Polanyi’s Terms of ‘Embeddedness’ and ‘Disembeddedness

Strengths and Limitations of Viewing Economic Relations in Polanyi’s Terms of ‘Embeddedness’ and ‘Disembeddedness

Introduction

Karl Polanyi (1886-1964) an economic sociologist is considered the father of the concept of embeddedness’ and ‘disembeddedness’.  According to Polanyi, the economic process is vested in the process of stability and unity, and it has a structure that functions like society. For instance, the economic process comprises in a system of shared beliefs and rules and social relations that reveal continuity and enforce constraints on persons, and on the other hand, opening new opportunities for them. Polanyi characterized the market society as a mere myth while the idea of the self-regulating market as being a utopia. Instead, Polanyi observed that social forces existed in the economy and the society applied specific measures with the intent of protecting itself, thus impairing the self-regulation aspect of the market. Thus, for Polanyi economic relations are embedded institutionally, and the economic institution can be understood socially.  All market economies are enmeshed and embedded in social institutions and relations, and the promotion of self-regulating markets could result in disembeddedness. The purpose of the essay is to answer the question,”What are the strengths and limitations of viewing economic relations in Polanyi’s terms of ‘embeddedness’ and ‘disembeddedness’?”

Embeddedness’ and ‘Disembeddedness

Embeddedness concept is linked to Hungarian scholar Karl Polanyi who contended that social relationships and social actions were deeply interrelated.  In addition, the economic system was embedded in the social system. Thus, any principle of behaviour that dominated the economy, and the market pattern was compatible with the prevailing social system. Conversely, Polanyi claimed that in a present market economy “…social relations are embedded in the economic system”. Thus, Polanyi’s embeddedness is based on the supposition that social actors are not autonomous and value-maximizing actors, but rather actors concerned with social assets and social standing.  On the other hand, the market economy is disembedded, and this perception has created tension in Polanyi’s theory of embeddedness. The disembeddedness process is the basis of Polanyi’s claim that during the 19th century the economic market was different because that process was characterized by social construction by the nations as well as their administrative bodies. Moreover, coercive public powers were applied to enhance practices that adopted a market-orientated representation of the economic world.

There are two notions associated with the embeddedness in the thought of Polanyi. First, all the economies are embedded because economic life is an organised process and socially instituted. Second, “The degree of embeddedness changes from one type of society to another, depending on how the economy is integrated. If integrated as a result of operations with non-market ends, it is embedded.” Furthermore, if integrated based on market ends, it is considered disembedded on the basis of the commodification of money, labour, and land. Polanyi’s concept views economic relations as institutionally embedded always and they can be fully understood as institutions constructed socially.

Strengths and Limitations of Viewing Economic Relations

In regard to the question “What are the strengths and limitations of viewing economic relations in Polanyi’s terms of ‘embeddedness’ and ‘disembeddedness’?”, first the strengths are addressed, and then the limitations.

Strengths

The first strength of viewing economic relations in Polanyi’s terms of ‘embeddedness’ and ‘disembeddedness’ is the ability to show how the economy acquires both stability and unity. For instance, it shows the recurrence and the interdependence of its parts. According to Polanyi, “the instituting of the economic process vests that process with unity and stability; it produces a structure with a definite function in society”. The economic process is comprised of a system of social relations and share beliefs and rules. The structural principles provide unity and stability instead of possible discursive and strategic sources of incorporation. The primary interest of Polanyi was on embedded as well as disembedded economies, by focusing on the principle of distribution of ‘want-satisfying material means’. Through the principles, there is realization of the existence of socially embedded economies where there is a symmetry of reciprocity among organized groupings. In addition, Polanyi pointed out that trade was not automatically organized in terms of monetary exchange, and it could be organized in form of a gift relationship. As a result of the unity, Polanyi has shown that economies do not necessarily require trade and distribution subordinated to monetary gain.

The other strength is the ability to show the social relations between humans and economics. For instance, Polanyi argued that the economy is “an instituted process of interaction between man and his environment, which results in a continuous supply of want-satisfying material means”. As an instituted process there is a social relation that results when economic and noneconomic institutions intertwine. Thus, it is not always the economic institutions that can allow a better explanation of economic relations. For instance, the inclusion of the noneconomic is important. This is because the government or religion is important for the structure as well as the meaningful functioning of the economy as monetary institutions. Thus, the theory has shown that rather than the economy being entrenched in social relations, Polanyi pointed out that social relations are instead embedded in the economic system. This is the implication that the market economy fully functions when there is a market society. Thus, it could be misleading to use formal economic tools in cases where the market has no dominance over society. For instance, in the modern capitalist society emergence, the market acquired labour and land and this resulted in grievances as well as social problems. Subsequently, there was disembeddness and social defence of the market.

Polanyi’s view of economic relations can be used to analyse the distinction between the formal and substantive meaning of the economy. The distinction between the formal and substantive meanings of the word economic by Polanyi plays an integral role in overcoming the limitations of atomism and rationality. For instance, Machado pointed out that the formalist approach is founded on the scarcity of resources that are applied by rational individuals in order to maximize gains.  The formalist schema is founded on the neoclassical model of economic theory and according to the concept of embeddedness it is only applicable in studying modern capitalist economies, in cases where price-making markets are important. On the other hand, the substantivist approach can be applied when studying the role played by the economy in society. Institutions play a major role in the economy to ensure that human needs are satisfied within different societies. Thus, it is important to acknowledge the importance of the substantive definition that perceives the economy as an instituted process that comprises of associations between man together with social and natural environments. Therefore, economic definition from its substantive sense implies all relations with environment and other human beings while pursuing livelihood, and as a result, economic life must concentrate on this type of interaction.

Based on the concept of disembeddedness, Polanyi’s view of economic relations shows how the economy can be disembedded. For instance, the economic market is not self-regulating, and that humans use social institutions to regulate the market. For instance, the market economy in a capitalistic world results in an anomaly, hence the disembeddedness of the economic system. In support Block and Somers pointed out that the modern market economy was characterised by a latent tendency toward disembeddedness. The implication is that empirically speaking, the economy in capitalism comes close to being disembedded. Nonetheless, full-fledged disembeddedness is impossible, because it would result in the full destruction of society at once. Even in capitalistic economies, the market economy is always embedded because of social protection and the state intervention process. Similarly, Polanyi affirmed that it was impossible to have total disembeddedness. Thus, although capitalism could move toward the state of disembeddedness, this could be impossible without society collapsing.

Classical economists hold to the assumption that free markets must be left alone with institutional intervention because the market is self-regulating. This is based on the Keynesian theory of the free hand in self-regulating markets. Nonetheless, the theory by Polanyi on economic relations has shown that self-regulating markets could be destructive and social institutions are thus required to ensure that total disembeddedness is not realized. Bollier has pointed out that free markets lack the ability to regulate themselves, and this is why they and enmeshed and embedded in social institutions and relations. A free market economy requires social control and government management. Additionally, because markets have the capability to treat nature as fundamentally limitless, human beings tend to push human societies as well as nature to the breaking point (disembeddedness).  Block pointed out that disembedding the market is the same as the process of stretching a giant elastic band and expecting it not to create tension. The concept has thus shown that in efforts to create autonomy, the level of tension is increased in markets, this could subsequently lead to social disintegration – or revert the economy to a more enmeshed position. Polanyi used the example of the disembedding of markets from society to show how this resulted in the Great Depression.

Limitations

There are limitations to viewing economic relations in Polanyi’s terms of ‘embeddedness’ and ‘disembeddedness. First, not all economies are disembedded. In addition, ‘embeddedness’ fails to offer a theoretical perspective that informs people on the particular characteristics linked to the embeddedness of contemporary capitalist economies. In addition, embeddedness does not specify the manner in which economic activities have been structured by social factors. Thus, although the concept of embeddedness for contemporary economic sociology offers a powerful criticism of the neoclassical model of behaviour, it fails to offer an alternative theoretical framework that can be used to demonstrate the manner in which social factors enhance human actions.  Gemici pointed out that embeddedness as a concept in economics has misguided economic sociology by indicating that all the economies tend to be embedded and entangled in social institutions and relations.

The concept of embeddedness and disembeddedness are limited in their nature. For instance, although embeddedness is associated with social processes that shape and structure economic life; there is a failure to show the manner in which economic factors can be structured by social factors. Additionally, Krippner observed that the study of economic sociology was motivated by the embeddedness, but the concepts of embeddedness and disembeddedness faced substantial difficulties in indicating the manner in which both economic processes and outcomes were social. Embeddedness, unintentionally assumes the existence of a demarcation existing between the social and the economic aspects. Hence the question related to how economics is linked to social arises.  Subsequently, it can be noted that embeddedness is important to the inquiry of economic life, not all economic activities are socially embedded. According to Beckert the concept of embeddedness lacks the ability to show the connection between society and economics and the assumption by Polanyi on the indissoluble connection between the actor and their social surroundings is not adequate.

Conclusion

The paper has provided the strengths and limitations of viewing economic relations in Polanyi’s terms of ‘embeddedness’ and ‘disembeddedness’.  The concept of embeddedness’ is based on the supposition that social relations are entrenched in the economic system, and it is not the economy that is enmeshed in social relations. In addition, market economies function well in market societies. For instance, the primary strength is the ability to provide the formal and substantive meaning of the term economic. In addition, the concept has shown that economic markets are enmeshed in social institutions and relations, such as government which is required to prevent total disembeddedness of the market economy. In addition, concepts of embeddedness and disembeddedness have been applied through the example of the Great Depression to show the social relations and how the economic market requires social institutions to avoid disembeddedness. The first limitation is that not all economies are disembedded, and the second ‘embeddedness’ fails to provide a theoretical perspective that informs people on the particular characteristics associated with the embeddedness of contemporary capitalist economies. Third, in spite of the link between society and economics, the concepts of embeddedness and disembeddedness faced substantial challenges in terms of indicating the way in which both economic processes and outcomes were social.

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[1] Polanyi, K “Aristotle Discovers the Economy,” in Karl Polanyi, Conrad Arensberg & Harry Pearson (eds.), Trade and Market in the Early Empires. Chicago: Henry Regnery, 1957. Pp. 64

[2] R Aitken. ‘To the ends of the Earth”: Culture, Visibility and the Embedded Economy’, in Best and Paterson (eds.) Cultural Political Economy (London: Routledge) 2009. P. 20

[3] K Polanyi. The Great Transformation. Boston: Beacon, 2001.

[4] Polanyi. The Great Transformation

[5] Ibid

[6] K Polanyi. The Great Transformation: The Political and Economic Origins of Our Time, Boston, MA, Beacon Press. 1944. Pp. 68; Lengyel, G, ‘Embeddedness, Redistribution and Double Dependence: Polányi-reception Reconsidered’, Intersections. East European Journal Of Society And Politics, vol. 2, no. 2, (2014), pp. 13.

[7] K Polanyi. ‘The Economy as Instituted Process’, in K. Polanyi et al., eds., Trade and Market in the Early Empires (Glencoe IL: The Free Press), 1957, pp. 244.

[8] K Polanyi-Levitt ‘The Power Of Ideas: Keynes, Hayek, and Polanyi’, International Journal of Political Economy, vol. 41, no.4, (2012), pp.  5

[9]K Gemici, “Karl Polanyi and the Antinomies of Embeddedness,” Socio-Economic Review, vol. 6, (2008): pp. 10.

[10] K Polanyi. “Aristotle Discovers the Economy

[11] K Polanyi. ‘The Economy as Instituted Process’, in K. Polanyi et al., eds., Trade and Market in the Early Empires (Glencoe IL: The Free Press), 1957, pp. 24

[12] Polanyi. ‘The Economy as Instituted Process’

[13] Ibid

[14] Ibid

[15] N. M. C Machado. ‘Karl Polanyi and the New Economic Sociology: Notes on the Concept of (Dis)embeddedness’, RCCS Annual Review, vol. 3. no. 2, (2011): pp. 3.

[16] H Lacher. ‘The Politics Of The Market: Re-reading Karl Polanyi’, Global Society, vol. 13, no. 3, (1999), pp. 313.

[17] K Gemici, “Karl Polanyi and the Antinomies of Embeddedness,” Socio-Economic Review, vol. 6, (2008): pp. 25.

[18] F Block and M Somers. The Power of Market Fundamentalism (Cambridge MA: Harvard University Press). 2014. P. 20.

[19] F Block and M Somers. The Power of Market Fundamentalism.

[20] M Blyth. Great Transformations: Economic ideas and Institutional change in the Twentieth Century (Cambridge: Cambridge University Press) 2002. Pp. 32.

[21] D, Bollier. Why Karl Polanyi Still Matters, Economy and Markets, (2009): pp. 1.

[22] F Block, “Karl Polanyi and the Writing of the Great Transformation,” Theory and Society, 32, no. 3(2001), pp. 277.

[23] F Block and K  Polanyi. Karl Polanyi and the Writing of “The Great Transformation” Theory and Society, Vol. 32, No. 3, (Jun., 2003), pp. 280.

[24] J Beckert, “The Great Transformation of Embeddedness – Karl Polanyi and the New Economic Sociology,” MPIfG Discussion Paper No. 1/07, (2007): pp. 19.

[25] G Dale. ‘Lineages Of Embeddedness: On The Antecedents And Successors of a Polanyian Concept’, American Journal of Economics and Sociology, vol. 70, no. 2, (2011), pp. 306; Inayatullah, N., & Blaney, D. (1999), ‘Towards An Ethnographic Understanding Of Karl Polanyi’s Double Critique Of Capitalism’, Millennium vol. 28, no2, (1999), pp. 311-340.

[26] G Krippner “The Elusive Market. Embeddedness and the Paradigm of Economic Sociology,” Theory and Society, vol. 30, (2001), pp. 776.

[27] J Beckert. “Economic Sociology and Embeddedness: How Shall We Conceptualize Economic Action?” Journal of Economic Issues, vol. 37, no. 3(2003), pp.782.