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 about how 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. It includes the family, the business sector, and the Third Sector.
A concept of the economy usually refers to the business sector but corporations and 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 how capitalist corporations are organized. The courses do not teach about cooperatives, as in the Mondragon markets that characterize the Basque region of Spain.i
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 and organized associations. They engage in social (symbolic) interaction in very different ways. Capitalism is just one way to create systems of exchange.ii
Capitalist markets did not exist in the ancient empires or the Middle Ages and they are changing into something new today. They are changing 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.iii
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 theory known as mercantilism. In the late 17th and the 18th centuries a protest against the governmental regulation was voiced, by the physiocrats. That group, led by Francois Quesnay, preceded the classical school of economics. They argued that business should follow “natural laws” with minimum amount of government interference.iv
. 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 (notably Alfred Marshal, 1890) recommended “economics” as a term emphasizing how this new field is a science.v
The concept of politicaleconomy is narrower than social economy. The organizations and human interactions that take place in the economy are not all political. Rather, they are more broadly rooted in social relations and organizations. The concept of “social” includes “political” and “economic” relations but is more inclusive as a category. Social interactions and forces take place in markets that not just political, based on just power and politics.
Put another way, the concept “social economy” is more comprehensive than political economy. It comprehends non-political relations -- like interpersonal relations and organizational relations based on symbolic interaction. It includes nonprofit institutions and their subcultures. The social economy in the modern period includes the Third Sector with its churches, science associations and civic groups with 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. But social economy includes more cultures and sectors of a 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.vi
Such words as “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.vii
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 view in 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.viii
Then in the nineteenth and twentieth centuries it became defined 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.ix
Adam Smith wrote about “commerce” but did not use the 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 popularized in his later work and Das Kapital in 1867.x The Word Social Emerges as an Analytical Concept
The word “social” in the field of sociology refers to a fact-based meaning (or facticity.) It does not refer to its a normative meaning, that is, what “ought to be.” Normative meaning refers to an ideal, a value, a standard or model. These two meanings are 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.xi
My point is that the word “social” from a sociological perspective refers to a scientific (analytical) fact that underlies human existence. It is fact in capitalist markets. At this moment in time, the social factor is hidden in the ethos of the business sector. Hence, the word “social” is latent (hidden) rather than manifest (obvious) in the culture of markets. The word “economic” is manifest, seen by the public to be the 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 publicly to 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 is defined as a process of competition, not a process of cooperation. The process of cooperation exists in markets as a fact but it is not seen to typify markets. Competition is what is manifest and cooperation is a process that is latent and emerging.
Similarly in this zeitgeist today the term “private sector” refers to business and the term “public” refers to government. But the private sector is steeped in questions of how the business sector should be more transparent, “public” outside of government. The term “public” is emerging with its own meaning inside the private sector. For example, when an enterprise moves to 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 as more required and manifest. The term “public” refers to a government (not the private sector) but it depends on how 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.xii
Social Enters into the Field of Economics
The work of the economic historian Karl Polanyi shows how the term “social” was evolving as an analytical concept in markets. Polanyi saw how every economy 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 about the cultivation 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 association were part of economies. But he felt the capitalist economy developed as an economic order with competition and profit making.xiii
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 fact in 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 their own discipline called evolutionary economics, welfare economics, labor economics, institutional economics, social economics, and socioeconomics.xiv
Such intellectual movements in economics show how the social factor began 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 the neoclassical 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.xv
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 concept of “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 life is rooted in a social order.
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 from pre-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 a substantivist 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. xvii
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, Fernanda Wanderley, and Harrison White—set up the section and it became a permanent Section in January 2001.xviii
The idea of economic sociology gained legitimacy with the 1985 work of Mark Granovetter titled "Economic Action and Social Structure: The Problem of Embeddedness". Granovetter analyses how economic relations between people take place within social relations, indeed, through social network analysis. Granovetter's theory 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” Swedberg emphasizes the role of institutions and gives special attention to the effects of culture on economic phenomena. He studies the ways that economic actions are embedded in social structures.xix
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.xx
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, he decided 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 him of 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.”xxi
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.xxii
Economic sociologists study inter-organizational relations that exist in the economy in society not 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.
Polanyi argued that there were interdependencies between economics, politics, and civil society that could not be coordinated simply through the market mechanism. He did much to advance the idea of economic sociology as a field of knowledge. He could see how markets work in the “shadow” of a social order.xxiii
When I wrote The Field of Social Economy in 1976 I had not read the work of Karl Polanyi. I had studied all the classical sociologists but it appeared to me that some new field was needed. The concept of economic sociology was not in the vocabulary of sociology at that time. Social economy was my term for a sociological perspective of the economy.
What does this history tell us?
A Sociological Perspective
The culture of society is important to consider in sociological theory. The public thinks that the market is based on competition and the bottom line is “economic” (i.e. money, efficiency and profits); markets are driven by financial incentives. But that is not the whole story and so this kind of thinking can be misleading. The economy includes nonprofits like churches, temples, unions, and universities compete and cooperate in the market. The foremost goal of corporations in the Third Sector is not profit; money is not their primary motivation.
The economic bottom line misleading because in this modern ethos people believe that there would be no incentive to work and no inventions would take place without a profit-making goal. That is clearly not true. Inventions were taking place long before the appearance of capitalism. Inventions by humans have been going on since the beginning of civilization.xxiv
When sociological research on the economy is popularized and publicly oriented like economics, citizens will see how a social order underlies the economy. The bottom line is “social” -- in its analytical meaning -- not just “economic.” Mainstream economics has become filled with formulas and calculations on prices as though the economy was “natural.” Economics is too often defined as a science that explains how markets work by natural laws and is understood by formulas.xxv
When the capitalist economy is conceptualized sociologically, the picture changes. The public can see the economy grounded in society. A sociological perspective alters the way we see markets change in this larger context.xxvi
For example, sociologists study the way a corporation is socially organized, It is not microeconomics. It does not assuming that they are all command systems. Nonprofit corporations include churches that range in governing systems from high “command” (e.g. Catholic and Episcopal) to relatively democratic (e.g. Presbyterian and Congregational). Business corporations may socially develop new governing systems as this broader perspective of the economy becomes more public.xxvii
The way business corporations are socially organized is important to understand. Corporations are organized by systems of “mutual governance” as well as by a system of “command governance”. Sociologists have studied how corporations decentralize their operations and develop self-management and worker ownership successfully. This type of advanced mutual governance changes the character of business from its typical command structure. Employee ownership and self-management are evolving today in business firms. This is a latent trend, emerging, not typical of capitalism.xxviii
The way markets are socially organized can show how capitalism is changing. A sociological perspective can predict a market’s success or failure better than an economic perspective. This is because so many social processes exist in a market beyond competition. These processes include collaboration, accommodation, assistance, conflict, mediation, adjustment, support, conflict, negotiation, absorption, integration, cooperation, assimilation and different kinds of socialization. Research needs a sociological perspective about the organization of economic exchange to understand the reality and predict the future.xxix
Business corporations were competing so hard in the 19th century that they were destroying each other. Competition in this case was not in their self-interest; hence, they decided to cooperate and create trade associations. Trade associations developed as a form of mutual governance, with electoral processes and tribunals. They became self-governing in their trade field.xxx
Henri de Saint-Simon is often called the founder of French socialism. He argued that a “brotherhood of man” must accompany the organization of industry and society. He proposed production and distribution be carried out by the state, allowing everyone to have equal opportunity to develop their talents. This would lead, he said, to social harmony, and the state could be virtually eliminated, or transformed. "Rule over men would be replaced by the administration of things.”
In the early 1800s there were many “utopian socialists.” François Marie Charles Fourier was a French philosopher inspired the founding of the utopian communities. Robert Owen advocated the transformation of society into small, local collectives without elaborate systems of social organization.
Pierre-Joseph Proudhon pronounced that socialism was "every aspiration towards the amelioration of society". Proudhon called himself an anarchist and proposed that free association of individuals should replace the coercive state. Mikhail Bakunin is called the father of modern anarchism. He had a theory in which the workers would manage the means of production through their own productive associations. There would be "equal means of subsistence, support, education, and opportunity for every child, boy or girl, until maturity. There would be equal resources and facilities in adulthood for people to create their own well-being.
Marx and Engels drew from these socialist (and communist) ideas and from the German philosophy of G.W.F. Hegel. They developed a body of ideas they called scientific socialism. Utopian socialism could not be achieved without a revolution. After a proletarian revolution, the class structure is eliminated and the socialist state withers away. What remains is a society in which people no longer suffer from alienation and "all the springs of co-operative wealth flow more abundantly." According to Marx and Engels, once a socialist society had been ushered in, the state would begin to "wither away" and humanity would be in control of its own destiny for the first time.
During the first half of the twentieth century state socialism came to represent the alternative to capitalism. Socialism was defined in terms of the Soviet model and t other countries (e.g. China and Cuba) followed this model of centralized planning by the state. Other governments, moving more cautiously called themselves a “mixed economy” with partial nationalization and an emphasis on social welfare.
I could go on with more variations in socialist doctrine but they do not represent my normative theory.xxxi
A Normative Theory in Social Economy
There is a normative element in my theory that starts by defining the purpose of a democratic government.
The purpose of the government is to cultivate the basis for the market to regulate itself. The state encourages corporations to govern themselves through associations designed for the common good apart from the state. The market keeps competition going but the government encourages cooperation in associations to maintain public standards (e.g. safety, healthy, environmental protection) in the interest of society. This saves the free market and lessens the need for government to regulate it from the outside. This cannot be done in a short time.