Categories
economics Embeddedness Free market PhD Research Thesis Uncategorized

“Embeddedness” (and why we need to stop saying it)

Is the economy embedded in society? Is society embedded in the economy? Is the law embedded in society? Or is society embedded in a set of rules and regulations?

Have the law and economy become “disembedded” from society, and is this why the financial crisis in 2008 came as such a surprise? Would it help to “re-embed” the economy?

This post explores the use, misuse and abuse of the concept of embeddedness in the context of econo-socio-legal interactions.

Coinage of the term in the context of economic sociology and ESL is attributed to Karl Polanyi in his 1948 book The Great Transformation. Polanyi had reportedly been reading about the coal mining industry in the UK, and had taken the term “embeddedness” from descriptions of coal embedded in the walls of a mine. Thus, to Polanyi, the term was likely a relational descriptor and metaphor. Interestingly, despite earlier documented usage, Richard Thurnwald’s use of “embeddedness” has gone largely unremarked, enabling him to dodge the bullet of origination foisted on Polanyi. The term only appears twice on page 60 of Great Transformation, and then on pages 68, 73 and 135. There is no great overarching theme of embeddedness. Nor is there a definition offered. It is probably safe to assume that the word was a throw-away term of description that came to hand, and was then never given much more thought.

Little did Polanyi realise that 70+ years later, scholars would be puzzling over his meaning and even writing doctoral theses on the matter! One catalyst for the development of embeddedness into the core concept of sociological lenses was Mark Granovetter’s accidental revival of the term. Granovetter’s theory of networks, published in 1985, described the actor as embedded in networks. He has since admitted that at the time of writing, he had forgotten Polanyi’s usage of the term. Nevertheless, the success of Granovetter’s paper revived the career of embeddedness, but at the same time created confusion. Polanyi had been referring to the macro-level embeddedness of economy in society, although his “always-embedded economy” is more a theoretical proposition than empirically-proven reality. Conversely, Granovetter had used the term at the micro-level to describe the embeddedness of the individual in networks of interaction. Thus, development of the concept of embeddedness already straddled the micro and macro, giving rise of the question; “what are we talking about”?

Here’s the rub. When discussing the extraction of coal from a mine, for want of a better example, “embeddedness” is a perfectly adequate relational descriptor. It implies the co-existence of two conceptually separate phenomena in time and space; the coal, and the rock from which it is hewn. There is no problem with saying that one is embedded in the other.

Where difficulty arises though is where we also want to investigate the possibility that the two phenomena described not only share characteristics but might even be two aspects of the same phenomena. For example, we can say that the economy must be re-embedded in society if we accept that the economy and society are two distinct entities. This is clearly nonsense. An economy cannot exist outside of a society. An economy necessarily implies human interaction of a specific nature (economic). The same is true of law. We cannot imagine a legal system without a society behind, underpinning, and performing it. A legal system implies human interaction of a specific nature (legal). Therefore, stating that one is embedded within the other – whichever way round you phrase it – clearly does not make sense.

My research puts this in the context of ESL, which aim to reintegrate social science dialogue and which ultimately takes a constructivist approach. In other words, economic and legal phenomena (the econolegal) are performed through social interactions. All social interactions have econolegal aspects or flavours. There’s no escaping this, just as there is no way to have an economic exchange without it being between people (I’m excluding high frequency trading between computers here for argument’s sake, but will return to this in a future post).

Why is this important? Well, the response to the 2008 financial crisis is something we, in the UK, are still living with. Austerity, as the main policy response, was based on a particular understanding and framing of the economics that led to the crash. This is an economics that sees the discipline as somewhat ‘apart’ from society. Neoclassical economics sets out a version of ‘economic man’ on which complex economic theories are modelled. There has been recognition of the limitations of this approach. But in turn, those who criticise mainstream neoclassical economics frames tend to (with or without the help of Polanyi) argue that we need to “re-embed” the economy in society.

If we take this approach, we deny the possibility of ever seeing the economy as an aspect of society, the same as the law. We cannot hope to reorient the economy and its regulation (the law) towards real people if we talk about society, economy and law as separate entities. Speaking of one being embedded in the other simply reinforces their difference, their separation, and their disunity. It reinforces existing ways of doing, talking and thinking, which are predominantly shaped by neoclassical economics. It prevents us moving forwards.

So, what to do? We need to move beyond embeddedness, and how to go about that is the subject of a future post.

Copyright note: animation by me using ProCreate 5 on iPad Air 3. Please ask before you take!

Categories
economics Free market Gig economy Infrastructure Research Uncategorized

Complexity and Community are crucial for rethinking economics

What could society look like if we do economics better?

Do mine eyes deceive me? I came across this post by Evan Davies on the BBC website, where he blogs about the changes taking place in economics. For those fond of the TL;DR, he says that economics has been, and still is, in need of a radical overhaul, given that most economists did not foresee the 2008 financial crisis, and that economics has not addressed its flaws in the decade since. Davies sets out the “two Cs” that make “neoliberal” or orthodox economics models risky (to put it mildly), and these are Complexity and Community. The short version is that people are Complex souls who live in Communities. Well, duh! Some of us have a been banging on about this for a while now.

Davies is clear not to make a straw man of mainstream economics though. And this is an important point. Microeconomics – the small-scale interactions between actors – has been remarkably successful in boiling down our collective lives into theories, formulae, and models that guide economists towards understanding how we act (and then nudging us in the right direction to make better decisions). But macroeconomics – the larger scale stuff that includes GDP, interest rates, international trade and investment and so on – tends to draw on the microeconomic theories and scale them up. But as we all know from experience, the more people you include, the more complicated it becomes to plan anything. And that’s before you start on complex interaction patterns across communities and societies.

Why have things started to change now? As I wrote in a previous post, change occurs gradually. Many successful careers have been built on the status quo of neoliberal or neoclassical, orthodox economics. The core of the academic economics community has developed, advocates, practices and teaches this approach. So revolutions, as in most areas of life, tend to be the exception. When we start to question the entire shape and direction of a discipline, there are myriad interests at play that all need to be reoriented. The mainstream journals, senior economists, and general momentum is geared towards neoclassical theory, and its implementation as neoliberal economic policy. In short, we are steering an oil tanker rather than a Mini Cooper.

Secondly, neoliberal economics is plugged into and reflected in the political mores of the day, and neoliberalism in politics remains in the ascendancy. A theory of economics that retreats from and questions this is bound to raise eyebrows. Perhaps then, eleven years might be a relatively short timespan for the reorientation, or evolution, of a discipline.

So what changes are actually happening now? The past decade has seen a wave of literature questioning the type of society we want to live in, both locally and globally, and the type of economics that might realise this.

But there are more recent projects turning explicitly to the way we do economics and its role in society that are much more exciting. The NIESR has a project underway Rethinking Macroeconomics, which is ESRC funded. The IFS is launching a project looking at inequality in the UK and targeting questions like the kind of society we want (a particularly timely question in the light of the most recent UN Report citing poverty as endemic in the UK). And then there are the centres rethinking traits of orthodox economic theory like the Paul Woolley Centre at LSE, the full title of which is “The Paul Woolley Centre for the Study of Capital Market Dysfunctionality”. The Centre essentially asks what happens if the frictionless markets featured in economic models suffer from, well, friction.

But what alternatives are there? If you’re familiar with some of my previous posts, you’ll know I’m a fan of socio-economic and econo-socio-legal approaches that take economics back into the social sciences. There are myriad alternatives though within these disciplines, including relational work, actor-network theory, community lens, network analysis, systems analysis, and many more. Zooming out somewhat, historical, geographical, psychological and anthropological approaches can also contribute to an understanding of economics as it really is performed in the real world.

But, why should we care? To make a bold, and controversial statement, economics is usually one cause of most social issues facing us today. What do I mean? The rise of populist politics caters to the anger and frustration of the “have nots” in society (economics). Austerity as a response to the financial crisis enacts neoliberal economic theories (economics). The lack of living wages and the rise of insecurity, the precariat, and the gig economy has resulted from technology and a reluctance of government to intervene based on neoliberal economic theories about the free market (economics). Climate change and global warming continue unabated because of the economic consequences of actions to tackle environmental issues head on (once again, economics).

In short, if we want to get society right, we need to get economics right. And that means a retreat from the belief that there is one “right” way of “doing economics”. It means recognising (or re-recognising) that economics is about how people act and interact. And that we do not always act rationally, or even in our best interests. Until economics models and formulae reflect this, we are left with a hollowed-out version of economics that cannot reflect the full complexity of real life. And this is something we all pay the price for. A broader, richer understanding might help us spot the next financial crisis looming on the horizon.

Categories
economics Free market Infrastructure Research

Waiting on the market?

The UK government has finally declared a climate emergency. This is great news of course, but what does it really mean in practice? And what is this doing on a blog about law and economics?

The government in the UK has subsidised the purchase of new electric and low emission vehicles in a a bid to support and stimulate the market. But at the end of 2018, the government reduced the available subsidy rates, the makes and models of cars that were eligible, and capped the number of vehicles that could be purchased under the scheme. It’s really no surprise then that the rate at which electric and plug-in hybrid vehicles have been sweeping the market has fallen since the subsidy reduction. Indeed, sales of plug-in hybrid cars fell by one third in the period to April 2019. This is, of course, against the backdrop of a clean air crisis, a backlash against Diesel engines and emissions scandals, and the Extinction Rebellion protests calling for every tighter emissions limits.

So, it would make sense for the government to support the clean(er) transport industry, including electric and low emission vehicles. More to the point, the industry seems to be crying out for a level of oversight, investment, and general co-ordination. While some companies have started to set up charging networks across the UK, these are often not cross-compatible, resulting in up to 15 different types of charging points that drivers of electric cars have to navigate. What’s more, charging points tend to congregate in wealthier areas of the country, while residents in poorer areas struggle to find a single charging point. On top of this, most experts agree that if the electric car revolution is to take off, fast charging – or the ability to charge a car to 80% in 30 minutes – is essential for the success and sustainability of the network. The problem is that the national grid in the UK is simply unable to support the required wattage, or provide the increased levels of electricity required. We would, literally, face a melt down. The answer is a massive investment and overhaul of the underlying infrastructure.

So here we turn to economics. Once again, the problem is not technology. We have the knowledge, the tech, and the skills to make the green revolution happen. It comes down to economics.

The UK government has repeated its mantra that it is waiting for “the market” to step in and develop the charging networks for electric vehicles. Meanwhile, “the market” currently complains that there is insufficient basic infrastructure available for them to build on. This is not a new dilemma, and as Mariana Mazzucato has documented, a great deal of the tech that has driven progress over the last half century has developed out of state-funded R&D. Steve Jobs did not “invent” GPS or the touch screen; he took the technology and packaged it up in a shiny box.

It feels too obvious to state that a network of charging points for electric vehicles across the UK needs to be integrated and cross-compatible. It also feels obvious to state that this network needs to be connected to a grid that has the capacity to charge the nation’s cars, if we actually want people to move to cleaner, greener, options. It also feels like common sense to point out that this level of integration, planning, and investment needs to come from the state, as the only entity with sufficient oversight, patience, and funding. Or, at very least, it needs to come from “the market” working closely with the state to achieve clearly set targets that can establish a nationwide network that avoids duplication and achieves integration for the greatest value and usability.

The markets for broadband and mobile phone coverage are instructive here. There are still areas in rural Somerset in 2019 that have no mobile phone coverage. Understandably, where the market is left to decide where to invest, it will do so where the returns are greatest, and this is in towns and more densely populated areas. Given the basic underlying premises of business and shareholder value maximisation, this is to be expected.

The problem arises when ideology and a die hard belief in neoliberalism takes hold and denies the valuable role that state involvement can play. Writing in 1944, Karl Polanyi emphasised the utopian nature of the ideological divide between state and market, and criticised the belief that the free market was entirely self-regulating. He pointed out that both market and state relied on the other, and that some degree of state oversight and involvement was necessary if society was to avoid the worst effects of the free market. To use the example of the telecommunications failures, the government can step in at this point and regulate the operation of the market to ensure that everyone has access to broadband, whether they live in London or rural Somerset, and regardless of the cost to the company bidding for the contract.

At the same time, the market benefits from state involvement, and the examples of infrastructure such as an enhanced national grid, green power and a network of clean vehicle charging points on which the green transport industry can flourish is an archetypal example of where the close collaboration between the two spheres has never been needed more.