What is the “Social Economy”?
Severyn Bruyn
Many people have asked me “What is the social economy?”
I say to them, “read my books,” but that’s not fair to those who are just curious. So here is a quick way to answer it.
“Social economy”is a field of knowledge abouthow people organize the production, distribution, and consumption of scarce resources in society.It refers to all income making people, organizations, corporations, and government. This means that the economy in its broad sense is coterminous with society. Itincludes the family, the business sector, and the Third Sector.
Aconcept of the economy usually refers to the business sector but corporationsand capitalist markets also have a social order. A “social order” refers to “a set of linked structures, institutions, and social practices that maintain regular ways of relating and behaving.” The social organization of business is taught in schools of business and management but the courses are based on howcapitalist corporations are organized. The courses donot teach about cooperatives, as in the Mondragon markets that characterize the Basque region of Spain.[1]
Social economy is broader than the fields of economics and political economy. It is not based on the principles and premises of capitalist markets. People in every society down through history have experienced scarcity andorganizedassociations. Theyengage in social (symbolic) interaction in very different ways. Capitalism is just one way to create systems of exchange.[2]
Capitalist marketsdid not exist in the ancient empires or the Middle Ages and they are changing into something new today.They arechanging within the culture and institutions of the larger society. The business sector, as one part of the economy, has its own subculture, evolving in the context of other sectors and subcultures like religion, art, science, and government.[3]
The idea of “economy” comes from the Ancient Greek word oikonomia, which for Aristotle meant "management of a household." In the transition into the 16th–18th century, overseas expansion led to the growth of commerce and a theoryknown as mercantilism. In the late 17th and the 18th centuries a protest against the governmental regulation was voiced, by thephysiocrats. That group, led by Francois Quesnay, preceded the classical school of economics. They argued that business should follow “natural laws” with minimum amount ofgovernment interference.[4]
. The idea of “political economy”began with the social contract philosophers (notably Jean Jacques Rousseau, 1755)who described the economy in the context of the state, not society.Then in the latter 19th century, economists (notablyAlfred Marshal, 1890)recommended “economics” as a term emphasizing how this new fieldis a science.[5]
The concept ofpoliticaleconomy is narrower than social economy. The organizations and human interactions that take place in the economy are not all political.Rather, they aremorebroadly rooted in social relations and organizations.The concept of “social” includes “political” and “economic”relations but ismore inclusiveas a category.Social interactions and forces take place in markets that not just political, based on justpower and politics.
Put another way, the concept “socialeconomy”is morecomprehensive than political economy. It comprehends non-political relations -- likeinterpersonal relations and organizational relations based on symbolic interaction. Itincludes nonprofit institutions and their subcultures. The social economy in the modern periodincludes the Third Sector with its churches, science associations and civic groupswith their own values and ways of life.All associations have their own norms and traditions that intersect with the business sector.
In sum, the field of economics and political economy tend to focus on the business sector and its relation to government. Butsocial economy includes more cultures and sectors ofa nation that linked with other nations in a process of globalization. In this broad sense, the economy is linked with society that is not the same as a nation-state.[6]
Etymology
Such wordsas “social” and “economy” and “society” did not exist at centuries ago. The word “society” was not in the language of the ancient Greeks. Aristotle did not write about the economy in “society”, rather, he wrote about the family and government. Economics was not a word in his vocabulary even though he talked about the use of goods in the marketplace.[7]
The terms themselves, “social” and “society,” emerged in the sixteenth and seventeenth century at the time of the Social Contract philosophers. The word“society”come into viewin English with various meanings, as “A system of sharing within a group,” and the “condition of living or associating with others,” and “companionship, fellowship, or company,” and as human association or friendly interaction with other people.[8]
Then in the nineteenth and twentieth centuries itbecamedefined in more complex terms by sociologists. See the history of civil society as a concept in Appendix A and B of the Civil Republic posted on my webpage.[9]
Adam Smith wrote about “commerce” but did not usethe word “capitalism”. When he was writing in 1776, the word did not exist.Karl Marx did not use the word“capitalism” in the Communist Manifesto.It came to be popularizedin his later work and Das Kapital in 1867.[10]
The WordSocialEmergesas an Analytical Concept
The word “social” in the field of sociologyrefers toafact-based meaning (or facticity.) It does not refer to its a normative meaning, that is, what “ought to be.” Normativemeaningrefers to an ideal, a value, a standard or model. These two meaningsare different in reference to the market economy. The words “individual” and “social” are facts but they may become normative doctrines(or ideologies) called individualism and socialism, i.e.systems of belief.[11]
My point is that the word “social”from a sociological perspective refers to a scientific (analytical) factthatunderlies human existence. It isfact in capitalist markets. At this moment in time, the social factor is hidden in the ethos of the business sector. Hence, the word“social”islatent(hidden) rather than manifest(obvious) in theculture of markets.The word “economic”ismanifest, seenby the public to bethe tone and character of modern markets.
Stay with me. This is subtle.
The social factor is not viewed as significant in today’s economy because the market is defined publiclyto exist on an economic foundation, not a social foundation. This is the zeitgeist of the modern period. In this modern ethos, for example, the market isdefined as a process of competition, not a process of cooperation.The process of cooperation existsin markets as a fact but it is not seen to typifymarkets.Competition is what is manifest and cooperation is a process that is latent andemerging.
Similarlyin this zeitgeisttoday the term “private sector” refers to business and the term “public” refers to government. But the privatesectoris steeped in questions of howthe business sector should be moretransparent, “public”outside of government. The term “public” is emergingwith its own meaning inside the private sector. For example, when an enterprise movesto the stock exchange, it is required to have more transparency. And when the lack of transparency caused a Great Depression and later a great recession, the government required more transparency in business. Transparency is a latent factor that is emerging asmore required and manifest. The term “public” refers to a government (not the private sector) but itdepends onhow well business serves the public interest and the common welfare.
Adam Smith looked at enterprises as “public.” When the market was structured with small enterprises that were transparent, then Smith said “reason” should win for buyers. People can make rational decisions in their own self-interest. In his time, the business sector was new and had not yet legally separated itself as different from other organizations in society.
In sum, many terms, like public and private, evolve in meaning with the advance of new social structures and laws in society. The legal “structure” and the “ethos” of society are interrelated in this evolution. For example, the ideas of Justice John Marshall in the Dartmouth College case (1819) set the guidelines for understanding the nature of the corporation in the private sector. Now when a corporation puts shares on the market, it goes “public” in the private sector.[12]
Social Enters into the Field of Economics
The work of the economic historian Karl Polanyi showshow the term “social” was evolvingas an analytical concept in markets. Polanyi saw how everyeconomy is submerged in social relationships. His book on The Great Transformation is a history of the self-regulating market and its emergence from the Industrial Revolution. He wrote aboutthecultivation of the market economy through the efforts of statesmen of England in the first decades of the nineteenth century.The market was brought into existence by government not just by “natural” forces. Government policies for him were instrumental in helping to develop free markets. He saw how social processes like cooperation, reciprocity, and associationwerepart of economies. But he felt the capitalist economy developed as aneconomic order with competition and profit making.[13]
Stay with me. My point is that Polanyi was part of the change for historians and social scientists to see the social factor analytically and as a factin markets. He was part of that shift in economic thought that included a series of new outlooks by economists who could see the social factor. These “social economists”started separate movements in theirown discipline called evolutionary economics, welfare economics, labor economics, institutional economics, social economics, and socioeconomics.[14]
Such intellectual movementsin economicsshow how the social factorbegan to play a role in the economics paradigm. But the “social” in the capitalist system was seen only as “conditioning” (affecting) market activity. The terms evolutionary economics, welfare economics, etc. altered theneoclassical view but they did not recognize that the economy is based on a social order. These movements did not change the basic premises of economics as a field itself.They are movements in the field of economics, not in the field of sociology.[15]
Consider the intricacy of this change in “social” as analytical concept. It is like watching the hour hand of a clock move in time. For economists to see the social factor active in the economy took many decades.For economists, the conceptof “social” is still a “conditioning” (influencing)factor in markets not at the root of markets. It is not seen analytically to be at the foundation of the economy.
In sum, economists do not see the economic order rooted in a social order.Consider how separated the fields of economics and sociology were at the beginning in the late 1800s and how they are now closing ranks by sections. A few sociologists joined economists in those first stages of change (e.g. sections on institutional economics) and more sociologists joined later in the field of socioeconomics where sociologists and economists work together in the membership. But now we must see how economic anthropology took one its own step toward recognizing that economic lifeis rooted in a social order.
Economic Anthropology[16]
Karl Polanyi was drawing from theory and research in anthropology.
He argued that “economics'” has two meanings: the formal meaning refers to economics as the logic of rational action and decision-making -- a rational choice between the alternative uses of limited (scarce) means. The second, substantive meaning, presupposes neither rational decision-making nor conditions of scarcity. It refers to the study of how humans make a living.
He saw society's livelihood as an adaptation to its environment and material conditions. It may or may not involve utility maximization. The substantive meaning of “economics” is seen in the sense of “economizing”. Economics, substantively, is simply the way society meets material needs.
Polanyi's term "great transformation" refers to how modern market societies are different frompre-industrial societies, and centrally planned economies. Early societies are not based on market exchange but on processes he called redistribution and reciprocity.Reciprocity is the mutual exchange of goods or services as part of long-term relationships. Redistribution implies the existence of a strong political center, which receives and then redistributes subsistence goods according to culture-specific principles.Rather than being a separate and distinct sector the economy is embedded in both economic and non-economic institutions. Exchange takes place within and is regulated by society.
Polanyi says, for example,that religion and government can be just as important to economics as economic institutions themselves. Social obligations, norms and values play a significant role in people's livelihood. Consequently, any analysis in the field of economics -- as an analytically distinct sector isolated from its socio-cultural and political context -- is flawed from the outset. What Polanyi calls asubstantivist analysis focuses on the study of the various social institutions on which people's livelihoods are based. The market is only one amongst many institutions that determine the nature of economic transactions. Institutions are the primary organizers of economic processes. The substantive economy is an "instituted process of interaction between man and his environment, which results in a continuous supply of want satisfying material means" This outlook leads to a sociological perspective on the economy.[17]
Economic Sociology
Sociologists have been interested in the relationship between the economy and the society since the field began in the 19th century, but economic sociology began developing in the 1980s. Then it began as a section of ASA in August 2000. Wayne Baker, the section's organizing committee—Nicole Biggart, Neil Fligstein, Mark Granovetter, Brian Uzzi, FernandaWanderley, and Harrison White—set up the section and it became a permanent Section in January 2001.[18]
The idea of economic sociology gained legitimacy with the 1985 work of Mark Granovetter titled "Economic Action and Social Structure: The Problem of Embeddedness". Granovetteranalyses how economic relations between people take place within social relations, indeed, through social network analysis. Granovetter'stheory of weak ties and Ronald Burt's concept of structural holes are among the most reported theoretical contributions of the field.
Some section members say economic sociology analyzes economic phenomena such as markets, corporations, property rights, and work using the tools of sociology. The field shares in economic theory's attention to the role of interests and rationality, but equally emphasizes the importance of social relations and social institutions.
Neil Smelser and Richard Swedberg define economic sociology as “the sociological perspective applied to economic phenomena”Swedbergemphasizes the role of institutionsand gives special attention to the effects of culture on economic phenomena. He studies the ways that economic actions are embedded in social structures.[19]
Alejandro Portes argues that economic activity is embedded in social and cultural relations, and that power and the unintended consequences of purposive action must be factored in when seeking to explain economic behavior. Portes identifies three strategic sites of research--the informal economy, ethnic enclaves, and transnational communities.[20]
Wayne E. Baker says in the official section of ASA,
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.
Karl Polanyi played a key role in this transition of thought. After finding other economies around the world based on social processes, hedecided that capitalist markets were different. He said:“Instead of economy being embedded in social relations, social relations are embedded in the economic system.”The differentiation of the business sector in the evolution of society convinced himof the change.“Once an economic system is organized in separate institutions, based on specific motives and conferring a special status, society must be shaped in such a manner as to allow that system to function according to its own laws.”[21]
Notice. He does not describe how the economy is grounded in a social order. But the business sector evolved as a special order of society. He developed the social factor as an analytical concept in economies around the world.[22]
Economic sociologistsstudy inter-organizational relations that exist in the economy in societynot just in the business sector. In this sociological perspective, they are more able to see how the economy is embedded in society. Economic relations are embedded in types of social relations, not the reverse.