Economic sociology examines the effect of the social on economic behaviour. The introduction by Frank Dobbin (Professor of Sociology at Harvard University) to book The New Economic Sociology provides an interesting overview of sociological insights into economic behaviour (see here, here). It’s a really good starting point if you’re seeking to more deeply examine economic behaviour.
A key concept is “institution” by which sociologists mean a social convention defined by either law or tradition (e.g. the institution of marriage). Institutions “range in complexity from simple customs of exchange to elaborate modern states”. Dobbin argues that sociology’s core insight “is that individuals behave according to scripts that are tied to social roles”. These scripts are termed conventions at the collective level (i.e. institutions) and “cognitive schemas” at the individual level. These conventions and schemas make sense within a wider institutional framework.
One of the most provocative arguments made by economic sociologists comes from comparative studies of capitalism in different nations and periods of history. This comparative analysis has found that “for any given economic goal, a number of different means may be about equally efficient” (p. 43). Dobbin asserts that “if one accepts the premise that there is more than one way to skin most cats, then the whole world of economic conventions is opened to sociological analysis” (p. 43).
Take an example like carbon pricing and greenhouse gas emissions reduction. For years we’ve been told by economists and others that the most efficient way to reduce emissions is through the use of “market mechanisms” like emissions trading schemes. What economic sociologists are suggesting is that this is likely a convention adopted by economists and others, and that we don’t actually know if it is the most efficient way to achieve this goal. It may not be. Additionally, our understanding can be advanced by seeking to explain why such a convention was adopted over possible alternatives.
This perspective requires a sociological imagination that considers how economic institutions are often driven by culture – along with history and happenstance – and not the identification of ineluctable universal economic laws. In an earlier essay entitled “Why the Economy Reflects the Polity”, Dobbin further asserts that such economic ‘laws’ are fictions invented to give order to the world. Economic institutions – like the use of artificial markets for pricing and trading pollution allowances – can be seen as cultural inventions and not simply a reflection of invariable economic laws.
Some sociologists also highlight the frequent spread of bandwagons and fads in economies. For example economic sociologists argue that firms often “come to look alike because they jump on the same bandwagons, not because each discerns the (same) optimal way to organize itself”.
Interestingly, historical studies of capitalism have also shown that the same practice (e.g. forming cartels) can have totally different meaning in different societies. For example:
“In late-nineteenth-century Britain they [cartels] were understood to be an efficient mechanism for coordinating industries. The government backed cartels as the wave of the future. Yet in the United States they were labeled an evil private invention that threatened both economic growth and democracy (Dobbin 1994). Joining a cartel meant something very different in Britain than it did in America.”
The introduction focusses on four themes which Dobbin terms sociological mechanisms: institutions (as defined above), social networks, power and power relations, and cognition. These four forces “operate together to produce and sustain behavioral customs and market structures”.
A number of related arguments are made, including the following:
Society shapes the behavior of individuals
Sociologists argue that institutions offer prescriptions for behavior which “are sustained by occupational, industrial, and community networks that define social roles”. A related argument is that networks constrain economic behaviour. For instance, interpersonal networks provide a set of behavioural scripts, or conventions, which network members typically conform to, e.g.:
“that managers should “empower” workers by giving them more autonomy. Those networks convey cultural frameworks – chunks of tribal cosmology – so that the new convention of “empowerment” arrives complete with a new theory of human motivation.”
The sociological perspective emphasises the way that conventions are typically enacted with little forethought. Humans are seen as creatures of habit driven by customs and routines.
Sociological perspectives seek a middle ground between “under-socialised” and “over-socialised” conceptions of behaviour. An over-socialised conception suggests humans follow norms “like lemmings following the crowd”. An under-socialised conception views individuals as “atomized decision-making machines unaffected by culture or socialization”. A middle ground view recognises that people actively make choices and are reflexive but their choices are made in ‘structuring’ social contexts.
Individual consciousness comes to reflect social institutions
A central argument is that “the human mind is society writ small” (rather than viewing society as simply a collection of individual human minds writ large). For example:
“For sociologists, while the survival instinct may be innate, much of what people view as innate, self-interested, economic behaviour is scripted by convention not biology. Much of it is learned rather than hard-wired by our genes… This may be where economic sociology differs most starkly from neoclassical economics – in the idea that the scripts for achieving goals are social phenomena that become embedded in cognitive schema.”
Cognition, how humans make sense of the world, is seen as social (i.e. not only a psychological process). A related key claim is that institutions create “mental maps” of the world in individuals: broadly similar “cognitive frameworks” across members of a society “which encompass categorization schemes, maps of relationships among things, and maps of causal processes”. Dobbin draws on the social theory of Max Weber in outlining a core sociological idea: the theory of cognition that argues that it “is driven by social conventions and their meanings to the group”.
Similarly, Durkheim emphasised human sociality tracing human behaviour to group processes such as classification and meaning-making. (For more on this see A Theory of Fields by Fligstein & McAdam, especially Chapter 2). Social constructionists take this one step further, arguing that “cognitive structures come to reflect social conventions and the universal laws that modern societies define as underling them. For them, human cognition is a reflection of the surrounding social order”.
Power shapes economic conventions
Another set of social processes around power relations are also crucial. A related argument is that “the powerful devise policy institutions and business conventions to serve their own interests, framing those institutions and conventions as neutral and efficient”. Sociological research has further examined a range of related processes: how management factions shape strategy; how broader capitalist factions shaped corporate conventions and strategy (e.g. firm structures, types of strategy that are adopted); how coercion shapes economic scripts; and how alliances shape exchange patterns.
Conventions often have different meanings to different people and survive, in part, because people attach meaning to them (as well as other factors like network effects, structural inertia, etc)
Understandings of particular behaviours, such as cartels (discussed above), often vary widely and “even across rationalized societies”. Dobbin points to the importance of cosmologies, i.e. shared “frameworks for making sense of the world”, which for example specify causal relationships between “market mechanisms” and progress (or between market mechanism and emissions reduction).
Multiple capitalisms: past, present and possible future
A further central research finding is that there are multiple “sorts of capitalist economic systems, each with its own conventions and its own logic of rationality” (p. 16).
Attempt an illustrative example: economic modelling
It has become customary to demand or use economic modelling when promoting or opposing anything and everything ranging from public policies, infrastructure spending, to research programs. Over recent decades economic modelling has become a lucrative industry and modellers play related social roles such as in public policy processes. Rather than debate the substance and underlying principles of policies or projects there is often simply a demand to “show us the modelling” as if this is the ultimate judge of the merits of a policy or project. Some sociologists argue that institutions function to stabilise the situation of powerful actors vis-à-vis other less powerful actors. Consistent with this, critics like Richard Denniss argue that the increasing use of economic modelling favours industry and vested interests because they typically have the resources to commission detailed modelling.
In a sense it is obvious that such conventions are socially produced and maintained. But it does usefully illustrate the way such social conventions become institutionalised (e.g. in requirements for doing cost-benefit analyses, etc) and are rationalised, and the power issues highlighted by Denniss. Politicians often seek to demonstrate that they are above politics by publicly deploying economic modeling to justify policy decisions taken on other grounds. Other politicians can play this game the other way by criticising politicians for making policy decisions uninformed by economic modelling.
In essence a sociological perspective highlights the social construction of certain economic behaviours as rational or optimal. Similarly, Denniss highlights the development of social norms around economic modelling and seeks to spark greater critical debate about their rationality and optimality.