relation to they (das Man). As a person, one reads the newspaper as one does, presents oneself as one does, argues as one does, and, in most cases, behave as others do. The ontological condition implies that one’s activities are always related to others; but how this is empirically played out differs. For example, the person who is eager to appear as a fashion model, must be updated on how fashion models dress. Heidegger’s phenomenology grounds also one in they (das Man); one is always part of they. Das Man is primary and represents the public (öffentliche) world— a genuinely shared world.6 The idea of “they” resembles the notion of generalized other as presented by Mead; Heidegger’s perspective, however, is ontological; it is not an empirical finding. It is the foundation for empirical findings, serving as a starting point for sociology. It is, Heidegger argues, the dispersion (Zerstreuung) of the different activities in which man is thrown (geworfen) that makes up man (1978a). Dasein is not only ontologically dispersed, it is also dispersed in its own activities: to care (sorgen) for something, doing something, questioning, and other kinds of activities (Heidegger 2001b: 56–7). According to Heidegger, it is not that man (Dasein) first is what many today would call self, and then falls apart as a result of social interaction (Heidegger 2001a: 333). It is rather the other way around: the dispersion is the condition of the self. Self and I are different from Dasein, but are not the product of atomistic reflection (Heidegger 1975: 226). Man, as it were, is the consequence rather than the cause of

5 It should by now be evident that Heidegger does not ground his view on man’s constitution by referring to man’s capacity to speak, think, or other forms of philosophical anthropology or biology. 6 This public world Heidegger contrasts with the intersubjectively constructed world (Heidegger 1979: 339).

257

Patrik Aspers

identities.7 Man, according to Heidegger is this “conglomerate” who finds himself “dispersed” in settings, relations, and activities. Reflection is something that is a consequence of actors gaining many different identities.8 I argue that Heidegger’s ontological position, in contrast with much social science theory that draws on the actor as a unit, presents a way of thinking that starts with relations and actors being in the world. Man, thus, is trading, working, competing with others in a market, or is involved in other activities. Heidegger puts the searchlight on the social constitution of man, and its concomitant existential predicament. Heidegger, to be clear, discusses ontological relations, but does not explain how relations empirically “appear” or condition man concretely. This means that he has nothing specific to say to the empirical researcher. What Heidegger offers is ontology of an inherently “social” world.9

From Ontology to Empirical Identity The empirical question, when starting from a Heideggerian point of view, is not if man is relational, but how. Heidegger’s ontology is a powerful statement; it suggests that man is not “merely” embedded in a set of relations but is these relations. This is to say that man is, given the “throwness” (Geworfenheit), a consequence of relations. Throwness refers to the fact that man is in the world. One is always thrown into a set of relations rather than having built them.10

7 This idea is expressed most clearly in the following quote by a philosopher who influenced Heidegger, namely Nietzsche: “there is no ‘being’ behind doing, effecting, becoming; ‘the doer’ is merely a fiction added to the deed” (1994: 45). 8 Reflection is a condition, but in contrast to the egological approach (Tengelyi 2012), I see reflection as a result of the dispersion of identities (cf. Heidegger 1975: 226). Mead (1934: 354–79) proposes similar ideas. 9 Heidegger was aware of Weber’s work on interpretative sociology (Heidegger 1978a: 189ff). 10 Even Mead’s concept “I,” if interpreted as a consequence of “me,” has a subjectivist touch. To do ontology is yet a different activity, and sociologists have neither studied nor practiced ontology, and it is better to describe what they do as empirical or ontic (Heidegger 2001b), that is, as the conditions that must be fulfilled for their theories to be valid. Mead does not do ontology, but acknowledges the social constitution of empirical actions, self and individuals: “The process out of which the self arises is a social process . . . implies the pre-existence of the group” (Mead 1934: 164). Mead’s explanation stresses the “psychological side” (i.e., concepts like “I,” “me,” and “self”), but he clearly underlines the relational aspect. Mead points out how the “primary socialization” implies that the child’s self is growing out of others’ behavior towards him. The child may “ . . . passively accept the individual that the group about him assign to him as himself” (Mead 1934: 370). As the child grows older, many identities are ascribed to her, an idea we can extrapolate to later phases in life. It is in the direction of Mead (cf. Joas 1993, 1997: 187–91) and other relational sociologists (Emirbayer 1997) that we may also look to develop an empirically viable identity approach that can be an alternative to traditional action theory. The focus is thus not on metaphysical notions like person or individual, but on the analytic notion of identity.

258

Phenomenological Identity Theory in Economic Sociology

The starting point of the phenomenological identity approach I present is the recognition of identities’ relations. An actor’s identity is constituted by its relations as they are recognized. To account for the sociological questions of empirical variation and concrete cases, I define identity as recognized similarity bound by a narrative pegged onto something. This something can be a person, a firm or any other type of organization, social form, thing, tool, or a market. The narrative, which of course does not have to be a long recorded story, implies temporality, as it binds the “thing” together over time so that we can speak of it as one (identity), as discussed by, for example, Arendt (1988) and Ricoeur (1992). Recognized identity is the phenomenological starting point, and it means that one can perceive one’s “own” identity, others’ identities, and that those can recognize “mine.” The centrality of recognition points at being, intentionality, and practice; it is always someone who recognizes, either mentally or in practice, and thereby reinforces, questions, or challenges an identity. One is relations ontologically, but it is the empirical recognition that determines what one “is.” Heidegger is clear that there are both direct relations and indirect relations (Das Man). Following this idea, I identify two types of relations that make up empirical identities, reciprocal and one-way directed. Some relations with human beings, organizations, things, and other meaningful units are reciprocal, as a tie between two traders, but others are one-way directed. One-way directed relations can be exemplified by one person who wants to become a successful artist, or when someone is perceived to belong to a certain category or group. Another example of a one-way relation is when a certain organization is not seen as a competitor by other firms. This firm, in the eyes of other firms, is thus a non-competitor, which has no influence per se over how it is recognized by others. In this example, the categorization is public and affects the identity of the firm. Other examples are when people orient to a reference group (Merton 1957) or to a specific fashion. It is not possible a priori to know which form of relation explains human action. The identity approach proposed differs from egocentric action theory because it explains being and action via man’s recognized relations, and not only via—often assumed—preferences or motives. The starting point is what man is and wants to be, which results from recognition of relations. Network theory only accounts for and explains reciprocal ties of network (Fuhse 2009), but does not include one-way relations. In contrast with the socialpsychological identity theory that originates in the works of Mead, the focus here is much more on the fact that one is already being-in-the-world. A central element of this is an account of how relations are made and not made in processes of selection. 259

Patrik Aspers

Becoming and Being I will now turn to the empirical questions: how to explain why actors try to become fashion models or fashion photographers. This will also lead us to the question of how they are affected by being involved in this undertaking. I concentrate on explaining their behavior, focusing on their motives. These actors operate in the context of what is called aesthetic markets, such as markets for models (e.g. Entwistle 2009; Mears 2011b), fashion photographers (Aspers 2006), musicians (Faulkner 1971), and authors (Bourdieu 1996), to mention a few. These markets are characterized by a situation in which “nobody knows” (Caves 2000), lack standards for evaluation of quality, and empirically we find both self-employed and employed in these markets—two forms that increasingly are becoming mixed in real life. In these markets there is an increased tendency to have “unsalaried” people involved in the production. The identity approach is by no means limited to this specific domain, but in cases of unsalaried work in combination with the absence of standards, relations to others become central.

Three Types of Identity and Their Interrelations The approach uses three interrelated types of identity to account for empirical variation and theoretical scope: preferred, unique, and collective identity. For each collective identity, such as being a fashion model, there is a unique identity that refers to what makes one different from others sharing the same collective identity, for example by being a known fashion model who has done campaigns for certain brands. And for each unique identity, there is a preferred identity that refers to what each individual model wants to be. The collective and unique are essentially determined by others. It is out of what I call “structural” identities—collective and unique identities—that we can understand the existential level of man and the corresponding reflection of one’s preferred identities. Reflection and awareness of identities reside at the existential level of what one prefers to be. This is to say that man is concerned with the deepest existential questions, of who one is, how to live one’s life, how one came to be what one is, and what to do with life. But the actor “is” everything but a completely free agent, the actor is rather the switchboard of many different identities. The capacity to reflect and to prefer one thing over another is largely a structural condition of having been ascribed many different unique and collective identities (cf. Heidegger’s notion of dispersion, “Zerstreuung”).11 11 Although there is always “someone” recognizing an identity, not all identities are human. When speaking of organizational identity, there is no one mental directedness, but often social

260

Phenomenological Identity Theory in Economic Sociology

Collective and Unique Identities Although man is living in the world, and although the preferred identity is the practical and existential starting point, it is not the starting point for empirical explanations as the existential questions of what one is can only be understood in light of one’s recognized relations by others. This is to say that what I call collective and unique identities are central for a complete understanding also of the existential questions. I will therefore study the structural conditions of action of models and those who want to become models, who have a given identity, starting with the model agencies. An organization, such as a model agency, is an instance of the collective identity of model agencies. As an example, it has a unique identity in relation to other, typically competing, model agencies that also offer models to the market. In neither case are actors in control of their identities, whether collective or unique in markets (cf. Aspers 2010; White 2002). One model agency has its own preferred identity, which may or may not be what it currently is. Actions, moreover, must account for the structural identities that conditions what one is and what one can become. Identities in markets, many of which are stable (Burt 1988), mean that model agencies are in-the-world, engaged in the production of products or services, related to suppliers, employers, customers and potential customers— all of whom are recognized and affect the identity of the model agencies. White’s market theory (White 2002) is a good case in point. Those who are in a market are, White says, seen in the light of the collective market identity and their corresponding unique identity in a particular market, such as the market for models. These identities are in the “eyes of consumers,” such as those hiring models for fashion campaigns. White describes a general context of unique identities that have been formed in the market as a result of interaction between producers and consumers; in his theory, producers’ identities are in focus. There is a collective identity made up of the “handful” of producers in the market. There is normally an underlying value of a collective identity, based on which all unique identities that “compose it” are evaluated. The unique identities are differentiated on the basis of what constitutes the similarity of the collective identity. The value may be “quality for money,” “style,” “taste,” “look,” “stature,” or more subtle value-combinations that are difficult to express discursively. Hence, commensuration, that is, “the transformation of different qualities into a common metric,” (Espeland and Stevens 1998: 315) occurs regularly. Each of these model agencies must, when acting, relate what arenas at which “reflection” on the identity of the organization takes place (Burt and Carlton 1989). In the case of a firm, it is usually the CEO together with other executives, and the board that is supposed to deal with these matters.

261

Patrik Aspers

they want to be, that is, their preferred identity, to their unique market identity. The unique identities, as stated, are not just different. The central point is that their differences are reflections of the value of the collective identity. In the market for fashion models, each model agency is positioned in relation to its models. Strictly speaking, model agencies are gaining unique identities via their models’ customers. Models have high status because of having been contracted by high status clients—big fashion brands and important designers’ catwalks. As the life cycle of models is short, and as the status of agencies is an effect of models’ relations, it is important to have a flow of new incoming models who can maintain the unique identity of a model agency in relation to the other agencies who share the collective identity of being model agencies. The collective and unique identities are made up of empirical relations primarily to customers and models (corresponding to what Heidegger refers to as existential relations). These identities are recognized by other—competing— model agencies, customers, and models. Figure 10.1 depicts the typical recognition of identities in the eyes of buyers of model agencies’ services; with one large circle representing the collective identity of model agencies to be seen in relation to other collective identities, and many small circles, representing the unique identities of individual agencies. The rivals, suppliers, customers, and models who recognize these identities, behave towards these agencies in ways that reflect what they perceive them to be, not according to what the model agencies prefer to be. In cases of, for example, mistreatment of models, agencies cannot control how potential models, customers, or political activists perceive them and how they behave to the agency. An agency becomes what activists think it is, and they will act accordingly, which means that the structural position enables and constrains

Figure 10.1. Graphic illustration of identity differentiation. Unique identities of model agencies small circles) of a collective identity (large circle) of “model agency” that is shared by all unique identities

262

Phenomenological Identity Theory in Economic Sociology

the actor. The firm will, according to Heidegger, find itself dispersed in activities over which it does not have full control.12 The different unique and collective identities are the result of the practice of others, and the officers that lead the agency must acknowledge this and relate to it. Differentiation of unique identities is ultimately the result of an “audience” that bestows value on what is recognized. For example, “Editorial jobs [i.e., jobs for the section of fashion magazines over which the fashion editor is in control] generate image and hype for an agency” (Mears 2011a: 131) in the eyes of those working at model agencies, but also in the eyes of their customers. To have these jobs (compared with agencies with no such jobs), and particularly to have them at a high level is a value according to which agencies are differentiated into different unique identities. Evaluation or valuation of identities, hence, is integrated in recognition and a crucial aspect for understanding the preferred identity.

Preferred Identity and Action What I have stressed so far is the necessity of the with-other-relations (Mitsein); an actor’s being is always related to others. Evaluation or valuation, or for short e/valuation by the “audience,” largely customers, is an important element in differentiation of unique identities and has implications for those evaluated.13 The consequence for the audience, in contrast, is rarely that large. Models are selected and geared by the agencies to cater to different market segments, such as “catalogue,” “plus-size,” “catwalks,” and the like. Mears explains the difference between models doing showrooms and catalogues, on the one hand, and editorials, on the other: “Showroom, it’s more body oriented . . . you have to show the clothes. It’s, I guess, less ‘prestigious,’ . . . less editorial, whatever [rolls eyes]” (Mears 2011b: 131). This valuation is simply the everyday business of the booker, but it may have a great impact on the career of the model. This is a typical example of how the booker, representing the agency, is in a position to gear the model to a type of market segment that will give him or her an identity (over which, hence, the model will have little control).

12 Control of public recognition of identity is a difficult form of impression management (Goffman 1971), especially in status markets (Aspers 2010). However, status, via the Matthew effect (Podolny 2005), tends to facilitate the operation of high status firms. A firm, for example, may think that the “wrong” customers are using its models and that their relations give the company another identity than what it desires. In such cases an agency may block certain customers. 13 Evaluation refers to a process based on an existing standard (institutionalized value) and valuation implies that there is no such standard (Aspers 2009).

263

Patrik Aspers

A model may “get” several different identities, as s/he may be evaluated or valuated for many different “things” by different “audiences.” She may be a terrible person to work with, but have a look that is desirable. A model finds herself in the intersection of these structural and dispersed identities in which she is “thrown” into a position according to Heidegger. How she then acts, and what she can do, is a result of her identity—what she is in the market for models. Her identity may be high-status with a very personal look. What she then does, as a deliberate decision or in practice, is hence not the starting point, but the consequence of what she is, and what she wants to be. The approach suggests that action is triggered by the apprehension of her recognized unique or collective identity and preferred unique or collective identity. If the collective identity is different from the preferred, this perceived tension is a reason for action. It goes without saying that the preferred identity may be the same as one’s perception; tension is hence not necessary.14 Furthermore, the existence of tension or the lack of tension has nothing to with whether an actor does or does not act; also, actors who are what they want will act.15 It should be noted that discrepancy may be the result of a change in the preferred identity, the perceived identity, or both.16 But regardless of the reason, any explanation must account for the perceived and preferred identities.17 The concrete actions for a booker at a model agency may then be, for example, to “try to sell the model for catalogues,” “to cut the expenses that is used to promote a model,” “to change style,” or similar strategies that a booker, that is, the actor who performs on behalf of the model agency, can use to reduce the tension between the model agency’s perceived identity and preferred identity. Explanations of actions are made in relation to either collective identities or unique identities, but understanding requires that we know the preferred identity.18 14 The reason that actors would prefer a certain identity is not the focus of this chapter. It is enough to know that actors may orient to become an identity. Each preferred identity exists only in relation to a structural identity, but not every structural identity implies that an actor has a correlated preferred identity. An actor who is typecast (Zuckerman et al. 2003) is likely to have an idea of exactly what roles s/he prefers (i.e., a preferred identity). 15 Anxiety is a tension between an actor’s wish and its structural predicament of not yet being or being unable to become what one wants to be. It may become an illness, especially if the tension is great. The structural predicament can be affected by the actor, but he is never in control of it— which is a reason for a more fundamental anxiety that lacks directedness. The explanation of the tension is fundamentally structural, although one must of course be open to cases in which persons’ perceptions of tensions are abnormal and where psychology has a place. 16 One or more of these may have changed as a result of various “causes,” such as socialization, interaction, influence by others, structural reconfigurations, and much more. I will not pursue the matter of “causes of causes” in detail here. 17 A purely “objective” account of both “perceived” and “preferred” identity (as we have in rational choice theory) can never claim to “explain,” as the explanatory capacity is merely the capacity of the scientist’s invention of reasons dressed up in the language of intentionality. 18 Thus far I have described the underpinning of the theoretical approach and its idea of action. In empirical research, the ontologically rooted identity theory proposed here explains using ideal

264

Phenomenological Identity Theory in Economic Sociology

All that we need to explain is covered by the two activities already described: actors who act to become what they prefer to be (their preferred identity), and others who ascribe identities.19

To Become So far I have mostly discussed model agencies, that is, organizations that do not have an existential level. Nonetheless, they may have preferred identities. Let me now turn to individuals, and thus to existential matters. I will focus on fashion models, but it is important to point out that the predicament they face is in no way unique. In many countries, there are a great number of people who would like to be(come) novelists, fashion photographers, models, stylists, art directors, actors, artists, film directors, musicians, or anything of a similar nature that allegedly revolves around aesthetic creativity. To achieve the preferred identities would mean that actors are “producers,” that is, participants who no longer have to pay to be part of the aesthetic activities.20 The “starting point” of an attempt to become a producer is normally either that one is part of the audience or is an apprentice in the field. Those who want to succeed in cultural industries not only have to spend much time on, but also commit themselves to the task emotionally (Bourdieu 1996; see also Bandelj, Chapter 9 in this volume, for an account of what it could mean to work on relations21). The art world in which they act is demanding, and it is difficult to survive economically in aesthetic markets, even for many of those who actually become producers. More importantly, the number of those who make money in these economies is clearly smaller than those who orient to them. This has been known for a long time, and

types as average actors, but it can also be used for explaining historical specific and concrete cases in the way Weber (1978) defines these two ways of explanation in Chapter 1 of Economy and Society. 19 It is useful to draw the distinction between actions that orient to one’s own identity and those that orient to the control of the environment. Attempts to control one’s unique and/or collective identity can either be done by single actors, or, more likely, and probably more effectively, in concerted form. Organizational research offers much evidence and excellent tools for how collective identities can be formed, used to propel change of their own and others’ conditions, and, of course, to change the structural conditions of action for themselves and others (Ahrne and Brunsson 2008; Fligstein 2012). 20 Producer, thus, is not defined in terms of profit, or means of living, but as one who among those engaged in cultural industries is considered to be a “producer.” 21 Models are clearly performing emotional work, a type of work common in the aesthetic sphere. The personal engagement to write novels often means that authors are mentally exposed to the audience. Performance art is another activity that is deeply existential for those who want to become seen as performance artists. According to those who recognize identities—other performance artists—performances have to be authentic to be accepted as performance art, which means to be serious about one’s bodily presence, as studied in an ongoing project by Edvin Sandström.

265

Patrik Aspers

Howard Becker (1982: 53) refers to research from the early 1970s and informs us that 15 percent of theater tickets were sold to drama students. That there is an entire pre-industry that supports the cultural industry with employees is evident, and Becker gives one example: “the thousands of people who study photography every year produce few professional photographers, people who make their living from the practice of photography” (1982: 53). This group constitutes a reserve army for cultural production, in addition to being important consumers. Menger showed fifteen years ago that “Employment but also underemployment and unemployment have been increasing steadily and simultaneously over the period. Obviously, fluctuations in supply and demand of artistic labor do not provide a satisfying explanation of what appears to be highly unbalanced growth” (Menger 1999: 542). The trend has not stopped. There is thus an oversupply of people who want to enter artistic labor markets, such as markets for film, theater, dance, and markets that more often are populated by self-employed persons, like directors, photographers, models, musicians, novelists, and painters, to note a few examples. The oversupply of people in many aesthetic fields is also noticeable, for example, in Swedish polls showing that a great number of people would like to publish a novel.22 All of them share a high risk of failure. This means that the income distribution is extremely skewed (Menger 1999). It is this reality that should be considered against what mainstream economics presumes about work. In economic labor market theory, it is assumed that actors are interested in money, and work is assumed to be a negative utility. Hence, the economic rational action theory predicts that few would attempt this work given the uncertain conditions, low success rate, and, for the majority, less economically beneficial outcome. Let us look closer empirically at aesthetic markets, zooming in on the market for models. The majority of those trying to become, or in the terminology of this chapter, to gain the identity as, “producers” in aesthetic economies will experience hard work until they fail. Those who try often persist for many years, starting with costly and time-consuming exercises. If they, then, get some work, it is more or less for free, or even “work” that they in real terms have to pay for. This means that candidates, for example, are doing internship, for which they rarely receive money. They are asked to work for free to get exposure and experience. For models (Frisell Ellburg 2008) this may be to do shows, for which they get clothes in return. The rationale is that they will be seen by customers who eventually will hire them. Mears has also studied models and she tells us: “The catwalk is a case of economic hardship. For all

22

266

Henrik Fürst analyzes this in an ongoing study.

Phenomenological Identity Theory in Economic Sociology

their prestige, Fashion Week show can be costly ventures for hundreds of unknown faces competing for a break, especially in London, where each show pays, on average £280 (less than $500). The estimated cost of participation for a foreign model is considerably high . . . ” (Mears 2011a: 67). The amount of work for free to get reputation is increasing. Added to this is the neverending supply of new faces in an industry with hardly any entrance costs, which itself is subject to fashion and its concomitant uncertainty. The result is fierce competition even to work for free to get experience, which is cost-cutting for producers. In the case of fashion modeling, it is clear that the prices have gone down over time for models (Frisell Ellburg 2008), leaving less money to be divided in fewer hands. In this industry, the notion of exploitation may not be far from the truth, especially as this industry attracts, and is actively attracting, the very young, especially girls (some of whom are younger than 15 years of age), whose experience of work and life in general is limited. We can now pose the main question of the chapter: how, given the difficulties and hardship they endure, can we explain the actions of those trying to become aesthetic workers or self-employed in the aesthetic economy? People do not try to become artists because of boredom. It is instead commitment and great joy in the activities that characterize those who try. One model interviewed by Mears explains it: “ ‘When you are walking on the runway, it’s the best’ Like other rocky careers in glamorous industries, for instance photography and new media industries, modeling blurs the boundaries between work and leisure” (2011a: 116–17). This commonly held attitude suggests that it is neither correct to describe what they do as an investment nor as sacrifice. An investment requires some kind of calculation of alternatives, and expectancy of a given outcome in relation to the alternatives. Based on a rational calculation, even if the goal is simply to survive economically, fewer would try. A sacrifice would imply giving up something of a higher value to become professional. Few would stand the pressure if the sheer act of trying itself was not joyful. Added to this is the actors’ emotional and fundamentally existential commitment. It is a form of work that resembles consumption, which we may call work-consumption, that is, that actors enjoy their “work” so much that it is a form of consumption (for which they may even be willing to “pay”). Those who want to become models have little or no influence with regard to their being included in the collective identity of models. Neither can those who actually become included do very much to affect their unique identity. Nonetheless, their actions must be understood in relation to their preferred identity. It is only if we understand their wants for becoming models that we can explain their actions. Empirical evidence, in conclusion, speaks against the prediction of economics. Thus, the current situation cannot be explained by an idea of an actor who 267

Patrik Aspers

pursues a goal based on a rational calculation.23 There are two additional reasons speaking against an economic rational interpretation. The first is that the success rate is low. Nonetheless, it is clear that the time spent and the money that is used for education is considerable. I have explained the activities as an outcome of their preferred identities, what they want to be. The actors want to become artists or any other artistic identity. But actors cannot decide their identity; it is a decision that is in the hands of others, and the outcome for the actors, given the lack of standards, is highly uncertain.

To Be Defined Despite the difficulty models face, some achieve their preferred identity; becoming models places them as producers in an aesthetic market. This means that they are what they want(ed) to be. To be recognized as a model, that is, to be seen by others as being one of many models, is to gain a unique identity within the collective identity. The collective identity, thus, is not composed of identical twins, but of differentiated identities. The evaluation of models is a consequence of how the models look in the eyes of scouts or bookers at model agencies. Bookers have become socialized into the role of the gatekeeper who evaluates potential and models already included in the system, which means that they themselves have embodied the preference of the market. One scout, that is, a person who spots models, cited by Mears, explains what it takes to recognize models: “You really have to have an eye to be able to pick them apart . . . I have done this so long, that I can see a girl in two seconds and decide if she is right for me or not . . . .” Another scout explains what she is looking for in models: “The first thing you look for is the height . . . the next thing you look for is their nose . . . ” (Mears 2011a: 132–3). The outcome is a rating, which includes some and excludes (most) others. Those selected will be ranked in competition for different jobs.24 Bookers are “gatekeepers,” selecting those who are given the opportunity to work for the top magazines and do the catwalks for the most prestigious designers. But as there is no existing standard, but size of body, that could inform those who want to become models to adjudicate if their look is “good enough,” potential models can keep trying and keep hoping that they will get the chance. There are, in addition to the “real” models, different segments of “people models,” that is, models who look “ordinary,” who simply are too short or for other reasons are not seen as having the potential to make it in the 23 The alternative, as Akerlof suggests (Akerlof and Kranton 2010), is to turn everything that actors want into the utility function. This means that you have accomplished nothing as everything the actors does or wants by definition is utility, and the theory then discriminates against nothing. 24 See Espeland and Sauder for a discussion of ratings and rankings (2009).

268

Phenomenological Identity Theory in Economic Sociology

“real” market by scouts and bookers at the agencies. There are also agencies that charge “models” to be on their sites, and sites that let people upload their pictures as “models.” These people, who try to become models, who constitute a far larger group, are a necessary residual against which the collective identity of “real” fashion models is formed. These two categories do not necessarily differ in terms of preferred identity, but in how the other side has evaluated them. Let it be clear here that it is the recognized relation—in this across the market—from the identity of the model agency and the jobs they give the model, to the person who thereby is seen by others as a model that is decisive for the model’s identity. Thus, it is pointless to look at only those who say they want to become, or even claim that they are, models, almost regardless of how “rational” they act. To accept such claims from a “model in being” requires that at least some of those at the other side of the market have selected the actor. In reality, this means that the model appears in pictures in fashion magazines or appears on the runway so that everyone can recognize this particular relation. Furthermore, any personal relation, such as friendship, that a person who would like to become a model has with people at model agencies will not change the person’s identity—s/he is still only someone who wants to become a model. To become a model is to overcome the competition, for which friendship of course can be useful as a form of social capital. It is nonetheless the selection by the other side that matters. In these convaluations, that is, forms of valuation and evaluation inside the economy (market) and their nonmarket equivalents, the outcome of selections generates identities; of models and of those who still are not models. This selection, first of those who are deemed as “potential models” and those who are not, and later, the ranking among the models, structures their identities and action possibilities. But as I have repeatedly stated, the chance of success is low. After numerous attempts, hours and hours spent walking at castings, showing one’s picture, building a portfolio, being rejected, and often running out of money, many simply have to give up this career path, and turn to something else as they will never be recognized as models. An aesthetic worker will encounter numerous rejections. One way to handle rejections by models is to “deliberately disengage one’s emotional involvement and to not take rejection of one’s body personally” (Mears 2011a: 115). Failure is to accept a long array of rejections and never-established ties to those “in” the industry. Failure is not uncomplicated to handle, and it may be severe in the cases in which people have made it explicitly “public,” as when they tell everyone they know that they aim 100 percent to be a dancer, singer, or any other aesthetic worker, and fail. When one realizes that the chances to achieve one’s preferred identity are close to null, it may come as surprise and a life crisis may even erupt. It is easy to imagine the same happening outside the aesthetic sphere. Failure is central 269

Patrik Aspers

because it is about identity; it is not about a goal that is just missed and which leads actors to aim for another goal. Identity is an existential affair.

Concluding Discussion In this chapter, I present an approach that explains economic action using identity. The main idea of relational ontology is that recognized relations, often maintained over time, are constitutive for identities. Identity is defined as a recognized similarity bound by a narrative pegged onto something. For human beings, identity refers to what an actor—individual or organization—is and wants to be. Three analytic layers of identity are presented: the preferred, the collective, and the individual. At the core of the approach is the relation between what one is (collective and/or unique identity) and what one wants to be (preferred identity). A central insight is the structural conditioning of what one is and what one can become as one’s identities are to a large extent determined by others. This, in Heidegger’s language, means that one is “thrown.” Existentiality and the concrete question of what one “is,” consequently, is largely a result of the structural conditions, conceptualized in the forms of identities. Identity is a notion that combines an understanding of the structural determination of actors and actions with an understanding of actors’ meaning. The approach is grounded in the ontology of Martin Heidegger. The ontology offers a view on what to do empirically, but also what not to do. The atomistic view of actors is rejected as a starting point, and Mead’s theory becomes a useful point of departure when we do empirical research. I stated that relations can either be reciprocal—such as a tie of a network—or one-way, such as when an actor orients to a given collective identity. The idea of identity is grounded in relational ontology, but is not restricted to ongoing and manifest relations, as described by network theory. In fact, network theory can neither deal with “orientation to others” (Swedberg 1999) nor decision that means rejection. I have highlighted both these aspects in the previous discussion. There are other theories that account for one-way relations. The theory of reference group (Merton 1957), for example, does not require reciprocity. It may in some cases be a better explanation than the network approach that stresses the embeddedness of action (Granovetter 1985). This is to say that we cannot a priori give one explanation priority over the other. By rejecting the narrowly defined network theory, which explains everything in terms of ties, to include identity, and also the central selection process of markets, I have shown how identity is a profound social science concept that is not restricted to one single theoretical approach. I have used the proposed approach for an investigation of economic action in aesthetic labor markets (see Thévenot, Chapter 8 of this volume, who 270

Phenomenological Identity Theory in Economic Sociology

discusses profit and exploitation, and Dobbin, Chapter 7, on power). It is shown that much work is going into production, but much of it is unsalaried. The short answer is that people do it because they hope to become producers in the future, although this is statistically unlikely. The empirical finding highlights the relation between work, identity, and existential matters. Identity is useful to explain the large number of, often young, people who try to make it in the aesthetic economy, but who in most cases will not be recognized by others, that is, they will not succeed. The value and relevance of the approach is shown in an analysis of motives and meanings of economic behavior in aesthetic markets. It is argued that what they do must be explained by what actors want to be in relation to what they can become. There are several issues that are worth pursuing more in detail empirically. One aspect is to look at how identities may enact rational choice and under certain conditions behave as suggested by the neoclassical theory (see Nee, Chapter 6 of this volume, for an analogous argument, departing from exchange theory). Another aspect to pursue further is to look more at noneconomic forms. The approach presented is not conceptualized for economic analysis only; quite the contrary. Another aspect for further study is the relation between the unique identity of an organization, which may be the collective identity of its members, regardless of domain. The ontological approach to identity addresses several of the problems and shortcomings of action theories in economic sociology. Some advantages come from the turn to ontology, others from using identity. Ontology guides empirical research by pointing at what is, and what is not. The first advantage is that identity brings up the much neglected existential dimension of economic sociology by addressing the question of what an actor is. Secondly, by using identity, we can avoid the psychological fallacy, the need to go into depth about each person’s preferences or psychological states to explain the way identities are conditioned by the structure. It also avoids the structural fallacy—that actors’ meanings are superfluous as everything they do and are is to be explained by their position (cf. Burt 1992: 190–2). In other words, the approach suggested in this chapter rejects the Cartesian epistemic egologism that economic sociologists have adopted from economists and which has haunted the field since its dawn.

References Ahrne, Göran and Nils Brunsson (2008) Meta-Organizations. Cheltenham: Edward Elgar. Akerlof, George and Rachel Kranton (2000) Economics and Identity. Quarterly Journal of Economics 105, 715–53.

271

Patrik Aspers Akerlof, George A. and Rachel E. Kranton (2010) Identity Economics: How Our Identities Shape Our Work, Wages, and Well-being. Princeton: Princeton University Press. Arendt, Hannah (1988) The Human Condition. Chicago: Chicago University Press. Aspers, Patrik (2006) Markets in Fashion, A Phenomenological Approach. London: Routledge. Aspers, Patrik (2009) Knowledge and Value in Markets. Theory and Society 38, 111–31. Aspers, Patrik (2010) Orderly Fashion: A Sociology of Markets. Princeton: Princeton University Press. Aspers, Patrik and Sebastian Kohl (2013) Heidegger and Socio-ontology: A Sociological Reading. Journal of Classical Sociology 13, 487–508. Becker, Howard (1982) Art Worlds. Berkeley: University of California Press. Bourdieu, Pierre (1996) The Rules of Art, Genesis and Structure of the Literary Field. Stanford: Stanford University Press. Brubaker, Rogers and Frederick Cooper (2000) Beyond ‘Identity. Theory and Society 29, 1–47. Burke, Peter (2004) Identities and Social Structure: The 2003 Cooley-Mead Award Address. Social Psychology Quarterly 67, 5–15. Burke, Peter and Jan Stets (2009) Identity Theory. Oxford: Oxford University Press. Burt, Ronald (1992) Structural Holes, The Social Structure of Competition. Cambridge, MA: Harvard University Press. Burt, Ronald S. (1988) The Stability of American Markets. The American Journal of Sociology 94, 356–95. Burt, Ronald S. and Debbie S. Carlton (1989) Another Look at the Network Boundaries of American Markets. The American Journal of Sociology 95, 723–53. Caves, Richard (2000) Creative Industries: Contracts between Art and Commerce. Cambridge, MA: Harvard University Press. Cerulo, Karen (1997) Identity Construction, New Issues, New Directions. Annual Review of Sociology 23, 385–409. Coleman, James (1990) Foundations of Social Theory. Cambridge, MA: Harvard University Press. Cooley, Charles (1998) On Self and Social Organization. Chicago: Chicago University Press. Elster, Jon (1989) Nuts and Bolts for the Social Science. Cambridge: Cambridge University Press. Emirbayer, Mustafa (1997) Manifesto for a Relational Sociology. American Journal of Sociology 103, 281–317. Entwistle, Joanne (2009) The Aesthetic Economy of Fashion: Markets and Value in Clothing and Modelling. Oxford: Berg. Espeland, Wendy and Michael Sauder (2009) Rankings and Diversity. Southern California Review of Law and Social Justice 18, 587–608. Espeland, Wendy and Mitschell Stevens (1998) Commensuration as a Social Process. Annual Review of Sociology 24, 313–43. Faulkner, Robert (1971) Hollywood Studio Musicians, Their Work and Careers in the Recording Industry. Chicago: Aldine Atherton. Fligstein, Neil (2012) A Theory of Fields. Oxford: Oxford University Press.

272

Phenomenological Identity Theory in Economic Sociology Frisell Ellburg, Ann (2008) Ett fåfängt arbete, möten med modeller i den svenska modeindustrin. Stockholm: Makadam. Fuhse, Jan (2009) The Meaning Structure of Social Networks. Sociological Theory 27, 51–73. Goffman, Erving (1968) Stigma, Notes on the Management of Spoiled Identity. Ringwood: Penguin Books. Goffman, Erving (1971) The Presentation of Self in Everyday Life. London: Penguin Books. Granovetter, Mark (1985) Economic Action and Social Structure: The Problem of Embeddedness. American Journal of Sociology 91, 481–510. Hatch, Mary Jo and Majken Schultz (2002) The Dynamics of Organizational Identity. Human Relations 55, 989–1018. Hatch, Mary and Majken Schultz (2004) Organizational Identity, A Reader. Oxford: Oxford University Press. Hausman, Daniel (1992) The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press. Heidegger, Martin (1975) Die Grundprobleme der Phänomenologie, Gesamtausgabe, II. Abteilung, Vorelesungen 1923–1944, Band 24. Frankfurt am Main: Vittorio Klostermann. Heidegger, Martin (1978a) Metaphysische Anfangsgründe der Logig im Ausgang von Leibniz, Gesamtausgabe, II Abteilung: Vorlesungen 1923–1944, Band 26. Frankfurt am Main: Vittorio Klostermann. Heidegger, Martin (1978b) Metaphysische Anfangsgründe der Logik im Ausgang von Leibniz. Gesamtausgabe Band 26. Frankfurt am Main: Vittorio Klostermann. Heidegger, Martin (1979) Prolegomena zur Geschichte des Zeitbegriffs, Gesamtausgabe, Abteilung II, Vorlesungen 1923–1944, Band 20. Frankfurt am Main: Vittorio Klostermann. Heidegger, Martin (2001a) Einleitung in die Philosophie, Gesamtausgabe, II Abteilung: Vorlesungen, Band 27. Frankfurt am Main: Vittorio Klostermann. Heidegger, Martin (2001b) Sein und Zeit. Tübingen: Max Niemeyer Verlag. Heidegger, Martin (2006) Identität und Difference, Gesamtausgabe, I Abteilung: Veröffentliche Schriften 1910–1976, Band 16. Frankfurt am Main: Vittorio Klostermann. Howard, Judith (2000) Social Psychology of Identities. Annual Review of Sociology 26, 367–93. Joas, Hans (1993) Pragmatism and Social Theory. Chicago: Chicago University Press. Joas, Hans (1997) The Creativity of Action. Chicago: Chicago University Press. Mead, George (1934) Mind, Self, and Society, From the Standpoint of a Social Behaviorist. Chicago: Chicago University Press. Mears, Ashley (2011a) Pricing Beauty: The Making of Fashion Model. Berkeley: University of California Press. Mears, Ashley (2011b) Pricing Looks: Circuits of Value in Fashion Modeling Markets. In: J. Beckert and P. Aspers (eds), The Worth of Goods: Valuation and Pricing in the Economy. Oxford: Oxford University Press. Menger, Pierre-Michel (1999) Artistic Labor Markets and Careers. Annual Review of Sociology 25, 541–74. Merton, Robert (1957) Social Theory and Social Structure. Glencoe: The Free Press.

273

Patrik Aspers Nietzsche, Friedrich (1994) On the Genealogy of Morals. Translated by C. Diethe. Cambridge: Cambridge University Press. Parsons, Talcott (1968) The Structure of Social Action. New York. Podolny, Joel (2005) Status Signals, A Sociological Study of Market Competition. Princeton, NJ: Princeton University Press. Ricoeur, Paul (1992) Oneself as Another. Chicago: Chicago University Press. Sartre, Jean-Paul (2003) Being and Nothingness: An Essay on Phenomenological Ontology. London and New York: Routledge. Stryker, Sheldon and Peter Burke (2000) The Past, Present, and Future of an Identity Theory. Social Psychology Quarterly 63, 284–97. Swedberg, Richard (1998) Max Weber and the Idea of Economic Sociology. Princeton NJ: Princeton University Press. Swedberg, Richard (1999) Orientation to Others and Social Mechanisms. Working Papers in Social Mechanisms (2). Stockholm: Department of Sociology, University Stockholm. Swedberg, Richard (2003) Principles of Economic Sociology. Princeton: Princeton University Press. Taylor, Charles (1993) Engaged Agency and Background. In: Cambridge Companion. Heidegger. Cambridge: Cambridge University Press, 317–36. Tengelyi, Lazszlo (2012) Action and Selfhood: A Narrative Interpretation. In: D. Zahavi (ed.), The Oxford Handbook of Contemporary Phenomenology. Oxford: Oxford University Press, 265–86. Weber, Max (1978) Economy and Society, An Outline of Interpretive Sociology. Translated by G. R. a. C. W. e. 2 volumes. Berkeley: University of California Press. White, Harrison (1992) Identity and Control, A Structural Theory of Social Action. Princeton: Princeton University Press. White, Harrison (2002) Markets from Networks, Socioeconomic Models of Production. Princeton: Princeton University Press. Zelizer, Viviana (2011) Economic Lives: How Culture Shapes the Economy. Princeton, NJ: Princeton University Press. Zuckerman, Ezra W., Tai-Young Kim, Kalinda Ukanwa, and James von Rittmann (2003) Robust Identities or Nonentities? Typecasting in the Feature-Film Labor Market. The American Journal of Sociology 108, 1018–74.

274

11 The Organizational Gift and Sociological Approaches to Exchange Philippe Steiner

Since the middle of the nineteenth century sociologists have known that, beyond market exchanges, there exists in any given society a plurality of modes of transferring goods. Accordingly, they have devoted an important part of their inquiries to explaining the functioning of these alternatives to market exchanges: inheritance and gift in Auguste Comte’s Système de politique positive; gift in Marcel Mauss’ Essai sur le don; and symbolic exchange in a series of papers written by Pierre Bourdieu in the 1970s. I cannot deal here with the whole set of these modes of exchange, so I will focus on what happens in the domain of biomedicine, particularly in organ transplantation. The main finding is that there exists a specific form of gift-giving behavior in which an organization, or a set of organizations, intervenes between the donor and the donee. I suggest that this should be called an organizational gift. Some of its characteristics were explained in Richard Titmuss’ study, when he emphasized how the gift of blood differed from the gift considered by anthropologists; notably because there is no longer a direct connection between donor and recipient. In the organizational gift there is no similarity between both individuals, connected only by the willingness of one of them to help a suffering “stranger.” The organizational gift is of inherent interest as it opens the door to an economic sociology of modern forms of gift. However, it is also of interest because it provides an opportunity to enrich our understanding of the various arenas within which people engage in transactions. Accordingly, this chapter will address the issue of the forms of economic integration beyond the typology offered some decades ago by Polanyi. Following Richard Titmuss’ insights, the first part of the chapter will consider what happens in the domain of biomedicine, examining here what is

Philippe Steiner

meant by a “gift” in the case of organ transplantation, in contrast with the Maussian conceptualization of gift-giving behavior. The second part of the chapter will elaborate this finding, and delineate the main characteristics of this modern form of gift, entailing the presence of organizations in the absence of which the donor and the donee could neither give nor receive. In the final part I will broaden my perspective, including a review of Karl Polanyi’s conception of reciprocity as an integrative form of economic activity, providing a new way of mapping the forms of exchange that present themselves as alternatives to market exchange in current market societies.

Transplant Surgery and the Organizational Gift There is almost universal agreement that the surgical practice of transplantation is founded on gift-giving behaviors; from the 1950s to the present, both medical and political worlds have relentlessly opposed the commodification of human body parts—the only exception is in Iran, where a biomarket for kidneys was made legal in 1987. In parallel to the case of blood that was central to Titmuss’s approach, organ transplantation surgery has introduced a new and unusual form of gift.1 However, the issue of what is actually given, and to whom, remains complex. French legislation from the 1970s up to the present day is a case in point. According to this legislation, organ gift-giving means essentially that the person whose organs are removed, whether dead or alive, receives nothing, whether cash or any other material advantage, as a counterpart for that person’s gift. Furthermore, the French legislature decreed in 1978 that all French citizens were deemed to have given their consent to post mortem donation. Following a lengthy debate, revision in 2011 of the bioethical law (Loi de bioéthique) made it possible, in the case of living donation, that the living donor receive some payment to cover the costs incurred in making this altruistic gift. But this payment should never be confused with any direct or indirect payment for the organ itself. Hence, from the legal point of view, a gift is made according to article 894 of the French Civil Code, which runs as follows: “Inter vivos donation is an act through which the donor makes an actual and irrevocable transfer to the benefit of the donee who accepts it.” This form of resource transfer is clearly quite unlike the selling of a good, which is “a convention by which one party undertakes to deliver something and his counterpart undertakes to pay for it” (art. 1582); it is also unlike exchange behavior, which is defined as “a contract by which those involved give one 1

276

See Kieran Healy’s study (Healy 2006), and my own study (Steiner 2010).

Organizational Gift and Sociological Approaches to Exchange

thing in exchange for another” (art. 1702). Gift-giving behavior precludes the existence of the counterpart that is central to the definition of both selling and exchanging. This legal definition does not fit the sociological approach of gift-giving behaviors, notably that which Mauss proposed in his famous study published in L’Année sociologique (Mauss 1925) including the three obligations: to give, to receive, and to give back. There is thus a sharp contrast between the sociological and the legal approach. From the legal point of view, a gift entails free will, as the idea of an obligation to part with something would be meaningless—likewise, the mingling of freedom and obligation so often mentioned in Mauss’s writings is ruled out. Furthermore, the idea of an obligation to receive is also absent from the legal point of view, as one article of the French Civil Code states that a donation is effective only when the donee has explicitly accepted the gift. Finally, any obligation to give back is explicitly ruled out by the definition provided in article 894. Given such discrepancy between legal and social approaches, it is necessary to consider carefully in what sense organ donation can be considered sociologically as a gift. To get a clear picture of what is meant by organ donation, I suggest that the materiality of gift-giving behavior be considered with respect to transplant surgery. In the case of post mortem procurement, donation occurs within the medical organization. Death, and more precisely brain death, requires the intervention of several specialists able to read data provided by (usually) two successive encephalograms; if the person assigned to an intensive care unit is declared dead while her heart is still beating and her lungs inhaling oxygen and expelling carbonic gas, then the process of donation can begin. As the dead person has rarely spelled out what should be done with her organs in such a situation, transplant teams have to meet the family or the relatives to get their consent to perform the surgery necessary to extract living organs from the dead body. This is compulsory when the legislation requires an explicit consent, but this is also practically what happens when presumed consent applies because surgeons are very anxious about possible negative reactions from grieving families, as well as public opinion concerning what might appear to be the unethical harvesting of organs. Is this a gift? The donor does not actually give her organs, as she is dead. If there is a gift, it comes from family members or relatives who give their consent to the surgery necessary to open the body and extract organs. What about inter vivos gift-giving? In that case, the person actually decides by herself to give or not to give this right to extract a kidney, a lobe of her liver, or, more rarely, a part of one of her lungs. Furthermore, in most cases, longstanding affective relations between the donor and the recipients are the basis of the donation. We may thus consider that, in this specific case, Maussian obligations are at work: a moral obligation 277

Philippe Steiner

to give to a relative facing bad health or, worse, facing death; an obligation to receive to escape painful, time-consuming, and costly dialysis; a moral obligation to give back to the one who chose to help you when you were in a medical distress. However, even in that case, the medical organization remains central: it is the medical staff who decide if a relative may or may not give, according to medical and psychosociological standards and guidelines. The medical organization remains central because the medical staff performs the surgery, and also because of the complex follow-up for both donor and recipient. The technical dimension managed and performed by the organization is thus central in both forms of donation. There is a quantitative proof of that centrality: annual reports of the French organization in charge of the coordination of all transplant activity in the country provide information about the rejection of organs given by the relatives of brain-dead patients. These reports make clear that, contrary to what is commonly thought when a gift is under consideration, biomedical gifts are commonly discarded by the organization. In 2006 the report regretted that 31 percent of the families approached for a gift turned down the offer, but it also mentioned that 18 percent of potential donors did not become actual donors because of medical obstacles, or because of antecedent conditions in the donors. In 2011 these figures were unchanged.2 Similarly, people willing to give a kidney to a relative or a spouse may be prevented from doing so if their medical status and/or sociopsychological profile do not meet the legal and medical requirements for a nephrectomy to be performed. In France, as in most countries, living donation entails both technical and relational dimensions or, to put it in other words, legal-medical obligations and moral ones; it is thus impossible to consider only the relational and moral dimension, as a Maussian approach would suggest. This does not just amount to saying that biomedical gifts are “a bit more complex” than usual gifts, those that one may perform in the course of daily activity. From a sociological point of view, a biomedical gift has a greater resemblance to a sacrifice—a social configuration close to a gift—than to a Maussian gift. What is the difference between a sacrifice and a gift? According to the work of Mauss and his friend and colleague Henri Hubert (Hubert and Mauss 1898), the difference comes from the presence of a third party in the configuration. Whereas the gift is a performance in which the donor and the donee meet and proceed to the actualization of the first two obligations (to give and to receive) before they meet in the future to reverse their position (the third obligation turns the donee into a donor and vice-versa), this is not the 2 Agence de la biomédecine, Rapport annuel 2013, année de la révision de la loi de bioéthique, p. 28. http://www.agence-biomedecine.fr/rapport-annuel-2013.

278

Organizational Gift and Sociological Approaches to Exchange

case with sacrifice. Between those who expect something from a sacrifice and the person or the thing sacrificed there is a third party, the sacrificer, whose technique is necessary to the efficient performance of the ritual—a very “technical” ritual in the case of organ transplantation. In the post mortem production of the organ (the “scarce resource” of this commerce), the dead person is the one to be sacrificed. Qualified members of the medical organization are the professionals whose command over the medical technique ensures that the sacrifice can be performed according to the prescribed ritual (determined in this case by medical efficiency considered as a value). The last party of this configuration is the family, who might expect no more than a moral benefit from the “gift”—namely, the benefit related to helping an unknown human being, thus giving a meaning to the sudden and unexpected death of a relative. Sacrifice represents a useful step so that we might arrive at the idea of the organizational gift. To gain a full picture of the system of social relations that support transplantation as a new form of commerce among human beings, a final party to the transaction must be considered: the donee. Once the organ is produced, the scarce resource moves swiftly from the initial organization to the final one, the operating theatre in which the organ is grafted into the body of the recipient. To this final individual in the transplant relational chain, the organ appears to be a gift as it is received free of charge, in the sense that this individual does not have to meet the (very great) cost of the medical procedure. It is also a gift because the recipient cannot legally oblige anybody to give a kidney; there is no obligation beyond the moral one, even if this moral obligation is itself the result of organizational work.3 This final step is the reason why the sociological definition of sacrifice is not sufficient to make sense of the whole process, even if it offers the possibility of understanding the role played by professionals, and the organization in which they act. To conclude this first point, the role and centrality of the medical organization are so prominent that I suggest that this form of transfer of resource be considered as a genuine form of gift, an organizational gift. This is, I suggest, its main sociological characteristic. From a morphological point of view, to use a Durkheimian category, it means (see Figure 11.1) that the production, distribution, and use of the scarce resource cannot be achieved without the organizational intervention that occurs between the first individual (the donor) and the final individual (the recipient). When there are a stringent time constraints and a high sensitivity of the public to equity issues, medical organizations are coordinated by a “supervising organization” (U.N.O.S. in the United 3 Gift thus becomes an “organizational problem”; it is thus the result of a social construction of altruism (Healy 2004), or the outcome of the production of scarce non-market resource by exhortation (Steiner 2010, chapter 3).

279

Philippe Steiner Organization 1

Organization 2

Individual 1

Individual 2 Supervising Organization

Figure 11.1. Organizational gift

States, Agence de la Biomédecine in France) that may have some legal power over lower level organizations. As a consequence, the organizational gift is an “arm’s length gift,” or a “gift at distance,”4 compared with the direct gift theorized by Mauss. Most generally,5 this means that both individuals are not in direct contact, they remain “strangers” to each other. It is worth stressing the fact that such situations are not limited to organ transplantation, and not limited to the domain of biomedicine (see, e.g. Barman 2007). Basically, the organizational gift was already central in blood transfusion, from the interwar period up to the present. Some of its characteristics were explained in Titmuss’ study, when he emphasized how the gift of blood differed from the gift considered by anthropologists such as Mauss and Claude Levi-Strauss (Titmuss 1970: 276–9); notably because, with organizations intervening, there is no longer a direct connection between donor and recipient.6 In that sense, following Emile Durkheim’s famous distinction, the organizational gift can be labeled an “organic gift”: beyond the fact that they are both human beings, there is no similarity between both individuals, they can belong to highly differentiated social groups, and be connected only by the willingness of one of them to help a suffering “stranger,” far removed from them. The division of labor in society applies equally to market exchange and to gift-giving behavior. However, beyond blood and organs, there are other situations in which organizations are central to the modern gift. This is the case 4 If there is a situation in which one may “suffer at a distance” through information communicated by media (Boltanski 1993), there also exist situations in which one may find relief to this suffering by “giving at distance,” thanks to organizations. 5 When there is an inter vivos gift, the connection between both individuals is the general case and, in many cases, legal regulation requires that a strong personal link exist between them. 6 This crucial element is clearly central in Titmuss’ approach to transfusion as a “gift relationship,” and it brings about some important consequences: “(i) The gift of blood take place in impersonal situations, sometimes with physically hurtful consequences to the donor. (ii) The recipient is in almost all cases not personally known to the donor; there can, therefore, be no personal expressions of gratitude or of other sentiments. (iii) Only certain groups in the population are allowed to give . . . ; (vi) No givers require or wish for corresponding gifts in return. They do not expect and would not have the blood transfusion . . . ; (ix) Both givers and recipients might, if they were known to each other, refuse to participate in the process on religious, ethnic, political or other grounds” (Titmuss 1970: 127).

280

Organizational Gift and Sociological Approaches to Exchange

with sex cells, a most interesting case because of the wide set of solutions—from commodification to various forms of gift (with or without anonymity, direct or indirect gift, required counter-gift, etc.)—that result from different national regulations, or lack of regulation (Melh 2008; Théry 2010; Almeling 2011). One important point that medically assisted procreation brings to the fore is the relational dimension of organizational gifts. For several decades the anonymity of the gift was taken for granted as it was in the domain of organ transplantation: anonymity permitted the couple not to tell members of their inner circle how the children were conceived. It was even possible not to say anything to the children themselves. The situation changed dramatically when same sex couples stepped in as, in that case, anonymity was meaningless on the one hand and, on the other, these couples were eager to get more information from the potential donors and have more opportunity to choose the donor fitted to their wish (Almeling 2011: 34–5; Thery 2010: 43–4). Last but not least, some decades after the success of medically assisted procreation, some of the children who had become aware of how they were conceived wished to be given information about one of their biological parents to fill a gap in their personal identity. This has major consequences for the organization of the donation, whether framed in terms of labor for the men selling sperm, or in terms of altruism for the women selling eggs (Almeling 2011), as this means that one of the central elements put forward in Titmuss’ analysis does not hold: the organizational gift may require that “two steps strangers” meet. In such a situation the organizational gift forbids the usual “give and forget” solution, and induces potential relations at a remote stage. This is of consequence for all the parties and for the sociological understanding of this form of organizational gift.

Organizational Gift, Gift and Market Exchange A gift is usually associated with reciprocity. Where does the organizational gift stand? The notion of the organizational gift is missing from the sociological approach to the gift, as represented by Philippe Chanial’s otherwise comprehensive collection of surveys of gift-giving practices (Chanial 2009). It is the same with the classic book written by Alain Caillé and Jacques Godbout (1992). To see how the organizational gift belongs to the wide domain of reciprocity, it is necessary to consider how the presence of organizations modifies the situation. The organizational gift involves two consequences: – Two types of actor take part in an organizational gift: individual persons, and moral persons (or organizations). 281

Philippe Steiner

– Relations exist between organizations themselves, relations that have no reason to belong to the category of gift, irrespective of the nature of the relationship between the individuals at each end of the circuit of commerce. Modern societies are not solely constituted of persons in the sense of physical individuals, as is the case with the traditional view of the gift-giving practices occurring in archaic societies. According to James Coleman (1982), in modern society there are two types of actor capable of intervening in the transfer of resources: physical persons on the one hand; and on the other organizations, which are moral persons. The resources over which each of these persons has control differ, and this difference has an impact upon the relations that can exist between them. Physical persons have no resources other than those that belong to them—fungible property and human capital—plus those held by persons, but which belong to their network of acquaintances formed by their family, religious connections, and their social neighborhood—what Coleman called social capital. Moral persons can, in general, make use of all the resources accumulated in the group created for the purpose of undertaking a given activity. This distinction highlights a major asymmetry between actors, and it becomes necessary to take account of the status of the latter to understand the nature of the social relations that they maintain. I therefore propose to distinguish personal social relations from functional or impersonal social relations, or alternatively personal friendship and professional friendship. Personal relations and personal friendship arise where actors are physical persons. This does not hold for relations between organizations, or between an organization and a person. In this latter case, while an individual member of the organization is of course a physical person, that person occupies a role that can require detachment and the management of personal feelings (Hochschild 2003). On the one hand this individual is interchangeable with other members of the same organization; and on the other, relating to clients of the organization, this individual has no reason to extend the relation with this client beyond the duration of the transaction, even if this is of long duration. This point also serves as proof of the difference between the two types of relation: if the relation between the individual member of the organization and the person addressed persists even when the first leaves the organization and/or the second ceases to be a client, it is reasonable to think that the relationship has acquired a personal status. The two persons involved now engage according to the formula “because it’s me, because it’s him” with which Michel de Montaigne characterized his friendship with Etienne de la Boétie. The same sort of thing can be said for relations between two individuals holding posts in organizations, 282

Organizational Gift and Sociological Approaches to Exchange Market Exchange Personal link

Embedded Market Exchange

Legal constraint Moral constraint

Gift

Figure 11.2. Typology of transactions

Social Relations Personal Links

Organizational Links

Legal

Embedded Market Exchange

Market Exchange

Moral

Gift

Organizational Gift

Constraint

Figure 11.3. Typology of transactions involving organizations

and of their relationships in the framework of market relationships between organizations: two individuals can be in a situation of professional friendship, paying attention and exchanging presents as occupants of positions that place them in a working relationship. Test of this can be seen when one of them retires, changes employer, or position: will he receive the same attention, the same presents as his predecessor? With this distinction in mind, it is thus possible to go beyond the typology of transfer of resource (Figure 11.2) set by contemporary anthropologists (Descola 2005; Testart 2007) for contrasting gift and market relations on the basis of the difference between two forms of constraint (moral and legal) and the absence or existence of personal links between the exchanging parties. The intermediary type appears when the transaction involves personal relations and legal constraints salient in the case when the good is not for sale, but the owner is willing to sell it to one of his friends who wants to buy it. This is what can be considered as an “embedded market transaction.” Adapting the typology to the framework of an “organized” society (Figure 11.3), I suggest how we might take account of moral persons and the relationships corresponding to them: organizational connections. This typology relates personal connections to relationships between persons; and also impersonal connections to relationships between individual members of organizations—or also between the latter and persons who are “clients,” understood broadly as persons making use of relationships with organizations to obtain the resources which they need. 283

Philippe Steiner

Relying on moral constraint, the organizational gift belongs to the domain of reciprocity, like the Maussian gift; however, it differs from the latter by the fact that there is no direct and personal link between the donor and the donee. The importance of organization within this form of solidarity may be emphasized on four grounds: tariffs and cost, power relations, the length of relational chains, and the design of this form of commerce. First, the issue of covering the cost of the organization is of paramount importance in organ transplantation. In the case of organ transplantation, and notably in the case of kidney transplantation, the issue of cost is easily forgotten as it is far below the cost of alternative treatment (dialysis) after the first year—the difference is about 10,000 euros a year in favor of transplantation. In that case, the cost seems to dwindle besides the financial gain accruing to society whenever a kidney is grafted to a patient suffering from end-stage kidney failure. Nevertheless, while donation is free, it is also costly— about 7,000 euros in Continental Europe for the procurement of a kidney. The heaviest cost comes from the medical organization itself (surgeons, operating theatres, intensive care units, drugs, follow-up, etc.), which makes transplant surgery the most expensive form of surgery according to the current French tariff, the so-called tarification à l’activité (T.2.A.): from 15,900 euros for a kidney transplant, to 39,000 euros for liver transplant, and up to 63,000 euros for a heart and lung transplant. These tariffs include a standard stay in an intensive care unit; however, additional days are common, but costly: from 600 euros a day (heart and lung transplants), to 1,100 euros (lung-heart transplant). It is worth emphasizing that tariffs do take into account the organizational dimension of donation, as hospitals are funded assuming their staff coordinate the work of various medical organizations in a given area. So in the absence of a biomarket, there is a potential economic sociology of tariffs that can be developed to uncover how societies deal with costs when there is no market and, consequently, when the price mechanism does not operate. Broadening the issue of the organizational cost of organizational gifts beyond organ transplantation, one may understand the importance of this point through some data related to a non-profit association active in the field of medical care. During the years 2004, 2005, and 2006 the association collected, respectively, 1.8, 1.6, and 1.6 million euros; when the cost of fundraising is taken into account, the net amount available is reduced significantly—to 56 percent, 55 percent, and 47 percent of these sums, respectively (Avare and Eynaud 2008: 163). The organizational cost of raising the organization’s resources is only one side of the story. A study conducted for the Fondation de France demonstrates that organizational costs represent a significant burden for the charity sector (Fondation de France 2008). In 2005, foundations in France spent 339 million euros: a significant sum indeed, 284

Organizational Gift and Sociological Approaches to Exchange

but this is only 9 percent of the money they received (about 3.7 billions), as more than 90 percent of their funds were used to cover the cost of the organization7 and pay the wages of the non-volunteer part of their workforce. Only those organizations linked to public institutions or a private firm did better—they redistributed 89 percent of the money they received—because their organizational costs were paid by their host organization. Second, the organizational gift introduces the issue of control and power relations. Usually, power relations are left out of the picture of gift-giving behavior largely because, in the case of biological donation, there is no direct connection between the donor and the recipient. However, once the organization is treated as playing a decisive and active part in donation the picture changes, and power relations arise, as Coleman pointed out. The basic idea is simple: when organizations are taken into account, the relational dimension of donation changes significantly, as the person representing the organization is not there as a mere individual but has to act according to a given script, a given task to be achieved whatever that person’s feelings about the matter might be. Further, it may be the case that the organizational script entails the “management of feelings” (Hochschild 2003) as a resource for the task to be performed. Furthermore, organizations have their own specific interests in respect of the control of given resources. This is particularly true in the case of the bioethical domain. When the first version of the French law on bioethics was debated in Parliament during the years 1992–4, the prime issue was to gain control over surgeons working in hospitals. Some of these surgeons had been involved in irregular allocations of organs that had prevented the collection of the usual number of organs, and it was decided to create a supervising organization able to constrain members of the medical profession active in the domain of transplantation. Beyond these irregularities, and beyond the control that lower level organizations tend to have over the scarce resource because they want to offer them to their “own” patients, this supervising organization has among its duties a proactive stance in the production of organs. In brief, to get the greatest possible control over the organs of brain-dead people; in the words of Miranda (2003), then at the head of the Spanish Organización Nacional de Trasplantes, the issue was to “optimize the pool of donors.” At the inter-individual level, the issue of control of a scarce resource merges with the issue of power: this was the case when a heart surgeon claimed that when a person was brain-dead in his hospital, he would explain the situation to the family and then just tell them that, if they were not aware of the wishes of the dead person, he

7 These costs are associated with the origination and diffusion of their programs, program follow-up, expertise, audit, the building of networks, education, conferences and meetings, publications, financial and overhead costs (Fondation de France 2008: 20).

285

Philippe Steiner

would remove organs for transplant (Cabrol 1987: 163). This full-blown application of the law of presumed consent was completely at variance with the way it was used by other surgeons, asking relatives for their authorization in collecting the organs of the deceased person. In the first case, the surgeon was bluntly claiming that he used all his symbolic power as a surgeon to gain access to organs. Control and power relations also play a role in the domain of medically assisted procreation. Because of the great importance given to anonymity in the case of biological donation, in France the organization for the collection of sperm was founded on the same principle: there is no relation between the sperm donor and the couple and, consequently, no possible relation between the children born as a consequence of the insemination of this sperm and the initial donor, whatever their wishes might be (Thery 2010). Initially, the centers that held the sperm destroyed personal information as soon as the sperm was used; now they keep their records for 30 years but they do not give any information to children, preventing them from obtaining full access to their identity. This represents a clear affirmation of the organization’s power with respect to individuals in the donation chain. Third, it is important to consider the relational dimension of organizational gift-giving behavior. Viviana Zelizer’s work—her proposal concerning the “circuits of commerce” (Zelizer 2005, 2011), and the relational dimension of her economic sociology (Zelizer 2012)—is a useful starting point.8 She has emphasized how important it is to consider relational work, that is how people involved in transactions mingling money and intimate relations are able to agree on subtle distinctions about their transaction.9 The relational work to be done does not limit itself to an agreement between the two parties of a given transaction: it may be necessary to take into account previous transactions (what was the nature of the transaction thanks to which the seller got the good?) or further possible transactions (what will the buyer do with the good?), or other possible parties who might emerge in future (children born from the selling/giving of sex cells). Study of the relations arising between young women working in go-go bars in Bangkok and their foreign customers, relations that mix sexuality and money, intimate feelings, and payment (Roux 2011) may illustrate the first point. Roux explains that these young women do not consider themselves to be prostitutes, and that the relation with their foreign male customers entails much more than sex for money, even if both are at the root of the relation usually labeled and

8

See also Nina Bandelj’s chapter in this volume (Chapter 9). According to Zelizer there are four sets of variables to be considered: 1) specific social tasks among groups and individuals involved; 2) a set of transactions; 3) media (i.e., legal tender, token, goods, etc.) used in these transactions; and 4) negotiated meanings. 9

286

Organizational Gift and Sociological Approaches to Exchange

condemned as sexual tourism. Thai women expect their regular foreign customers to “take care” of them, that is, to be provided with steady flows of money with which they can secure a living. And they themselves do likewise, “taking care” of their customer, haggling for them in local markets, ordering in the local language in restaurants, and acting in part as “tour guides,” showing their foreign friend parts of the city and of the country which they would not otherwise have seen. The Thai language translates the English word care into kae, a linguistic move that is culturally meaningful in itself, but all the more so when one bears in mind the fact that kae also has a deep cultural meaning for Thai people. Roux explains that most of these women come from poor villages in which their families still try to make a living. Accordingly, being in the capital city they are expected to “take care” of their relatives and to send them the money necessary for the maintenance of the family home, or provide funds for the education of the youngest children. Furthermore, payments being not strictly related to sexual intercourse, an enduring relationship is established, notably in the case of a tourist going back and forth between his mother country and Thailand. This pattern fits very well into Zelizer’s circuits of commerce and with the role that she assigns to culture within the economy: a monetary transfer is redefined in terms that allows both parties to have a legitimate say in what is occurring, and thus helps them to reproduce their social relationship. In other words, transactions do not occur singly and in isolation, as a unit separated from the previous transaction and that following. This is precisely what Roux demonstrates: the meaning attached to the money–sex transaction in the tourist–hostess relation in Bangkok is firmly connected to the fact that the meaning of “taking care” is aligned with the “taking care” meaning attached to the hostess–family transaction. This bears direct comparison with the gift relationship as Mauss viewed it, as for Mauss the gift is characterized by a series of gifts and counter gifts, propelled by the three obligations to give, receive, and give back. Furthermore, Zelizer’s circuits of commerce are limited to face-to-face relations between persons. Curiously enough, no organization has a place in these circuits, or at least their presence is not taken into account. This is most surprising, as even in the case of transactions involving life and death, dependent people, care relations, and many intimate transactions, organizations are major actors confronting individual actors in their transactions. Of course, negotiations occur between human beings, but this is not exactly the same when one of them acts as the personification of an organization. Consideration of the role of organizations within circuits of commerce offers two interesting perspectives: on the one hand, they may render the negotiation more difficult—because of the rigidity of organizational scripts and administrative routines which may be beyond the reach of the person involved in the 287

Philippe Steiner

face-to-face relationship with a customer. As an example, one may think how reluctant medical staff once were, and still are, when faced with people willing to give a kidney to a friend or to an unmarried partner. The person willing to give is submitted to a series of legal and psychological examinations to ensure that the transaction fits the requirements of the organization, examination procedures which go beyond the medical requirements determining the good health of the donor. On the other hand, organizations may offer the possibility of going beyond face-to-face relations, and link the cultural shaping of transactions at the micro-level to political decisions and political debates at the macro-level. Once transactions are properly defined culturally and routinely implemented by organizations, these cultural meanings become more stable and are more likely to be taken for granted and accepted as resources for future transactions, even for a limited period of time. The idea of a series of transactions and organizations would thus render more powerful the economic sociology of circuits of commerce. This approach is has real value, and will be of use in guiding empirical research. However, the study of organizational gifts cannot be reduced to Zelizer’s conception, as that does not take into account relations between persons and organizations, and so does not take into account the characteristics of the latter. To the extent that organizations are taken into account, it is necessary to question the formation and maintenance of the connections between individuals qua representatives of the organization, and to study how interpersonal connections and impersonal interactions combine in elaborating and maintaining the social meanings characteristic of organizational gifts. It is important to bear in mind the fact that the organizational gift implies that impersonal and personal relationships are present in the same sequence of transactions. Such a circuit of commerce involves both market exchange and gifts. The organizational gift belongs therefore to those kinds of transaction that blur the boundaries between the sphere of market exchange and that of personal relationships. Second, organizational gifts bring to the fore the issue of a longer relational chain than the one put forward in Zelizer’s work. As mentioned above, when organizations enter the realm of donation, gift-giving behaviors entail a “two-stage donation” which generally transforms the individuals located at the opposite ends of the chain into strangers. But there are situations in which this process may make it possible for the individual who is one stage removed to obtain information, or even meet the person standing at the very beginning of the relational chain. In any case, the relational chain here is longer than that studied by Zelizer. Finally, an organizational gift enters into the domain of economic or social engineering, as the work of Alvin Roth, recipient of the Nobel prize in economics, makes clear. Roth fully recognizes that, in some instances, there exists a “repugnance for the market” (Roth 2007), preventing the creation of a market for kidneys and, more generally, of human body parts. However, 288

Organizational Gift and Sociological Approaches to Exchange

such a situation does not prevent the design of the arena of exchange through the building of a specific organization design to make possible some organizational gift previously impossible to perform: exchange between incompatible patient–donor pairs in which donor of pair A will give to patient of pair B and donor of pair B will give to patient of pair A. Roth has built software able to match patients and donors in this situation (Roth et al. 2004, 2005). How does the matching of patients and donors work? The first step is to create a database, ideally at the national level, to register all the non-compatible pairs. Then, a specific organization, a “Kidney Exchange Clearinghouse,” will organize exchanges between these pairs of non-compatible patients and donors. Then patients choose the most suitable kidney from those available on the database; or they opt to be given priority on a waiting list for a good match with kidneys coming from the post mortem procurement process; or, finally, they can choose to wait for the next matching process if they believe there is currently no good match. It is further supposed that donors and patients have the same preference. On this basis, the mathematics of pure economics has engendered software searching for cycles (a closed set of patients–donors exchanging their donors) or w-chains (an open set of patients–donors, as the head of the set will receive a kidney from the waiting list and the tail of the chain will give a kidney to the waiting list). Roth’s implementation of social commerce under the name of matching market, therefore, brought about amendments to NOTA regulation, first in the Senate (February 2007) and then in the House of Representatives (March 2007) and then in several European countries (France, Spain, etc.). One can say, therefore, that this is a perfect example of the socioeconomic construction of organizational gift.

Reciprocity and Alternative Forms of Exchange in Modern Economies The organizational gift is of inherent interest as it opens the door to an economic sociology of modern forms of gift, notably, but not exclusively, in the burgeoning field of biomedical commerce. However, I would like to suggest that it is also of interest because it provides an opportunity to enrich our understanding of the various arenas within which people engage in transactions, possibly involving choices between scarce goods, without actually completing a market exchange. As Polanyi’s mapping of these arenas is certainly the most often used, I will start with a brief summary of his approach, cast in terms of forms of integration; then I will briefly explain how it is possible to elaborate his views through a focus on modern society. 289

Philippe Steiner

Polanyi’s Four Types of Economic Integration In Trade and Market in Early Empires Polanyi proposed a general approach to the economy. This approach has two faces: the first concerns the famous distinction between formal and substantive views of the economy. This distinction has been subjected to extensive debate among anthropologists, and to a lesser extent among economists and sociologists: it is generally thought that the substantive approach did not survive the criticism.10 I will not consider this debate any further, and I limit my comment to one point that has been overlooked as a consequence of the opposition of formalism to substantivism. It is important to bear in mind the fact that Polanyi himself said that in modern society the substantive and the formal views merged. This is very much the case when one is compelled to offer one’s labor in the market to earn one’s living; in that case, any sharp distinction between the two forms almost vanishes, leaving open the question of how a Polanyian approach to the economy may be developed in such a situation.11 The second face of Polanyi’s general approach to the economy has been subjected to much less scrutiny, and has been generally thought of as a general and robust map of the various arenas of commerce in societies, notably because his map is largely compatible with the one that Mauss offered in the concluding parts of his Essai sur le don, when he explained that there was “an atmosphere of gift” (Mauss 1925: 258) with the development of social welfare. This mapping distinguishes four forms of economic integration: autarky, reciprocity, redistribution, and market exchange, and claims that these four forms may be at work simultaneously in any society, even if one form may have a clear supremacy. Polanyi himself gave an empirical example of the coexistence of these four forms in his posthumously published study of the kingdom of Dahomey during the seventeenth and eighteenth centuries (Polanyi 1966). The differences between the four forms are plain: autarky means an economic entity which is able to provide for itself all the necessary elements of its economy; reciprocity means that there exist forms of exchange which involve commerce between groups of a given society, so that group A gives something to group B, which then reciprocates; redistribution means that a central agency collects part of what is produced by economic entities, and then redistributes a portion of the resources collected back to those entities; and, finally, market exchange involves the rules of exchange and of market price,

10

See Hann and Hart’s presentation of this famous debate (Hann and Hart 2011, chapter 4). According to this view, Zelizer’s work can be read as an attempt to explore the “hypermonetized” world in which the substantive and the formal approach of the economy merge (see Zelizer 2005, 2011). I have developed some aspects of this idea further in a previous study (Steiner 2009). 11

290

Organizational Gift and Sociological Approaches to Exchange

and which depends on the relation between supply and demand. Central to this mapping is a strong connection between each form of exchange (or transfer of resource) and a given institution,12 such as the oikos or any other form of economically autonomous entity; symmetrical elements within a society, and especially families; central entities such as the State; and finally the market system, in the sense of a set of markets that generate prices free from any moral, religious, or political regulation. I do not want to challenge the mapping of the economy that Polanyi made to provide tools for anthropologists, historians, and social scientists busy with archaic, historical, and modern economic activity, respectively. I would like to focus on the most modern forms of economic activity so that we might obtain a more precise mapping of the reciprocity form, for which organizational giftgiving is a component that has been overlooked so far.

What “Reciprocity” Means in a Market-System Society Following the point of view that links the work of Polanyi and Mauss, it is clear that gift-giving practices belong to reciprocity. However, there are several forms of gift beyond those that one might make to friends and relatives. From these gift-giving behaviors one must single out transfers of resource that take place among members of the same family or the same household—a household, or a maisonnée according to Bourdieu’s conceptualization, is made up of several nuclear families connected by kinship and solidarity.13 These are among the most important types of gift-giving practice, including social support for those in need of financial help during periods of economic crisis. To these direct gifts one should add bequests, an important transfer of resources that is almost completely overlooked by current work in economic sociology.14 Comte is probably the only great European sociologist to have 12 “The institution of the economic process vests that process with unity and stability; it produces a structure with a definite function in society; it shifts the place of the process in society, thus adding significance to its history; it centers interest on values, motives and policy . . . The human economy, then, is embedded and enmeshed in institutions, economic and non-economic. The inclusion of non-economic is vital” (Polanyi 1957: 148). 13 In his study of the economic habitus of Algerian people in the 1960s, Bourdieu differentiated the nuclear family (ménage) from the household (maisonnée): “the real entity is not the nuclear family but the household, a group of individuals and families which disposes of an aggregation of small incomes, and provides a far better existence than each family would have if reliant on its own resources only. Group solidarity gives each individual and each family security against material and psychological destitution” (Bourdieu 1977, p. 100; my translation). See as well Florence Weber’s work on this point (Weber 2002). 14 There are obvious exceptions to this, for example, Bourdieu’s study of matrimonial strategies of land owning families (Bourdieu 1980, book II, chap. 1) and Jens Beckert comprehensive comparative analysis of American, French and German bequest legislations from the middle of the 18th century to the present (Beckert 2008). I have limited my own research in this area to 19th century France (Steiner 2008).

291

Philippe Steiner

stressed the importance of bequests among the forms of transfer of resources that he considered in the second volume of his massive Système de politique positive: gift-giving and market exchange as peaceful transfers, with conquest and bequest representing the violent side.15 However, gift-giving and bequests are directly linked in his economic sociology as they both belong to the domain of what Comte then called altruism—he actually coined the word— in contradistinction to conquest and market exchange, which are driven by self-regarding economic motivation, or egoism in Comte’s vocabulary. While forgotten, Comte insights are relevant to market society today. French data related to bequest and donation, whether on the macro- or micro-levels, support Comte’s view on the importance of bequest as a form of transmission of wealth. Economists interested in the macroeconomic role of bequest stress that with the growing importance of high incomes, the massive inequality that they create, and the much greater inequality in accumulated assets held by those families at the top of the wealth distribution, developed societies are reinventing the nineteenth century “dynastic economy.” This means that the flow of wealth that moves, through both bequest and donation, from the older generation to its successor is steadily growing, amounting in 2008 to 15 percent of the French national income—a huge increase in comparison with the 4 percent of 1945 (Piketty 2011: 1073, figure I). On the other hand, sociologists interested in the microbehaviors of bequest and donation stress how strongly these are related, there being complex forms of calculation between those who have received more from their parents while young, and those who will receive more through bequest. This is especially important when there is an important dynastic asset, such as a vineyard or a specific asset related to an entrepreneurial activity (a bakery for example), transmitted to one of the siblings.16 Finally, to these direct gifts should be added organizational gifts that represent a significant part of gift-giving behaviors in present-day market society. Beyond what has been said above, it is interesting to consider some data collected by the Fondation de France. In 2004, 55 percent of French people gave money, goods, or time. The report gives some detail: “21% of the people interviewed have sent a check to an organization; 18% have directly given money to somebody asking money for herself, or for a charity organization; 14% have bought goods so that a part of the price went to charity; 2% have

15 See Comte 1851–1854, II, p. 155. Philippe Descola has recently elaborated a general typology of “schemes of attachment” between humans and non-humans. He is led to distinguishing exchange, predation and gift on one side, production, transmission and protection on the other (Descola 2005, chap. 13). 16 See on this point the study on the Cognac industry (Bessière 2010), and the three family budgets examined in a recent Ph.D. devoted to the sharing of resource among French poor households (Perrin-Heredia 2011: chapter 5).

292

Organizational Gift and Sociological Approaches to Exchange

given through a monthly debit to their bank account, and 1% through the internet page of the organization.”17 A significant part of these gifts therefore involves organizations, which appears to be an inescapable part of gift-giving, and which is an issue for those in charge of charity fundraising as, according to the report, there is a tendency to give to organizations to which one has already given as they are assumed to be more reliable. The issue of trust is important, as it means that donors need to trust the organization if they are to be induced to give to a stranger. Finally, it is important to stress that all these forms of reciprocity are grounded on a specific institution: the nuclear or extended family in the case of a direct gift and bequest; charity organizations in the case of indirect gifts. In this last case, organizations are the integrative dimension because they are linked through tariffs or set prices;18 second, because they convey power relation within circuits of commerce; and, finally, because they have a specific relational form.

Forms of Integration and the Relational Dimensions of Economic Integration The relational dimension of Polanyian mapping has been left untouched by commentators so far. The present enquiry suggests that this might be given some further consideration, and the relevant relational forms added. The relational translation of the first three economic integrative forms does not raise difficulties (see Figure 11.4a): autarky and oikos are represented by an isolate in a sociograph; reciprocity grounded on the family as an institution is represented by either dyadic symmetrical links (simple reciprocity), or by asymmetrical dyadic links forming a closed chain so that, in the end, any entity gives and receives; redistribution is represented by a graph in which one entity, and only one, is singled out by a maximal degree of centrality (i.e. this entity has a degree of centrality equal to 1). The relational translation of the last form—the market system—is missing in Polanyi’s writings. Based on the two fundamental principles of equilibrium economics, I suggest that a Walrasian and an Edgeworthian graph can be used to flesh out the relational dimension of the market system understood as an exchange of information (see Figure 11.4b), from which the matching of goods and persons (the actual transactions) results.

17 Fondation de France, 2004, Baromètre de la générosité en France, p. 4 (see also Lefèvre 2010: 211). 18 “Insofar as exchanges at a set rate is in question, the economy is integrated by the factors which fix that rate, not by the market mechanism” (Polanyi 1957: 154).

293

Philippe Steiner (a)

Autarky

Reciprocity

Redistribution C

A

A

B A1

A3 A2

Walrasian

(b) S1

S2 S3

A

Edgeworthian D1

M1

M6

D2

M2

M5

D3

M3

M4

Figure 11.4. (a) Relational translation of Polanyian forms of economic integration; (b) Relational configuration of the market system

In a Walrasian market, participants, whether on the supply or on the demand side, are connected only to an auctioneer who is the central actor for the information graph, with a maximal degree of centrality, as in the redistribution form. However, in the market system the central entity does not collect resources that have been produced or demanded, but limits itself to centralizing information so that equilibrium prices can be achieved; then a real exchange of resources may take place in the economy according to the distribution of preferences among market actors.19 In an Edgeworthian market, each market entity is directly connected with all the others to negotiate and re-negotiate the price so that, in the end, the market converges toward an equilibrium price, theoretically equal to the Walrasian equilibrium price if the number of entities involved is high enough. How can the different forms of reciprocity mentioned above be translated into a relational graph? Let us first consider the organizational gift, the simplest form. In that case (see Figure 11.1), the relational translation involves a relational chain going from the individual placed at the start of the process when a gift is addressed to an organization; it then runs from this organization or series of organizations to the final individual at the end of the chain. The second form of reciprocity that I have considered is secondary redistribution

19 See Michio Morishima’s study of the Walrasian economy, and notably his demonstration of equivalence between this approach to general equilibrium through the so-called “tatônnement” process and the arbitrage process—the latter involves direct connections between market entities (Morishima 1977). When the information issue is solved, actual flows of exchanges depend on the matching technology of units demanded and supplied. In other cases, matching may produce specific exchanges structures, as demonstrated in the case of a financial market (Baker 1994).

294

Organizational Gift and Sociological Approaches to Exchange Percolation E

Personal link E

P

P

C

C

Figure 11.5. Percolation and bequest as forms of economic integration

among members of the household, or the household percolation of resources. In that case, the relational dimension is composed of a series of reciprocal exchanges between generations (elderly, parents, children), duplicating itself from generation to generation and, as a consequence, reinforcing their protective strength when three generations are living during the same period of time. This relational structure may further be characterized by the fact that downstream flows surpass upstream flows, because the elderly transmit more than they receive from their children and grandchildren. Finally, the bequest relational system involves the various generations that receive and give resource through successive bequests in an open and neverending process. The percolation and bequest relational systems may be sketched in a simple form as in Figure 11.5.20 These two relational systems overlap at any given point in time, provided that the three (sometimes the four) generations are alive (Masson 2009). This means that both forms of reciprocity overlap because of the equity issue within families and because of legal rules, notably in the French law of bequest that requires that wealth donated be taken into account when it comes to determine the shares of each person entitled to the bequest. This is of great significance when the wealth of the past generation takes the form of vineyards that one of the children continues to cultivate (Bessières 2010).

Conclusion All these forms of reciprocity amount to suggesting that, in our present market society, the transfer of resources outside market exchanges remains important; because of their importance in the domain of biological donation, it must be 20 Both forms of transfer of resource are at work simultaneously in the family and the household (see Masson 2009, Bessière 2010). It is worth pointing out that percolation is an illustration of the combination of reciprocity and redistribution—as a part of the resource received in a household can come from governmental redistribution—which is a “way to gain in power” as Polanyi stated (Polanyi 1957: 153).

295

Philippe Steiner

stressed that they are in no respect limited to older, even antiquated, forms of exchange. It must further be stressed that beyond transfusion and transplantation, organizational gift-giving is at work in many domains such as charity organizations, be it at the local or the global level, and many occurrences in which a given percentage of the price paid by the individual customer is given to a non-profit organization with the view of helping some individuals living in poor conditions. Thus, reciprocity in our present market societies takes different routes, much more complicated than Mauss and Polanyi ever thought possible. Particularly important is the fact that organizations play a major role in making possible some of these forms of reciprocity. Specialization and the division of labor apply to reciprocity as they do to the market system. As a result, gift-giving is heavily modified: organizations are powerful and costly, they blur or prevent the direct relation between the donor and the donee and, finally they extend the chain running from the initiating individual to the final recipient. It is likely that while thinking about organizational gift-giving, I have gone through some steps of Richard Swedberg’s theorizing process without knowing it, like Monsieur Jourdain in Molière’s Bourgeois gentilhomme, who discovered that he spoke in prose. At the very least, this chapter offers some insights on a specific form of reciprocity, suggests a name for it, and offers some relational patterns to give it a place within the vast domain of reciprocity. Providing an “explanation” or a clearcut statement of the rules that people follow when performing organizational gift-giving is still ahead; but this new integrative institution for the transfer of resources deserves the full attention of economic sociologists.

References Almeling, Rene (2011) Sex Cells. The medical market for eggs and sperm: Berkeley: University of California Press. Avare, Philippe and Philippe Eynaud (2008) L’autorégulation des associations faisant appel public au dons. In: Christian Hoarau and Jean-Louis Laville (eds), La gouvernance des associations. Economie, sociologie, gestion. Toulouse: Erès, 153–71. Baker, Wayne (1994) The Social Structure of a National Securities Market. American Journal of Sociology 89(4), 775–811. Barman, Emily (2007) An Institutional Approach to Donor Control: From Diadic Ties to a Field-Level Analysis. American Journal of Sociology 112(5), 1416–57. Beckert, Jens (2008) Inherited Wealth. Princeton University Press. Bessière, Céline (2010) De génération en génération. Arrangements de famille dans les entreprises viticoles de Cognac. Paris: Le Seuil.

296

Organizational Gift and Sociological Approaches to Exchange Boltanski, Luc (1993 [2007]) La souffrance à distance. Morale humanitaire, média et politique. Paris: Gallimard. Bourdieu, Pierre (1977) Algérie 60. Structures économiques et structures temporelles. Paris: Minuit. Bourdieu, Pierre (1980) Le sens pratique. Paris: Le Seuil. Cabrol, Christian (1987) Mes 400 greffes cardiaques à l’hôpital de la Pitié. Paris: Plon. Caillé, Alain and Jacques Godbout (1992) L’esprit du don. Paris: La Découverte. Chanial, Philippe (ed.) (2009) La société vue du don. Paris: La Découverte. Coleman, James (1982) The Asymetric Society. Syracuse: Syracuse University Press. Comte, Auguste (1851–54 [1890]) Système de politique positive. Traité de sociologie instituant la religion de l’humanité. Paris: Garnier. Descola, Philippe (2005) Par-delà nature et culture. Paris: Gallimard. Fondation de France (2004) Baromètre de la générosité en France. Paris: Fondation de France. Fondation de France (2008) Les fondations en France en 2007. Fondateurs, secteurs d’intervention, poids économique. www.fondationdefrance.org. Paris: Fondation de France. Hann, Chris and Keith Hart (2011) Economic Anthropology. History, Ethnography, Critique. London: Polity Press. Healy, Kieran (2004) Altruism as an Organizational Problem: The Case of Organ Procurement, American Sociological Review 69(June), 387–404. Healy, Kieran (2006) Last Best Gifts. Altruism and the Market for Human Blood and Organs. Chicago: University of Chicago Press. Hochschild, Arlie (2003) The Managed Heart. Berkeley: California University Press. Hubert, Henri and Marcel Mauss (1898) Essai sur la nature et la fonction du sacrifice. In: M. Mauss (ed.), Œuvres. Les fonctions sociales du sacré, Paris: Minuit (1975), 193–319. Lefèvre, Sylvain (2010) ONG et C . Mobiliser les gens, mobiliser l’argent. Paris: Presses universitaires de France & Le Monde. Masson, André (2009) Réciprocités indirectes : typologies et modèles économiques. In: André Masson, Des liens et des transferts entre générations. Paris, édition de l’Ehess, 145–69. Mauss, Marcel (1925 [1980]) Essai sur le don. Forme et raison de l’échange dans les sociétés archaïques. In: Marcel Mauss, Sociologie et anthropologie. Paris: Presses Universitaires de France. Melh, Dominique (2008) Les enfants du don. Procréation médicalement assistée: parents et enfants témoignent. Paris: Robert Laffont. Miranda, Blanca, et al. (2003) Optimizing Cadaveric Organ Procurement: the Catalan and Spanish Experience. American Journal of Transplantation, 3(10), 1189–96. Morishima, Michio (1977) Walras’ Economics. A Pure Theory of Capital and Money. Cambridge: Cambridge University Press. Perrin-Heredia, Ana (2011) Logiques économiques et comptes domestiques en milieux populaires. Ethnographie d’une zone urbaine sensible. Ph.D. thesis, Université de ReimsChampagne Ardenne. Piketty, Thomas (2011) On the long-run evolution of inheritance in France, 1820-2050. Quarterly Journal of Economics 126(3), 1071–131. Polanyi, Karl (1957 [1968]) The Economy as Instituted Process. In George Dalton (ed.), Primitive, Archaic and Modern Economies. Essays of Karl Polanyi. New York: Anchor Books, 139–74.

297

Philippe Steiner Polanyi, Karl (1966) Dahomey and the Slave trade. An Analysis of an Archaic Economy. Seattle: Washington University Press. Roth, Alvin (2007) Repugnance as a constraint on markets. Journal of Economic Perspectives 21(3), 37–58. Roth, Alvin, T. Sonmez, and M.U. Unver (2004) Kidney exchange. Quarterly Journal of Economics 119(2), 457–88. Roth, Alvin, T. Sonmez, and M.U. Unver (2005) A kidney exchange clearinghouse in New England. American Economic Review 95(2), 376–80. Roux, Sébastien (2011) No Money, no honey. Economies intimes du tourisme sexuel en Thaïlande. Paris: La Découverte. Steiner, Philippe (2008) L’héritage au 19e siècle en France: loi, intérêt de sentiment et intérêts économiques. Revue économique 59(1), 73–95. Steiner, Philippe (2009) Society and the Modern Economy: Who Was Right? Polanyi, Zelizer or Both? Theory and Society 38(1), 97–110. Steiner, Philippe (2010) La transplantation d’organes. Un commerce nouveau entre les êtres humains. Paris: Gallimard. Testart, Alain (2007) Critique du don. Études sur la circulation non marchande. Paris: Syllepse. Théry, Irène (2010) Des humains comme les autres. Bioéthique, anonymat et genre du don. Paris: Editions de l’Ehess. Titmuss, Richard, 1970 [1997], The Gift Relationship. From Human Blood to Social Policy, London: LSE Books. Weber, Florence (2002) Pour penser la parenté contemporaine. In Danièle Debordeaux and Pierre Strobel (eds), Les solidarities familiales en questions. Entraide et transmission. Paris: Librairie générale de droit et de jurisprudence, 73–106. Zelizer, Viviana (2005) The Purchase of Intimacy. Princeton: Princeton University Press. Zelizer, Viviana (2011) Intimate Lives: How Culture Shapes the Market. Princeton, Princeton University Press. Zelizer, Viviana (2012) How I Became a Relational Economic Sociologist and What Does that Mean. Politics & Society 40(2), 145–74.

298

Concluding Reflection

12 What Kind of Re-Imagining Does Economic Sociology Need? Neil Fligstein

We are now almost 35 years into the era of modern economic sociology if one takes the publication of Harrison White’s 1981 paper entitled “Where do markets come from?” as the origin point. The field has literally gone from nowhere to being one of the central fields in sociology. The field has at least three organizational manifestations: the Society for the Advancement of Socio-Economics (S.A.S.E.), the American Sociological Association Economic Sociology Section, and the Economic Sociology Research Network at the European Sociological Association. The A.S.A. Section has over 800 members and S.A.S.E. now has over 1000. The European Economic Sociology Newsletter, published from the Max Planck Institute in Cologne, has over 2100 subscribers. Articles on economic sociology now appear regularly in all of the leading journals of sociology in America and Europe. Mark Granovetter’s (1985) paper is the most cited paper in the post-war era. The journal produced by S.A.S.E., called the Socio-Economic Review, is the eleventh most cited journal in sociology, putting it in the top 8 percent of such journals. These figures do not include scholars who identify with economic sociology as a field with primary affiliations being the American Management Association, the European Group on Organizational Studies (E.G.O.S.), and the various political science organizations in which political economy and the study of the varieties of capitalism are active topics. My purpose in this chapter is to connect this dramatic increase in scholars interested in using the term “economic sociology” to identify their intellectual identities to the issues raised by this volume. I want to take up three topics. First, I want to discuss the origins of the field from the perspective of viewing it as a kind of social movement. My main point is that when

Neil Fligstein

S.A.S.E. was formed, the A.S.A. Section was created, and the European Economic Sociology Newsletter was founded, the scholars who did so all agreed to a broad definition of the field to attract the widest number of scholars who may have had quite disparate theoretical and empirical interests. This openness was a necessity given that the field was wide open and no one really knew what economic sociology was. It was also a necessity because there was a lot of interest in producing such a field but little or no consensus as to what it would look like. The effect of this openness was to unite under a single identity umbrella a lot of research programs. Many of these programs, such as network analysis, political-cultural analysis, performativity, institutional analysis, political economy, and some forms of cultural analysis are quite mature at this point. Second, I want to present some recent work done by Dan Wang (2012) where he maps out how scholars teach economic sociology as a set of works. His goal is to try and identify if all of this intellectual activity has resulted in a canon of works that scholars feel compelled to teach to students. The data show that these research programs form a kind of set of canonical works, which are consistently taught. But having said this, many of these research programs do not actively try and take other programs into account in what they do. Indeed, they have kept their purity by being mostly self-referential. These results mean that economic sociology is quite a mature field of study, one that has a fair number of research programs and a lot of organizational and institutional structure to support the circulation of these ideas. One way of thinking about the research programs is that as new ones emerge, they form groups and occupy space under an overarching organizational and publications structure that can be used to disseminate the results of the research programs to an audience already identified as being interested in economic sociology. But the purpose of this volume is to re-imagine economic sociology. So, my third topic will be to consider how this existing structure both creates opportunities for new progress and, alternatively, blocks such thinking. Richard Swedberg has argued in this volume that the really useful thing to have come out of economic sociology is a set of concepts, a kind of conceptual toolbox. I have several critiques of his perspective. One is that a toolkit view of concepts misses the common themes and connections between topics which would allow us to order our toolkit into a typology. More importantly for the discussion here, I want to argue that even if this toolkit was given more structure, this perspective misunderstands how the camps of economic sociology have created research programs and that the rewards for keeping research programs pure are high. We need to explicitly recognize that the different research programs use different concepts, may be trying to explain quite different things, and are organized to keep out impure thoughts. 302

What Kind of Re-Imagining Does Economic Sociology Need?

This means that any attempt at re-imagining economic sociology must confront its mature structure both organizationally and also as a set of research programs. Research programs are broad ambitious conceptual frameworks that are allied with a research methodology that can be used easily in a wide variety of contexts. Such programs frequently depend on a particular scholar engaging a set of graduate students and perhaps a set of colleagues. The biggest rewards in social science are now for individual scholars to work to create new research programs. This offers an opportunity for collaborative work oriented toward a narrow set of goals and the most successful of these programs provides us with new knowledge. But it also pushes scholars into trying to make what they are doing sufficiently distinctive, encouraging the creation of jargon and a willful ignorance of similarly placed perspectives. Although it is useful in the initial phase of creating a new research program to have blinders on, in the long run, it is important for these research programs to eventually begin to confront one another. Once a research program has begun to run out of steam, it loses its interests to even its adherents and ends up disappearing. This means that the opportunity for the accumulation of knowledge is lost. It also misguided given what we know about scientific innovation. Brian Uzzi and his colleagues (Uzzi et al. 2013) show that most innovation in natural science has occurred when scholars work at the interstices between research programs and apply what we already know in one context to new contexts. Although I like many of the chapters in this volume, and I appreciate what scholars are trying to do, an alternative tactic to reimagine economic sociology would encourage us to put already existing research programs in dialogue, particularly on empirical puzzles that pose difficult problems for a given research program. This would require explicitly acknowledging and borrowing from different research programs and not working to produce such programs as if they existed only unto themselves. This already goes on even in sociology. What I am arguing for is more explicit consideration of other programs in economic sociology. Without such crossfertilization, the field is likely to never be much more than a set of faddish projects, with each ending up an intellectual curiosity forgotten by almost everyone.

The Organizational Origins of Economic Sociology The publication of White’s (1981) and later Granovetter’s (1985) paper are some of the scholarly and intellectual roots of economic sociology. But equally important, scholars have to organize themselves by going to their annual meetings, asking for and organizing sessions, organizing special conferences, and, finally, creating more permanent associations and publication 303

Neil Fligstein

outlets. An intellectual movement shares many similarities with a social movement. A successful intellectual movement takes advantage of a political opportunity just as social movements do. Social movements often attract disparate groups with disparate agendas. Those groups will vie to create a collective identity that works to encompass many of them and define who is a member and who is an outsider. Intellectual social movements work to do a similar thing. They create a collective enemy (an “other”) and work to define a collective identity that offers a moral justification for the superiority of the in groups and generates or unites a set of research programs. Such identities might be inherently vague in order to provide an umbrella for the widest possible set of groups. If successful, a social movement will change a political order. It will become routinized and engage in normal politics. Intellectual movements become routinized when they produce permanent works, a canon, a set of agreed-on research programs, and organizational and publication outlets for the dissemination of its perspective. When we try to organize intellectual fields for non-specialists, we track this out in the way proposed by Patrik Aspers, Nigel Dodd, and Ellinor Anderberg in the Introduction to this volume. We isolate camps of scholars who share a perspective and a similar set of research problems. We discuss their main ideas and results. But this approach, while useful, misses the historical process by which these camps of scholars came to join the fray and the social movementlike processes that help structure the boundaries and identities of actors. We can learn a lot about a field by understanding how these intellectual ideas did not emerge in a vacuum, but instead were the outcome of a set of organizing processes that produced the more durable organizations and publication outlets for the field. The intellectual political opportunity that produced economic sociology was the collapse of Parsonian theory, and, to some degree, the failure of Marxism in the 1970s. As Aspers, Dodd, and Anderberg note, Parsonian theory gave the economy as an object of study to the economists. The collapse of that theory provided a legitimate opening for a re-entry of sociologists into the realm of markets. Marxism failed to generate a theory of the economy that matched the dynamism of capitalism and the myriad ways that it came to produce wealth, income, rules, and to control social conflict. Scholars still wanted to understand how capitalism worked and how it created differentiated forms and the development of welfare states. For many, Marxism was not an adequate theoretical structure to account for the failure of socialism to emerge and the failure of societies that claimed to be communist from creating just and fair societies. These twin opportunities brought about a resurgence of interest in approaching market processes. But the question was how to do that intellectually? White’s paper opened up this possibility by asserting that markets did 304

What Kind of Re-Imagining Does Economic Sociology Need?

not emerge from anonymous actors but from actors watching one another and orienting their actions to each other. This had a large dispelling effect on a generation of scholars who realized they could enter the market realm with sociological tools. But White’s perspective was not the only one to emerge. It is here that we see a social movement-like process by which disparate groups with different research agendas emerged to claim the terrain of economic sociology. First came the problem of defining who the enemy was. That was easy: neoclassical economics. But the opposition to neoclassicism was produced by a set of criticisms, some of which originated in moral theory, some of which came from political economy, and others which had their origin in organizational theory. All of these perspectives shared the view that neoclassicism was wrong because it was wrong empirically, morally defective, and damaging when used to create a set of social policies. The goal of all the builders of organizational structures for economic sociology was to unite these critiques and to produce a broad tent under which scholars from many sub-fields in sociology and from other related disciplines in political science, business studies, law, public policy, and to some degree heterodox economics, could come together. I believe that this heterogeneity of the critiques of neoclassicism made it imperative to find a collective representation for the newly emerging field that did not try to squash one conception of the field or force everyone in the field to be part of the same research program. This does not mean that there has not been competition between research programs to dominate the field. It is certainly the case that some of the scholars who worked on particular research programs did have such imperialistic goals. But, in spite of that, there has been a proliferation of research programs precisely because the economy is a large potential object of study and there are many possible research sites for many different sociological tools. To their credit, to gather momentum and produce cooperation between groups with disparate research programs, the scholars who helped put in place organizations realized that narrowing the focus of the field would make it more difficult to grow and sustain it and expanding it and making it open-ended would more likely result in a permanent re-orientation. It is useful to go back to the founding documents of some of these organizations to see what their organizers had in mind. The Society for the Advancement of Socio-Economics was founded in 1989 by Amitai Etzioni. Etzioni wrote a book on the economy called The Moral Dimension (Etzioni 1990), in which he argued for a communitarian approach to politics that would emphasize how everyone in a society was a member of that society and thereby should be treated in a dignified fashion. Communitarianism disagreed vehemently with the neoclassical view that a capitalist economy left unfettered was the economy likely to produce the most good for the greatest number. 305

Neil Fligstein

I went to several of the early meetings that Etzioni organized and they drew on scholars from a myriad of perspectives and disciplines. As S.A.S.E. became a permanent organization, it incorporated some of Etzioni’s original concerns but it intentionally viewed its goal as operating as an umbrella for fellow travelers opposed to neoclassicism in all of its guises. It is useful to produce a short snippet from the organization’s mission statement:1 As an emerging meta-discipline, socio-economics begins with the assumption that economics is not a self-contained system, but is embedded in society, polity, and culture. Socio-economics regards competition as a subsystem encapsulated within a societal context that contains values, power relations, and social networks. The societal context both enables and constrains competition. Socio-economics assumes that interests are not necessarily or automatically complementary and harmonious, and that societal sources of order are necessary for markets to function efficiently. Socio-economics further assumes that individual choices are shaped by values, emotions, social bonds, and moral judgments rather than by narrow self-interest. There is no a priori assumption that people act rationally or that they only pursue self-interest or pleasure. Methodologically, socio-economics regards inductive studies as co-equal in standing with deductive ones. For example, a study of how firms actually behave has the same basic merit as treating the firm as an analytic concept in a mathematical model. Inductive inputs and deductive derivations are assumed to correct and thus balance each other. Socio-economics is both a positive and a normative science. That is, it openly recognizes its policy relevance and seeks to be self-aware of its normative implications rather than maintain the mantle of an exclusively positive science. S.A.S.E. has little interest in criticizing neoclassical economics per se, and seeks to develop alternative approaches that are predictive, exemplary, and morally sound. Socio-economics does not entail a commitment to any one ideological position, but is open to a range of positions that share a view of treating economic behavior as involving the whole person and all facets of society.

The Economic Sociology Section of the American Sociological Association was founded with a similar view. In February 1998, Brian Uzzi and I organized a meeting in Berkeley to discuss the degree to which economic sociology was a field. One of the goals of our meeting was to let the gathered participants decide what they wanted to discuss and to provide for them venues for small groups to debate issues and bring them to the larger group for discussion. My memory was that many of the people who came to the conference were skeptical that economic sociology was really a field. Many thought it was more of a set of loose research programs, many of which were in opposition 1

306

https://sase.org/about-sase/about-sase_fr_41.html.

What Kind of Re-Imagining Does Economic Sociology Need?

or orthogonal to one another. But everyone left feeling that we had in fact found some common ground. The most significant thing to come out of that meeting was the move to form an economic sociology section. Wayne Baker, professor at the University of Michigan, more or less single handedly championed this agenda.2 It is useful to quote from the mission statement of the section on its formation: The mission of the Section on Economic Sociology is to promote the sociological study of the production, distribution, exchange, and consumption of scarce goods and services. It does so by facilitating the exchange of ideas, information, and resources among economic sociologists, by stimulating research on matters of both theoretical and policy interest, by assisting the education of undergraduate and graduate students, and by communicating research findings to policy makers and other external audiences. Economic sociology is a distinct subfield. It is ecumenical with respect to method and theory. Economic sociologists use the full range of qualitative and quantitative methods. No theoretical approach dominates; the field is inclusive, eclectic, and pluralistic.3

As is obvious, the economic sociology section was founded with the same broad premise as S.A.S.E. Instead of creating an organization that would limit its members in terms of what they could study and how they could study it, the section was meant to be open to anyone and respect all approaches. Finally, Richard Swedberg, Jens Beckert, Johan Heilbron, and Ton Korver decided to create the newsletter at the annual meeting of the European Sociological Association in Amsterdam in August 1999.4 It is useful to consider Richard Swedberg’s argument in explaining the purpose of the newsletter in its first issue: While in the United States economic sociology has been moving ahead at a brisk pace at least since the mid-1980s, this is much less the case in Europe. It is true that during the last ten-fifteen years some of the best-known sociologists in Europe— such as Pierre Bourdieu, Niklas Luhmann, Claus Offe and Anthony Giddens—have all discussed economic topics in their works and thereby made contributions to economic sociology. But they have usually done so in their capacity of general sociologists, and they have not made a call for, or otherwise encouraged, the development of a distinct economic sociology. Today, however, the situation is somewhat different in several European countries; and since a few years people have started to appear who identify themselves as economic sociologists and also have something novel to say. It is my belief that there exist more of these interesting, new practitioners of economic sociology than is currently known and also that most economic

2 For Wayne Baker’s account of this, see http://www.asanet.org/Sectionecon/documents/ FormationofEconSection.pdf. 3 http://www.asanet.org/Sectionecon/documents/FormationofEconSection.pdf. 4 See the first issue and its justification at http://econsoc.mpifg.de/archive/esoct99.pdf.

307

Neil Fligstein sociologists in Europe do not know about each other’s existence. What is happening in Italy is rarely known to sociologists in Germany or Sweden and vice versa. Hopefully this newsletter will change this situation a bit—and in other ways be of help in advancing the cause of economic sociology in Europe. Economic sociology is often defined as the application of the sociological perspective to economic phenomena as well as to phenomena which are economically relevant and economically conditioned (Max Weber). This is a very broad definition, and practically all varieties of economic sociology can be made to fit under it. It is also my hope that this newsletter will encourage all of the different types of economic sociology that already exist as well as those which are about to surface.

Richard Swedberg and his colleagues decided that for economic sociology to flourish in Europe, scholars should define themselves into the group and in doing so, join the ongoing conversation. Indeed, the European Economic Sociology Newsletter functioned as much to create economic sociology as a field in Europe as it did to disseminate it. It did so not by defining what was and was not economic sociology, but by letting scholars work to find their place in an emerging discursive space. I conclude that the founding of economic sociology as a field brought together disparate scholars with varying research programs that were interested in pursuing economic issues and opposing the hegemony of economics as a discipline over our understanding of those issues. The point of building organizations was to create an umbrella broad enough to attract lots of people and at the same time, one that would not force conformity to either a theory or a method. This reflected very much the social movement-like character of economic sociology at its origin. Scholars were struggling to find ways to unpack how capitalist societies worked. They were also looking for fellow scholars with whom to communicate. Being against neoclassicism and vaguely for trying to embed the economy in society, was enough of a collective identity to bring people together.

The Intellectual Structure of Economic Sociology Research programs that were evolving in the 1980s and 1990s formed the core of these organizations, their publications, and meetings. This intellectual ferment has created a canon of works in economic sociology. In a recent issue of the newsletter for the Economic Sociology Section, Dan Wang examined a set of syllabi for classes that were currently being taught at major research universities.5 The data were collected by asking the membership of 5 See http://www2.asanet.org/sectionecon/accounts12sp.pdf. All discussion in this section of the chapter is taken from that piece.

308

What Kind of Re-Imagining Does Economic Sociology Need? Table 12.1. Twenty most canonical authors by number of syllabus appearances Rank

Citation code

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

granovetter, m zelizer, v fligstein, n polanyi, k swedberg, r bourdieu, p uzzi, b dimaggio, p carruthers, b mackenzie, d weber, m stark, d powell, w burt, r callon, m dobbin, f biggart, n davis, g krippner, g Fourcade, m

Number of syllabus appearances 85 72 60 51 47 46 41 35 33 32 29 26 25 24 23 23 22 22 22 21

Number of unique references in syllabi 12 23 12 9 13 15 6 10 13 7 6 8 6 10 7 7 8 10 7 6

See Wang (2012) for more information about the papers.

the section to submit their syllabi for classes they taught. There were 55 syllabi submitted and these came from individuals teaching in the U.S. and Europe and included scholars teaching not just in sociology but also business schools, public policy programs, and political science. Most of the syllabi (45) came from American universities and therefore there is a bias towards the way that economic sociology tends to get taught in American universities. Table 12.1 contains a list of the 20 most cited authors on the syllabi. I note that if authors had multiple works cited, they were counted multiple times. Hence, three of the authors (Granovetter, Zelizer, and Fligstein) had more than 55 appearances. Not surprisingly Mark Granovetter leads the list. The list represents the field in many ways and maps onto the discussion by Aspers, Dodd, and Anderberg in this volume. But the list does not tell us much about how these readings form identifiable research programs, programs where the works share a common intellectual perspective. Figure 12.1 presents a network analysis of the articles cited in the syllabus. Figure 12.1 explicitly examines how scholars who teach economic sociology put together reading lists that map out debates in the field. The analysis is based on the appearance of readings in a given week on each syllabus. Hence, works that appear together on the syllabus in a given week are counted as having a link to each other. The idea is that when scholars teach the field, they put together lists where a set of readings are thought to speak to each other. 309

Neil Fligstein hochschild, a-2000

blair-loy, m-2003 george, s-2005 cohen, l-1996 edin, k-1997 almeling, r-2007 hochschild, a-1989 titmuss, r-1971 zelizer, v-2005 healy, k-2006 velthuis, o-2005 dobbin, f-2001

zelizer, v-1978

callon, m-2007 espeland, w-2007 mackenzie, d-2004 callon, m-1998 guala, f-2001 mackenzie, d-2003 mackenzie, d-2006 ferraro, f-2005 mitchell, t-2005 breslau, d-2003 carruthers, b-2010 mackenzie, d-2011

piore, m-1996

frank, r-1985 quinn, s-2008

fligstein, n-2010

swedberg, r-2003 sahlins, m-1972 dobbin, f-2004 thrift, n-2001 western, b-1994 geertz, c-1978 simmel, g-1903 lie, j-1997 swedberg, r-2005 baker, w-1984 bourdieu, p-1983 block, f-1984 fourcade, m-2007 coase, r-1937 bourdieu, p-2002 braudel, f-1977 hirschman, a-1982 smelser, n-2005 fligstein, n-1996 evans, p-1995 nee, v-1989 friedman, m-1953 weber, m-1922 fligstein, n-2007 bourdieu, p-2005 sen, a-1977 smith, a-1776 polanyi, k-1944 hall, p-2001 robbins, l-1932 marx, k-1848 podolny, j-1993 polanyi, k-1957 hirschman, a-1977 fligstein, n-2001 weber, m-1905 swedberg r-1998 granovetter, m-2005 williamson, o-1981 podolny, j-2005 collins, r-1980 powell, w-1990 beckert, j-1996 white, h-2002 mckinley, w-1995 white, h-1981 nishiguchi, t-1998 swedberg, r-2001 sandel, m-1998 dore, r-1983 khurana, r-2002 rojas, f-2006 granovetter, m-1985 leifer, e-1987 krippner, g-2002 uzzi, b-1999 krippner, g-2001 portes, a-1993 krippner, g-2007 burt, r-1992 dimaggio, p-1998 uzzi, b-1997 granovetter, m-1973 uzzi, b-1996 powell, w-2005 bourdieu, p-1984 williamson, o-1993 smith-doerr, l-2005 zelizer, v-2012 burt, r-2005 powell, w-1996 rauch, j-2001

Figure 12.1. Network diagram of works that were linked within a single week’s assignment in syllabi. See Wang (2012) for a description of the graph

One can see four and perhaps up to six distinct clusters here.6 Three of the clusters are relatively well defined and appear to reflect bodies of work that are independent of one another. On the far left of the diagram are works centered on Karl Polyani and, not surprisingly, they tend to be oriented towards political economy. At the top in the center are a set of works that feature Zelizer and others associated with culture and issues of morality in economic sociology. These works are linked back to the main group through Clifford Geertz. This represents one version of the cultural turn in economic sociology. The third distinct group is work in the social studies of science tradition that focus mostly on the sociology of finance but also include recent work on commensuration.

6 Wang’s analysis of this figure concludes ““Altogether, the analysis suggests that this rather small group of articles that forms the canon in economic sociology is largely rooted in two distinct traditions—a relational-network perspective and a cultural/political approach to understanding the social basis of economic activity.” (2012: 4).

310

What Kind of Re-Imagining Does Economic Sociology Need?

The large main group at the bottom of the graph is connected through Granovetter’s work. I would argue that this group reflects the various ways that scholars have used multiple notions of embeddedness to study economic life. Although there is a strong sub-group of scholars easily identified as working in the network tradition (Uzzi, Burt, Powell, White, Podolny, and Leifer), that group does not dominate this block. Indeed, many of the authors listed have contributed to the debate over different forms of embeddedness (such as Borudieu, Krippner, Swedberg, Fligstein, and even non-sociologists like Oliver Williamson), and much of that conversation appears to be captured in the graph. My interpretation of this graph is that it captures key features of how scholars divide up the canon when they teach economic sociology. There is clearly a political economy, cultural, network, and science studies flavor to what people teach. But there is also a dense set of readings that takes up broadly what economic sociology is and how embeddedness is used by different scholars to study the economy in different ways. Taken together, I would argue that the field is mature in several ways. First, there now exists a set of organizations, meetings, and publication venues to which scholars who want to be identified as economic sociologists can turn to find audiences and discussion for their work. Second, that field has coalesced around a set of works that has produced a canon that picks up the various themes that define the distinct contributions of the sociological approach to the economy. At this historical moment, if one is going to re-imagine the field of economic sociology, it is within these common understandings of what that field is and the organizations and institutions that define it.

What Barriers and Opportunities Are There to Re-imagining Economic Sociology? One of the problems of looking at what scholars are teaching is that there may be close to fifteen or twenty current research programs, many of which are only loosely captured in what people are teaching. So, for example, Aspers, Dodd, and Anderberg identify a “cultural turn” in economic sociology. But, there might be a half dozen such research programs ongoing that invoke culture in some way in their approach (many of which are represented in this volume). So, I consider Bruce Carruthers, Frank Dobbin, Laurent Thévenot, Nina Bandelj, Nigel Dodd, and Patrik Aspers’ papers all to have some interest in culture. A cursory read will cause the interested reader to scratch their head at what they have in common. Existing research programs that focus on the performativity of economics, identities, the role of law in defining markets, processes of commensuration, the role of conventions in markets, the role of meaning in market action, and the moral categories defined by 311

Neil Fligstein

actors in their interactions with markets, all seem to emphasize very different conceptions of culture. Richard Swedberg’s suggestion in this volume (Chapter 1) is that we not worry about this proliferation of research programs but instead concentrate on the bits of theory that have come from classical and modern versions of economic sociology that offer us guidance for research practice. The appendix to his chapter gives a set of examples of terms he considers to be useful in such an endeavor. Reading the list is jarring. On the on hand, he offers general terms like “class” and “money,” on the other, extremely specific terms like the “motherhood penalty” and the “Zelizer circuit.” I know he does not intend this list to be exhaustive in any way. But I believe it sets up two kinds of problems for students who might read it and try to use it in their work. First, such a list implies that these terms bear little or no relationship to each other. This is extremely misleading. A more useful kind of list would provide a typology not unlike say, the Journal of Economic Literature’s classification of topics. So, for example, the term “making out” was coined by Michael Burawoy to describe why some blue collar workers came to buy into and support the system that exploited them on the shop floor. If we had a typology of more general and more specific terms, this idea would usefully be located under the broader topic of the working class and class consciousness, which itself might be located under the theory of class more generally, which is then subsumed under Marx’s theory of capitalism. Such a set of concepts would not be a toolbox but more like a Linneasian system of classification drawing links between terms that share common problems and are embedded in larger conceptions. But even more important from the perspective of this chapter, is that such an approach ignores that many of these research terms occupy distinct roles in particular research programs. Indeed, the field is quite divided with regard to what scholars are actually doing. Scholars who are interested in the dynamics of global capitalism from a Marxian perspective do not find themselves in dialogue with scholars who take their inspiration from Bruno Latour’s science studies approach (as illustrated in Karin Knorr Cetina’s contribution to this volume, Chapter 4). One might argue that this is not important. Research programs serve the useful purpose of bringing together a set of scholars who are thinking about a particular empirical problem from a particular point of view. But even if one grants that this is true, they can have a long-run negative impact on the development of a field. Both Max Weber and Thomas Kuhn recognized that sociology as a discipline might be doomed to never cumulate knowledge. Instead, sociology would proceed as a set of research projects which reflected the current concerns and interests of a small set of scholars. When the group hit a dead end in producing novel results, the research program would die out only to be replaced by another one. 312

What Kind of Re-Imagining Does Economic Sociology Need?

But it is here that we could, if we choose, take a lesson from our colleagues in the natural sciences. In a recent paper in the journal Science, Brian Uzzi and his colleagues (2013) analyzed over 16 million scientific papers in physics, chemistry, and biology, published since the Second World War. Their goal was to try and figure out how new and innovative approaches could be generated from existing work. They discovered something quite fascinating. Work that borrowed ideas from nearby existing research and applied it in a new setting turned out to produce the most fruitful innovations. The lesson to be learned is that one should not shut oneself off from work that is deemed irrelevant to what one is doing, but instead, one should be on the lookout for solutions to one’s research problems in already existing work in other fields. In our attempt to re-imagine economic sociology, one lesson to be learned is for us to break down the barriers between these research groups (and indeed between scholars working on quite different topics on sociology) in our search for useful ways to think about new things. Thus the idea is not to work on the edge of some existing research program with the goal of expanding it. But instead, one should be on the lookout for new ideas to borrow to make sense of what should be done next. I believe that something like this is going on all of the time, even in sociology. Granovetter’s intentional re-imagining of Polanyi’s use of embeddedness worked to create the collective identity of the field. One big source of opportunities is empirical puzzles that one research program uncovers but is unable to explain. So, for example, the sociology of finance has alerted us to the importance of financial instruments, market devices, and commensuration in organizing these markets. But this perspective has produced a functionalist account of these markets whereby these cultural and organizational features structure market interactions. Most of these accounts stress how individual actors or firms are not the real important actors in these markets (Knorr Cetina, 2005). While the idea has proved useful in understanding how some of these markets work, the past five years have shown that the main players in most of the largest financial markets have colluded and committed fraud in the largest international financial markets. This notion, that a small set of firms engaged in behavior could have fixed the L.I.B.O.R. (London Inter Bank Offered Rate) or colluded to control prices in the global foreign exchange markets, implies that other kinds of social process matter for the structuring of activities in financial markets. This implies that a good explanation needs to include work from other research programs. This intuitively leads back to Harrison White’s original idea that market participants watch each other, and my own view that market actors will engage in any kind of activities that they can get away with to produce stability for themselves and guarantee profits. The interesting question this raises is when do market devices work to 313

Neil Fligstein

produce stable markets and when can they be exploited for gain by a rentseeking actor? A good theoretical answer to this question is likely to advance the field by combining insights from multiple research programs.7

Conclusion I end on a whimsical note. Every year, odds makers around the world rank the possible candidates to win Nobel prizes in Economics. Mark Granovetter almost always appears on that list. It would be spectacular for our field if he won. We would all of sudden move from a troubled discipline (sociology), to a legitimate approach to understanding how the economy and society are connected. But when a journalist called you up to comment on the prize and the research that we all do to make sense of Granovetter’s original insight, what would you say? I, for one, would emphasize a broad view of embeddedness, one that has led us to form alternative ways to think about how markets work that includes networks, market devices, meaning, and values, and also discusses how governments and markets have co-evolved. I would suggest to the reporter that Granovetter’s contribution has pushed not just us, but also the economics profession to reconsider the role of social relationships in market structures. Hopefully, I (and you) could be coherent enough that the reporter got the point and kept calling. Hopefully.

References Etzioni, Amitai (1990) The Moral Dimension. New York: Free Press. Granovetter, Mark (1985) Economic action and social structure: the problem of embeddedness. American Journal of Sociology 90, 481–510. Knorr Cetina, Karin (2005) How are global markets global? In: K. Knorr Cetina and A. Preda (eds), The Sociology of Financial Markets. New York: Oxford University Press, 38–61. MacKenzie, Donald (2003) Long-Term Capital Management and the sociology of arbitrage. Economy and Society 32(3), 349–80.

7 I note that Donald MacKenzie’s account of the failure of Long Term Capital Management, a large hedge fund, ends up explaining that failure not on the technical complexity of the positions the firm took, but instead on the fact that the firm’s principal competitors knew what it was doing and bet against it (MacKenzie 2003).

314

What Kind of Re-Imagining Does Economic Sociology Need? Uzzi, Brian, Satyam Mukherjee, Michael Stringer, and Ben Jones (2013) Atypical combinations and scientific impact. Science 342, 468–72. Wang, Dan (2012) Is there a canon in Economic Sociology? Accounts: The Economic Sociology Newsletter 11:2. http://www.asanet.org/sectionecon/documents/accounts12sp.pdf (accessed on May 15, 2015). White, Harrison (1981) “Where do markets come from?” American Journal of Sociology 86, 517–47.

315

Index

‘100 per cent money’ (Fisher) 88–90 action theory, certification and 199 actors attentional regime 120–1 autonomous 252–71 behaviour 151–3 blind faith 205 certification 214 cognitive orientation 57 competence 12 cooperation 26 coordination 12, 201n, 215 counterparty 115 decision-making 149, 150–1 disappearance 199 discretion 144 economic activity 43, 58, 313–14 Economic Man (homo economicus) concept 5, 253 economic reasoning 10, 183, 229, 243 embeddedness 14, 158 expectations of future 24, 58, 61–75, 162, 204n, 211 finance 106 game theory 23 homogeneity 114 ideal types 39–40, 79, 265n identity 253–6, 304–5 importance 313 networks, see networks; network ties observing eachother 229 organizational gift 281–2 participation 111 perspective of 20, 190 power 175 practicality 244 pragmatic turn 205 primary 114 relationships 26, 105, 109, 149, 227–44, 294 reliance on ‘generalized information’ 199 situated interactions 11 social conception 19 state actors 155

study of 116–19, 311–12 temporal orientation 24, 58, 61–75, 162, 204n, 211 theory acceptance by 188 transactions 287 agency autonomous 253n captured agents 100 choice and 149 cooperative 169 dynamic activity of 63 economic perspective, as 149 embeddedness and 5 ethnography and 213 formalization and 195, 209 freedom and 260 identity and 261–71 identity of agents 117 level of 110, 112 loyalty to 117 mutual dependency of agents 198 performativity and 20 primary 118 principal and 149, 158, 160, 169–70, 232 relation to material world 198–9, 201, 203n shifted 115 social construct, as 5 social structure, and 3, 255 structure and 3 surprise and 210 theory 179, 186, 187, 190 valuation and 26 arm’s length relationships, see network ties asymmetry of power 238–9 attentional regime 120–2 bank control theory 179–80 Bank of the People, see Proudhon, Pierre-Joseph Beckert, Jens 5, 12, 39, 204n, 213n, 243, 291n, 307, 310 behaviour of actors 151–3 Benjamin, Walter 90 bequest, organizational giving and 295

Index Bitcoin (Nakamoto) 90–2 blind faith 205 Block, Fred L. 43, 234, 310 Boltanski, Luc 11, 12, 205, 280n Bourdieu, Pierre 3, 5, 11, 22, 48, 60–3, 205, 275, 291, 307, 309, 310 Burt, Ronald 229, 231, 309, 310 business practices, embeddedness 187 capitalism China 153–70 democracy and 98 dynamics of 69–75 elements of 24 law and 127 Marxism and 178, 185, 304, 312 quality conventions and 207–10 resemblance to Soviet Union 195 social analyses of 7 social-economic analyses 174–90 social relations under 176–7 temporal order 24, 57–61 Weber’s typology 41 work for free, and 252 certification action theory 199 agency 198–9 analytical approaches compared 197–205 cognition 199–200 convention of coordination 198 conventions in practice 202 convention theory (Durkheim) 204–5 convention theory (Lewis) 202–4 engagement regimes 206–10 evaluation 200 French Convention School (CS) 197–216 information 199–200 institutions 198 introduction to 195–6 markets 206–7 network ties 198 orders of worth 206–7 organizations 206–7 power 200–1 power and profit 210–16 pragmatic turn 205 quality conventions 206–10 reality test 205 use-values 208–10 valuation 200 value regimes 206–10 value transformation 210–16 China, economic institutions 153–70 classic economic sociology, see economic sociology coercion and ideology 178 coercive response system, concept of 122

318

cognition cognitive orientation 57, 112 information and 199–200 Coleman, James S. 282, 285 collective cognition, coordination and 114 collective interests, law and 216 competence of actors 12 compromise equality and 82 industrial-market compromise 213 notion of 207 organizations, in 211–12 conflict resolution 166–9 ‘connected worlds’ 239 consumption, capitalism and 74–5 contemporary (new) economic sociology, see economic sociology contract law formulation of 158 principal-agent relationship 149, 158, 160, 169–70, 232 convention of coordination, see certification; coordination conversation coordination and 112–14 process described 114–19 cooperation, network ties and 230 ‘co-optation’ and network ties 180 coordination actors 12 assumption of 284 centralized 120, 278, 279 collective cognition, and 114 convention of 198, 200n, 201, 201, 202–3, 204n, 205 convention theory (Durkheim) 204–5 convention theory (Lewis) 202–4 conversation and 112–14 doubtful 205 economic activity, of 25, 41, 67, 68 embeddedness and 158 evaluation and 206–16 facilitation of 116 formalization and 196 form of 103 future, of 24 information and 114 invisible hand, by 110 ‘logics of ’ 12 norms, by 151 notion of 198 organizations, of 18, 118, 200 participation, of 113 power shifting, and 156 ‘reality test’ of 205 response system 112 uncertain 205

Index valuation and 200, 206–16 credit, capitalism and 70–1 cultural incommensurability 239–40 cultural sociology 17–18 decision-making actors 149, 150–1 fictional expectations and 72 information 64–7, 72, 105 democracy capitalism and 98 theorization and 185 derivatives market, see over-the-counter (OTC) derivatives DiMaggio, Paul 17–18, 309, 310 discretion, actors’ 144 dispute resolution 166–9 Douthwaite, Richard, ecological money concept 92–5 Durkheim, Émile 4, 7, 37, 174, 182–3, 204–5, 252, 280 ecological money (Douthwaite) 92–5 economic activity actors 43, 58, 313–14 coordination of 25, 41, 67, 68 embeddedness 3, 17, 253, 270, 291, 291n, 306, 308 economic agents, see agency economic conventions, definition of 175, 183 economic detraditionalization 60–1 economic exchanges alternative forms 289–96 atomistic explanations of 232 enabling of 154 organization of 61 relational work, and 233, 235, 237–43 typologies of transactions 283 economic futures 57–76 economic identity, see identity economic institutions certification 198 China 153–70 confidence in 181 conflict resolution 166–9 embeddedness 170 emergence from networks 25–6, 148–70 foundation 149–53 introduction to 148–9 maintenance of 180 network relations 163 norm compliance 164–9 personalized exchange 160–1 relationship between informal norms and formal rules 151–3 reputation, role of 161–4 social construction 14

social exchange mechanism 160–4 economic integration, Polanyi’s typology 275, 290–1, 293, 294 economic laws, influence of 181–5, 189 Economic Man (homo economicus) concept 5, 253 economic models, formalization of 204n economic networks, see networks economic reasoning 10, 183, 229, 243 economic relationships, see relationships economic sociology, see also new economic sociology canonical authors 309 challenges to 22–3, 311–13 classical economic sociology 6–9 concepts and theories 13–23, 49–51 content of current study 23–7 field of 1–4 French Convention School (CS) 196, 197–201 fundamental propositions 3 future development of 23, 301–14 intellectual structure 308–11 links between new and classic periods 2 opportunities 311–13 organizational origins 303–8 purpose of current study 1 scope of current study 21–2 syllabus appearances 309, 310 theoretical approaches 4–6 unifying theory of 2 economic structures analytical approaches to 25 social constructs, as 5 economy and law, see law efficiency, network ties and 231 elite theories of power 178 embeddedness concepts, of 312 coordination and 158 debate on 47–8 definition of 5 emotional embeddedness 228, 238, 242–3 forms of 311 network embeddedness 19, 128–9, 230, 240, 241, 244 new institutional economics, and 149 notion of 10, 14, 26, 40–1, 43, 148, 199, 227–33, 237, 314 re-imagining of 313 relational 253–4, 258 situational constraint, as 199 engagement regimes, certification 206–10 equality, compromise and 82 ethnography, agency and 213 Etzioni, Amitai 305–6

319

Index euro (currency) 95–9 evaluation certification 200 coordination and 206–16 exchange mechanisms personalized mechanisms 160–1 social mechanisms 160–4 expectation, see also fictional expectations future, of 24, 58, 61–75, 162, 204n, 211 imagination, as 24, 67 experts, power of 185–6 exploration, engaging in 210 fashion models, identity theory applied to 252–71 fictional expectations capitalist dynamics 69–75 contingency of 75–6 decision-making and 72 definition of 66–8 economic detraditionalization 60–1 establishment of 74 expectations 64–6 imagined futures 63–4 influence of 71, 74 introduction to 57–8 notion of 39, 66–9, 73 open economic future, institutional preconditions for 61–9 temporal order of capitalism 58–61 finance, actors, of 106 financial markets architecture of 110–14 derivatives, see over-the-counter (OTC) derivatives financial market action 103–10 introduction to 103–4 temporal order 119–21 trading 114–19 financial relationships, rationalization of 136n Fisher, Irving, ‘100 per cent money’ 88–90 formalization agency and 209 coordination and 196 economics models, of 204n economies, of 195–216, see also certification influence of 195 Foucault, Michel 201, 211n freedom, agency and 260 French Convention School (CS) 196, 197–216 future, see also fictional expectations coordination of 24 expectations of 24, 58, 61–75, 162, 204n, 211 imagined futures 63–4 game theory 3, 23 Gesell, Silvo, rotting money concept 83–4

320

Gramsci, Antonio 176–7 Granovetter, Mark Economic Man (homo economicus) concept 5, 253 economic sociology 9–10, 13–14, 16, 49, 148, 202, 301, 303 embeddedness theory 4, 19, 40, 149, 199, 229, 241, 270, 313 network theory 20, 228 Nobel prize prospects 314 social relations 237 syllabus appearances 309, 310 weak ties, theory of 231 group interests, social construction of 26, 174–90 Habermas, Jürgen 95–9 Heidegger, Martin 27, 254n, 256–60, 262–4, 270 homo economicus 5, 253 human agency, see agency ideal types 39–40, 79, 265n identity action theory and 252–6 actors 304–5 agency and 261–71 becoming and being 260–70 collective 261–3 control, and 22, 232n, 255 differentiation 262 empirical 258–9 individual 261–3 information and 75 introduction to 252 network ties and 270 phenomenological theory of 252–71 preferred 263–5 relational ontology 256–8 types of 260 ideology and power 178 imagination expectation as 24, 67 imagined futures 63–4 innovation and 73 originating force 66 promise and 73, 107 industrial-market compromise 213 informal social relations, embeddedness 128–9 information asymmetry 131 attentional regime 122 centralized 294 cognition and 199–200 coordination and 114 decision-making 64–7, 72, 105 disclosure 111

Index exchange 164, 293, 307 flow of 16, 117, 148, 157, 158, 160, 161, 166, 294n gathering 233, 237, 281 graph 294 identity and 75 ‘informational capitalism’ 209–10 lack of 237–8 law and 127 mediation 117, 148, 280n networks 231 organizational giving 288 plural formats 201 real-time 116, 119 reliance on ‘generalized information’ 199 sharing 112, 163 sources 141, 231, 278 storage 286 innovation capitalism and 73–4 imagination and 73 institutions, see economic institutions interest, see group interests investment, capitalism and 71–3 invisible hand, coordination by 110 labor money (Ruskin) 82–3 law, see also economic laws capitalism and 127 collective interests, and 216 contract, see contract law enforcement 152 information and 127 introduction to 127–30 legal forms, role of 204–5 organizational giving, and 275–96 over-the-counter (OTC) derivatives 127–44 regulation 133–6 reputation and 162 soft law regulations 215 Lewis, David, convention theory 202–4 Lukács, Georg 176–7, 189 MacKenzie, Donald 13, 20, 21, 43, 309, 310, 314n market relationships, see relationships Marx, Karl capitalism theory 7, 312 citation 310 general economic theory 4, 48, 59, 182–3 labour theory 252 power theory 174–8, 185, 189, 201n Riegel, Edwin, and 88 ‘simple reproduction’ 60 value theory 208 Marxism adaptations of 175, see also neo-Marxism capitalism and 178, 185, 304, 312

failure of 304 power theory 178, 184 value theory 210 material relations theory (Weber) 183 material world, agency in relation to 201 model agencies, identity theory applied to 252–71 modernity, development of 58 monetary freedom (Riegel) 87–8 money capitalism and 69–70 utopianism and 79–100 moral incommensurability 239–40 mutualism (Douglas) 86–7 Nakamoto, Satoshi, Bitcoin scheme 90–2 neo-Marxism 11, 179 networks actor network theory (ANT) 5, 20, 26, 199, 207, 232, 259, 270 actors 154, 169, 201, 229 application of network theory 15–16 embeddedness 19, 128–9, 230, 240, 241, 244 network relations 163 relational sociology and 17 relational work 228–33 social networks 18, 68, 143, 154, 227, 229, 230–2, 237, 306 network ties arm’s length ties 227, 231, 240, 243 connection by 26, 159, 179 cooperation and 230 ‘co-optation’ 180 cutting of 166 efficiency and 231 embedded 158, 231 identity and 270 influence of 227 informal 129, 230 Internet and 161 maintenance of 240 money and 92 power and 200 principal-agent relations, as 232 reciprocity 27 ‘relational packages’ 234 relational work and 244 social capital, as 231 strength of 200, 201, 231 strong ties 169 study of 16, 198, 206, 227, 228, 230–4 unestablished 269 weak ties 9, 169, 231 new economic sociology development of 2, 9–16, 18, 21, 23, 27 fundamental propositions 3 influence of 6 social construction of interest 26, 174–90

321

Index new institutional economics critique of 148 economic sociology and 19 embeddedness and 149 networks and institutions approach, and 169 norms compliance with 164–9 coordination by 151 embeddedness 150 objectivation of power 184–5 open economic future, institutional preconditions 61–9 orders of worth, certification and 206–7 organizational giving alternative forms of exchange 289–96 bequest 295 economic integration, forms of 289–96 introduction to 275–6 law and 275–96 market exchange and 281–9 percolation of resources 295 process described 280 reciprocity 289–96 relational translation 294 suffering and 275, 280, 284 transplant surgery and 276–81 typologies of transactions 283 organizations certification 206–7 compromise in 211–12 coordination of 18, 118, 200 organization studies 18–20 over-the-counter (OTC) derivatives description of 130–3 growth of market 141–4 introduction to 127–30 legal harmonization 138–41 private law and 136–8 regulation 133–6 Parsons,Talcott 2, 3, 5, 8–9, 43, 46, 253 participation actors, of 111 coordination of 113 People’s bank, see Proudhon, Pierre-Joseph percolation of resources 295 performativity, concept of 20–1 personalized exchange mechanisms 160–1 Podolny, Joel M. 263n, 310, 311 Polanyi, Karl economic integration typology 275, 290–1, 293, 294 embeddedness theory 4, 14, 40, 43, 187, 244, 313 household percolation of resources 295n influence of 8, 13, 18, 48

322

reciprocity concept 276, 289, 291, 296 syllabus appearances 309, 310 power asymmetry 238–9 bank control theory 179–80 certification 200–1 coercion and ideology (Marx) 178 definition of 175–6 dimensions of 176–8 economic sociology 180–2 elite theories 178 experts, of 185–6 infrastructures, see certification integration of theories 184–8 introduction to 174–5 network ties and 200 objectivation 184–5 pluralist theories 178 resource dependency 179 shifting 156 social constructionist paradigm 182–3 summary of theories 188–90 theorization 186–8 pragmatic turn 205 Proudhon, Pierre-Joseph monetary theory 79 mutualism theory 86–7 People’s bank 81, 84–6, 88, 99 Puritans and wealth 43 quality conventions, certification 206–10 rational choice theory 151 rationalization of financial relationships 136n ‘reality test’, coordination, of 205 reciprocity, organizational giving 289–96 ‘relational packages’, network ties and 234 relational sociology field of 17, 200n network theory and 17 relational work and 233 relational translation 294 relational work economic exchanges and 233, 235, 237–43 introduction to 227–8 networks and relationality 228–33 network ties and 244 power asymmetry 238–9 relationality as 234–41 relational sociology and 233 ‘taboo’ trade-offs 239–40 theorization 241–4 trust 237–8 relationships, see also social relations between actors 26, 105, 109, 149, 227–44, 294 cultural and moral incommensurability 239–40

Index formalization, see certification; formalization market relationships, embeddedness 283 relativization 207 religion 2, 76n, 200 reputation, role of 161–4 resources dependency 179 percolation 295 response system, coordination and 112 Riegel, Edwin, monetary theory 87–8 rotting money (Gesell) 83–4 Ruskin, John, labor money concept 82–3 Saint-Simon, Henri de 97, 214 Simmel, Georg consumption theory 74–5 formalization, on 204 general economic theory 7 money theory 2, 4, 42, 62, 70, 79, 82–3, 92, 95, 99, 100 social ties 16 syllabus appearances 310 Smith, Adam, ‘invisible hand’ theory 110 social conception of actors 19 social constructionist paradigm of power 182–3 social exchange mechanisms 160–4 social networks, see networks social reality, descriptions 182 social relations, see also relational work capitalism, under 176–7 embeddedness 128–9 social science analogies, metaphors, and patterns, use of 41–4 conceptual development 39–41 explanation phase 44–6 observation phase 37–9 preparation for theorizing 46–8 research process 36 social structure agency and 3, 255 economic action, and 3 socio-economics, field of 306 Soviet Union, capitalism’s resemblance to 195 standards, see certification state agents, see agency Streeck, Wolfgang 12, 98–9 structural holes theory 229 suffering organizational giving, and 275, 280, 284 workers, of 86 surprise, agency and 210 Swedberg, Richard convention 197–9, 202–3, 210, 214

economic sociology 3, 6, 8, 9–11, 16, 19, 20, 23–4, 302, 307–8, 312 law and economy 128 syllabus appearances 309, 310 theorization 187, 236, 296 utopianism 97n, 97–8 ‘taboo’ trade-offs 239–40 technological agency, see agency temporal orientation 24, 58, 61–75, 162, 204n, 211 theorization approach 190 conventions 175 democratization of 185 economic sociology 34–49 money 80 objectivation, and 177 power, of 186–8 relational work 241–4 theory acceptance 188 Thévenot, Laurent 11–12, 26, 136, 311 ties, see network ties transactions, see economic exchanges translation approach 207 relational 293–4 transplant surgery, organizational giving and 276–81 Trigilia, Carlo 13, 22 utility calculation 254 empirical 240, 241 function 268n maximization 243 negative 266 possession of 67 relational work, and 240, 241 source of 212 utopian money ‘100 per cent money’ (Fisher) 88–90 Bitcoin (Nakamoto) 90–2 conceptions of 81 ecological money (Douthwaite) 92–5 introduction to 79–80 labor money (Ruskin) 82–3 monetary freedom (Riegel) 87–8 mutualism (Douglas) 86–7 People’s bank (Proudhon) 84–6 rotting money (Gesell) 83–4 valuation agency and 26 coordination and 200, 206–16 value regimes, certification 206–10 value transformation, certification 210–16

323

Index Weber, Max action theory 253 capitalism 61, 170 economic activity, definition of 242 economic sociology 2, 3, 7, 22, 41, 48, 308, 312 field work 38 functionalism 46 general economic theory 4 ideal types 39–40, 79, 265n interpretative sociology 258n law and capitalism 127–8, 136 legal forms 204 material relations 183 monetary theory 62 power, definition of 175 Puritans and wealth 43 social reality, descriptions of 182 stock exchanges 25 syllabus appearances 309, 310

324

White, Harrison decision-making 148–9 identity and control, theory of 22, 232n, 255 market theory 150, 158, 212, 261, 301, 303, 304–5, 313 network theory 16, 207n, 228–9, 311 new economic sociology 9, 15, 49 syllabus appearances 310 work for free 252 Zelizer, Viviana circuits of commerce 286–8 ‘connected worlds’ 239 economic sociology 15, 17, 18 monetary theory 93, 290n relational work 227–8, 233, 234, 236 syllabus appearances 309, 310 valuation 200 ‘Zelizer circuit’ 312