Economic action and social structure: The problem of embeddedness

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Citation: Mark Granovetter (1985) Economic action and social structure: The problem of embeddedness. The American Journal of Sociology (RSS)
Internet Archive Scholar (fulltext): Economic action and social structure: The problem of embeddedness
Tagged: Sociology (RSS) economic sociology (RSS), TCE (RSS), transaction costs (RSS)

Summary (Abstract)

Granovetter's paper is a strong argument for a sociology of economic phenomena and a strong argument that economic action is strongly "embedded" in social structure and makes a strong argument for the study of social networks in the context of economic action in particular.

Not unlike Coleman (1988) in Social capital in the creation of human capital, Granovetter argues that previous research has tended to set up a dichotomy between accounts which are oversocialized in that it is sociological accounts that considers all member of society to be similarly constrained in their actions and as a result similar. Alternatively, economics offers undersocialized arguments because it considers people as completely atomistic and without mutual constraints.

Granovetter's argument is for a middle ground that he calls embeddedness which suggests that actors in a market act rationally, or attempt to do so, but that they are also embedded in social structures which constrain (i.e. structure) their market interactions. Embedded focuses on social networks and concrete personal relationships. He argues that these relationships lead to trust which means that rational action is different. He uses the example someone yelling fire in a room with strangers and one in a room with family. A family will not stampede because they know they can trust each other while a room of stranger essentially sets up an n-person prisoner's dilemma. That said, Granovetter goes to great length to argue that both good and bad things can come from strong social relationships -- both extreme good and good require social embeddedness.

Granovetter takes particular issue with Oliver Williamson's transaction cost economics which he argues is an under-socialized account at length as a demonstration of the usefulness of an embeddedness theory. He argues that Williamson vastly overestimates the power of hierarchy suggesting that within firms networks are increasingly important. Similarly, he argues that there are strong social relationships between firms which structure firm interactions and competition (something that would be shown later by Brian Uzzi (1997) in his influential Social structure and competition in inter-firm networks: The paradox of embeddedness.

Granovetter's discussion offers a strong argument in favor of economic sociology arguing that economic behavior has been neglected by sociologists because economists are so strongly associated to atomized theory of action and that sociologists have essentially just ceded the "turf" of economics to that field. In this sense, the paper can be read a strong critique of the primacy of economics and an argument for economic sociology.

Theoretical and Practical Relevance

Granovetter's work has been deeply influential in sociology and in economic sociology more generally where it is a clear example of a seminar article and a call to arms. It has been cited more than 13,000 times in the 25 years since it's publication.