Guest Editors’ Introduction: Theoretical Introduction to the Special Issue on the Embedded Enterprise KATHRYN IBATA-ARENS JU L IA N D IE RK E S DIR K ZORN This special issue sets out to examine the historical embeddedness of economic activity in comparative perspective. Its contributors do this by showing political, social, and cultural contingencies that affect economic outcomes and by analyzing enterprise from the level of small firms to interfirm networks to large corporations. Many fields of social science now seek to explain economic outcomes through an embeddedness framework. Anthropologists study the impact of cultural norms of behavior, such as kin relations, on economic outcomes.1 Economic geographers examine the spatial aspects of enterprise embeddedness.2 Economic sociologists have emphasized structural and institutional
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[email protected]. doi:10.1093/es/khj005 Advance Access publication January 4, 2006 KATHRYN IBATA-ARENS is an assistant professor of political science at DePaul University and Abe Fellow, Faculty of Commerce, Doshisha University. Contact information: Department of Political Science, DePaul University, Suite 2200, 990 West Fullerton Avenue, Chicago, IL 60614-2458, USA. E-mail:
[email protected]. JULIAN DIERKES is an assistant professor and the Keidanren Chair in Japanese Research at the Institute of Asian Research, University of British Columbia. Contact information: 1855 West Mall, Vancouver BC V6T 1Z2, Canada. E-mail:
[email protected]. DIRK ZORN is a sociologist by training (Ph.D. Princeton, 2004) and works as a business consultant in Berlin. Contact information: E-mail:
[email protected]. 1. Bronislaw Malinowski, Argonauts of the Western Pacific (London, 1922). 2. Marie-Claire Bergère, The Golden Age of the Chinese Bourgeoisie, 1911– 1937 (New York, 1989), esp. chaps. 5–6; see also Sherman Cochran, Big Business in China: Sino-Foreign Rivalry in the Cigarette Industry, 1890–1930 (Cambridge, Massachusetts, 1980), chaps. 5–7.
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sources of economic success and failure.3 Political economists have been concerned with the impact of power asymmetries, such as that generated by state regulation in determining who gets what when where and how, that is, the political embeddedness of enterprise.4 Cognitive embeddedness is a central concern of decisionmaking models in business studies and psychology. Economists, and a few social scientists in other disciplines, stand alone in the use of atomistic conceptualizations of human and firm-level interaction in making forecasts and prescriptions for strategic action. Modern economics has reached the limits of the explanatory power of its theoretical constructs in measuring actual human interaction and the complex causal connections that lead to economic outcomes. Economics sociologists, for example, have shown repeatedly that the strategic behavior of large corporations is very much subject to the kind of herd instincts that are commonly attributed to irrational individuals, as waves of management fads and restructuring sweep through the corporate landscape.5 There is a movement afoot within other major social science disciplines that is pushing the boundaries of existing theoretical and empirical analysis— challenging existing constructs. This movement toward the study of the embedded enterprise has its origins in the work of major thinkers and founders of the fields of political economy and economic sociology, within which notions of morality (or lack thereof) in economic action are a central theme. In his 1944 classic The Great Transformation, Karl Polanyi bemoaned the imposition of the market over existing embedded relations between market, social, and political institutions. The commodification of capital, land, and labor in service of market demands—in the context of rapid industrialization in Europe—disembedded the market. “Disembedding” economic exchange from its social and political foundations absolved the market’s beneficiaries of any social and moral responsibilities.6 The notion of embeddedness in economic activity was for Polanyi the antithesis of the notion of atomization in market exchange. Embeddedness connotes the complex interrelatedness of actors within their social, political, and cultural environments.
3. For a discussion of four types of embeddedness—cognitive, cultural, political, and structural—see Sharon Zukin and Paul DiMaggio, eds., Structures of Capital: The Social Organization of the Economy (New York, 1990), 14–23. 4. See, for example, Karl J. Fields, Enterprise and the State in Korea and Taiwan (Ithaca, N.Y., 1995). 5. See, for example, Dirk Zorn, “Here a Chief, There a Chief: The Rise of the CFO in the American Firm,” American Sociological Review 69, no. 3 (2004): 345–64. 6. Karl Polanyi, The Great Transformation (Boston, 1944).
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Polanyi recognized that laissez-faire economic logic was institutionalized in the West not by a natural progression of events but instead by deliberate policy aided and abetted by the empirically dubious writings of various nineteenth-century public intellectuals. For example, William Townsend (whose “findings” inspired the work of Thomas Malthus and Charles Darwin) in his Dissertation offered a clever treatise “approaching human community from the animal side” and purported the separation of the economic (now framed as following the socalled laws of Nature) from the political. For Townsend, “it is the quantity of food which regulates the human species ... hunger will tame the fiercest animals, it will teach decency and civility, obedience and subjection ... In general it is only hunger which can spur and goad them [the poor] on to labor; yet our laws have said they shall never hunger.”7 In this way Townsend and other public intellectuals of his time ushered in the “self-regulating market” and the abolition of basic welfare supports—one way in which the market became disembedded from society. The fact that Townsend’s empirical findings (supposedly based on observations on Robinson Crusoe’s island off the coast of Chile) were later demonstrated to have been entirely fabricated had little impact—the course of “free market” history was set. The absence of institutions to provide a social safety net for displaced labor led to the breakdown of the connections between market and society, beginning in the nineteenth century in Europe. Polanyi demonstrated that it was not economic transformation that caused the severe social dislocations and upheaval but the speed at which it occurred. During rapid change, the capacity to minimize social dislocations (and subsequent demands on the system) is a function of the existence of institutions capable of acting as intermediaries between the forces of change and the general population. In this way, state institutions served to, on the one hand, facilitate the “unfettered” freeflowing exchange of capital, land, and labor within and across national boundaries. On the other hand, for Polanyi the state had the moral obligation to mitigate the most malicious aspects of capitalism through social welfare supports. The erosion of even this minimal social role for the state at the end of the twentieth century has become an issue of concern for social science scholars and practitioners.8
7. Townsend quoted in ibid., 113. 8. In her 1991 Rival States, Rival Firms (with John Stopford) Susan Strange analyzed the evolution of the relations between states and firms. Faced with the growing transnational power of global corporations, states have lost their ability to regulate and manage economic activity. Strange finds this to be the case in home (industrialized, capital exporting) and host (developing, capital importing)
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Rationalization and social disembedding of economic activity also have implications for entrepreneurship.
Embeddedness and Entrepreneurs Joseph Schumpeter was especially concerned with the role of entrepreneurs in fueling the engine of growth and innovation in advanced capitalist democracies. His widely read Capitalism, Socialism, and Democracy (1942) is a foundational text on the topic.9 Schumpeter noted, however, that over time entrepreneurs find themselves embedded within an increasingly rationalized (and bureaucratized) institutional environment. This, he feared, would have negative consequences for both moral leadership and innovation. For Schumpeter, the economic structure is revolutionized from within by entrepreneurs, leading to “industrial mutation,” seen in the shift, for example, from the craft shop to large-scale factory. This evolution for Schumpeter is not linear and is finite. Like the writers of the German Historical School, Schumpeter acknowledged (contra the classical economists) that a perfectly linear evolution in capitalist growth does not exist. Performance must be judged over time and is historically relative. Schumpeter’s critique of the shortsightedness of classical economics stemmed from his perception that its theories were grounded in the unique history of the English Industrial Revolution. Unlike the classical economists, who envisioned growth and infinite expansion, Schumpeter foresaw a weakening (and inevitable death) of capitalism’s innovative character. He reacted to the pervasive power of an Enlightenment ideology that worked to spread rationalization everywhere, which, in doing so, undermined the sources of entrepreneurial innovation. In this regard he was like Weber. Both were concerned about the spread of rationalization, even as they saw it as historically inevitable.
countries alike. Having to bargain with multinational corporations to attract capital through offering lax environmental standards and low-cost, nonunion labor, developing countries in particular are unable to act as a bulwark against the worst societal effects of capitalist exploitation on the world’s populace. Like Polanyi before her, Strange and others find that the disembedding of the market and capitalist enterprise from social structures is really a way for major corporations to shirk social responsibility toward the greater community. See John M. Stopford and Susan Strange, Rival States, Rival Firms: Competition for World Market Shares (Cambridge, U.K., 1991). See also Peter Baker, “Spatial Outcomes of Capital Restructuring: ‘New Industrial Spaces’ as a Symptom of Crisis, Not Solution,” Review of Political Economy 8, no. 3 (1996): 263–78. 9. Joseph Alois Schumpeter, Capitalism, Socialism, and Democracy (4th ed.; London, 1954).
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Schumpeter’s main critique of the rationalization of modern society was that it eliminated the “magic” and moral leadership of earlier state-society formations. He used the example of feudal lords, who protected their interests and their vassals by taking up arms, as evidence of true moral leadership. Mechanization of society transformed this relation. The modern military or business technocrat is far removed from the trenches of war or a direct relation to property and labor. Technological progress becomes increasingly routinized. Schumpeter lamented that the “romance of earlier commercial venture is rapidly wearing away.”10 He went on to imply that the loss of moral leadership is clear when examining the separation of modern military technocrats from the direct combat of knights.11 When Schumpeter analyzed earlier commercial ventures, he treated “romance” (or, perhaps, entrepreneurial spirit) as the central factor in creative destruction. One kind of embeddedness is replaced with another: the moral leader of his surrounding community is replaced by the disaffected intellectual, now a cog in the machine of a large, hierarchical, bureaucratic organization—be it corporate or state. In this light, the modern corporate chief executive officer can be seen as the antithesis of Schumpeter’s entrepreneur.
Embeddedness and the Firm More recent scholarship has questioned Schumpeter’s pessimistic conclusion. Alfred D. Chandler, Jr.’s work, of course, was dedicated to showing that the large corporation could still be innovative and entrepreneurial, even as it became rationalized and bureaucratic. But another strand of thought converging on the issue has come from the work of economic sociologists. New work on networks of social relations show how entrepreneurially minded actors can transcend organizational boundaries and firm hierarchies. In a 1985 article the economic sociologist Mark Granovetter argued that economic action always remains embedded in structures of social relations. Granovetter admonished economists for their undersocialized approach to studying economic phenomena. But he also recognized that sociologists
10. Ibid., 132. 11. Ibid., 142. For a discussion of the role of “civic entrepreneurship,” akin to what can be called Schumpeter’s notion of “moral leadership,” in the context of innovative high technology communities of firms, see Kathryn Ibata-Arens, Innovation and Entrepreneurship in Japan: Politics, Organizations and High Technology Firms (Cambridge, U.K., 2005), chap. 6, “The Kyoto Model,” and chap. 7, “Regions in Comparison.”
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often offer oversocialized explanations of the same phenomena. Noting the origins of the study of embeddedness in “substantivist” anthropology and also within the “moral economy” tradition in history and political science, Granovetter found that sociologists could contribute much to the study of embeddedness, particularly through structural (network) analysis.12 Citing empirical evidence from the industrial purchasing, construction, and labor markets, Granovetter took aim at the modern institutional economists, whose work he argued was undersocialized and empirically weak. He critiqued Oliver Williamson’s markets and hierarchies distinction for its failure to account for the ways in which market and hierarchy are in fact embedded within broader systems of social relations. Williamson’s argument concerns limits on efficiency that stem from bounded rationality and opportunistic malfeasance by atomized individuals in the market. In Williamson’s account, these inefficiencies are only controlled and managed by Hobbesian-inspired authority relations, namely, hierarchy. Granovetter concluded that Williamson’s argument would not stand up to empirical scrutiny. By contrast, Granovetter examined “concrete personal relations and structures (or ‘networks’) of such relations in generating trust and discouraging malfeasance.”13 That is, social relations between firms are more important than authority relations in bringing order to economic life. Granovetter noted that a balanced argument regarding this social embeddedness requires analysis of power relations, though he did not expand on this idea. Further, Granovetter admitted that his embeddedness analysis was “proximate” and lacked the elaboration needed for understanding broad historical connections. Still, by introducing the concept of embeddedness, Granovetter has become central to a whole literature that has developed across the social sciences. The original formulation has become so iconic that an Internet search (via Google Scholar) lists over 2,500 citations to the article as of August 2005. What Granovetter left unexplored in his essay—the critical role of power relations and historical contingencies—has recently become a
12. Mark Granovetter, “Economic Action and Social Structure: The Problem of Embeddedness,” American Journal of Sociology 91 (Nov. 1985): 481–510. Granovetter cites Polanyi as representative of “substantivist” the former and Thompson and Scott as representative of “moral economy” approaches, respectively. Polanyi, Great Transformation; E. P. Thompson, “The Moral Economy of the English Crowd in the Eighteenth Century,” Past and Present 50 (Feb. 1971): 76–136; James Scott, The Moral Economy of the Peasant (New Haven, Conn., 1976). 13. Granovetter, “Economic Action and Social Structure,” 490.
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central concern across social science disciplines. Taken together, the foundational works of Schumpeter and Polanyi in the first half of the twentieth century, and Granovetter in the 1980s, have in a complementary fashion informed a number of later works in the fields of political economy, economic sociology, and business history. At the same time, these works have exposed empirical weaknesses in the standard literature on economic enterprise.
Problems in the Existing Literature Conceptual and theoretical problems in the standard literature on economic activity are of three types. First, the literature tends to simplify descriptions of complex social systems through the use of dichotomies: market versus nonmarket or firm; market versus hierarchy; firm versus its environment. Such dichotomies construct divisions between two opposing, mutually exclusive categories. Dichotomous formulations always involve a binary choice, which limits the ability to measure complexity. While the use of dichotomous variables often provides a broad snapshot of key institutions, it rarely, if ever, captures the complexity of causal connections between various factors “outside” the firm and specific economic outcomes. For example, following Granovetter, dichotomous approaches fail to capture important causal relationships such as informal social networks transcending firm-level boundaries that may have significant effects on firm-level performance. Standard economic analysis also tends to employ heuristics broadly, considering the social, political, and cultural institutional milieu around or “outside” atomized individuals and strategic firms as “constants.” Heuristics, defined as speculative guesses and/or rules of thumb, are often used by social and other scientists in explaining various phenomena, though heuristics themselves are not grounded in empirical measurement. Broad assumptions about human and firm-level behavior, such as selfishness or rationality, are thus made without careful measurement. Relying too heavily on such heuristics, such as those found in standard economic theory, will fail, for example, to explain why altruism persists in economic organizations. A related weakness of economic theory is its strongly linear structure. Linearity assumes a unidirectional, deterministic “line-like” relationship between two or more variables. Such reasoning is weak in treating comparative cases when the independent variables are the same but the outcomes still differ. A substantial empirical literature in economic sociology and political economy has sought to
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explain why some communities of innovation reemerge and reconstitute themselves, while others, seemingly blessed with similar institutions and capital and other factor endowments, fail. Such differences cannot be accounted for using standard linear models of causality. By contrast, a historically informed embedded enterprise approach considers the interlinked and holistic nature of economic, social, and political relations. It uses heuristics only sparingly; instead, interpretations are firmly grounded in research within complex institutional environments that dominate analyses—in-depth, in the field, and across time. The study of embedded enterprise in historical and comparative perspective provides powerful evidence of the cyclical and contingent nature of economic structures and outcomes, challenging linear assumptions. This special issue presents some work using this new interdisciplinary perspective to the study of enterprise through comprehensive, in-depth empirical analysis. Our methodology is historical and institutional. We go beyond dominant and presentist approaches to analyses of embeddedness by confronting the historical genesis and meaningful nature of social relations in networks of embeddedness. In sum, we argue that economic outcomes are better explained through a socially, politically, and culturally embedded approach to the study of enterprise activity. While this approach is “new” to current practitioners of economic analysis, its conceptualizations and research methodology are grounded in foundational works of modern social science.
Methodologies for Studying Enterprise Embeddedness Explaining the various aspects of embeddedness in any given situation is an arduous task for even a single discipline. The complexity of the research process ratchets up when it turns interdisciplinary. An ethnographic, in-depth, case study methodology is best at getting at the nature and form of interconnection at a particular time and in a particular place. Studying cases over time with a historian’s eye for contingency and truth in sources helps to establish broader patterns and “systemness” of particular phenomena. But we should not be satisfied with blanket statements such as “all is embedded” (akin to the dichotomy and heuristic fallacies committed by “economic” interpretations). Instead, we should parse out instances when certain embedded factors (cultural, social, political) at different levels have effects and when they do not. Brian Uzzi’s notion of an embeddedness threshold and the “process-tracing”
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approach proposed by Alexander George and Andrew Bennett are useful in this regard.14 This approach defies easy quantitative analysis, though perhaps a kind of (case-specific) ordinal ranking may be helpful. With this basis, we can move from basic descriptions of embeddedness to explanations of outcomes. The contributions that follow share this methodological and conceptual approach to the study of enterprise embeddedness. They build on works in political economy and economic sociology in the 1980s and 1990s, extending the current focus on western European countries within which the main focal point has been Germany. Contributions to this special issue also offer a corrective for existing shortcomings in explanatory power (and ability to generalize across cases) of existing works. Before previewing the articles herein, we first review recent advances in the study of enterprise embeddedness in the fields of political economy, economic sociology, and business history.
Political Economy Political economists writing in the 1980s and 1990s tended to emphasize the importance of national-level differences in the ways in which institutions structure economic activities. Particularly, the role of the state as a mediating force between market and society was seen as key to understanding embeddedness. Ronald Dore’s work comparing the community or stakeholder model in Japan with the shareholder or market-based model in Great Britain and the United States represents this line of research on embeddedness.15 Analyses in the first decade of
14. Brian Uzzi, “Social Structure and Competition in Interfirm Networks: The Paradox of Embeddedness,” Administrative Science Quarterly 42 (March 1997): 35–67; Brian Uzzi, “The Sources and Consequences of Embeddedness for the Economic Performance of Organizations: The Network Effect,” American Sociological Review 61 (Aug. 1996): 674–98; Alexander L. George and Andrew Bennett, Case Studies and Theory Development in the Social Sciences (Cambridge, Mass., 2005). For an early formulation of the “process-tracing” approach to case study research, see Alexander George and Timothy McKeown, “Case Studies and Theories of Organizational Decision Making,” in Advances in Information Processing in Organizations, ed. Robert Coulam and Richard Smith (London, 1985), 21–58. 15. Ronald Philip Dore, Flexible Rigidities: Industrial Policy and Structural Adjustment in the Japanese Economy, 1970–80 (Stanford, Calif., 1986); Ronald Philip Dore, Stock Market Capitalism: Welfare Capitalism, Japan and Germany versus the Anglo-Saxons (Oxford, U.K., 2000). See also Alice H. Amsden, Asia’s Next Giant: South Korea and Late Industrialization (New York, 1989); and Peter Evans, Embedded Autonomy: States and Industrial Transformation (Princeton, N.J., 1995). Evans evaluates the embeddedness of the state within broader national and transnational economic and political institutions.
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the twenty-first century have focused on the distinctive characteristics of “nonliberal” or “coordinated” varieties of capitalism (thereby challenging the generalizability of so-called free market conceptions of the economy), particularly drawing on the case of Germany.16 A significant contribution of research on coordinated capitalism pertains to institutional complementarities (“systemness”) between, for example, business associations and worker-training regimes within nations. Understanding institutional complementarities within these systems informs analyses on the role of politics and social concerns in engendering positive economic outcomes across stakeholder groups.17 At the same time, problems in this literature include a tendency to attribute a larger role to national governments in affecting the embeddedness of the economy than may be due in practice, particularly given the increasing (re-)integration of the global economy. Further, though ostensibly comparative, studies on cases other than Germany are few.18 Research in the late 1990s and early 2000s also identified important subnational variations in firm embeddedness, particularly within political institutions—variations that are similar across cases while being dissimilar within national boundaries. Results from this stream of research suggest that regional and local governments are more effective than national governments in designing policies that enhance coordinated competition among firms. Another important finding is that certain kinds of firms have circumvented the vertically integrated structure and top-down process of policymaking and implementation in coordinated capitalist economies in order to be competitive and innovative.19
16. Kozo Yamamura and Wolfgang Streeck, The End of Diversity? Prospects for German and Japanese Capitalism (Ithaca, N.Y., 2003); Peter A. Hall and David Soskice, eds., Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (Oxford, U.K., 2001). 17. Kathleen Thelen and Ikuo Kume, “The Rise of Nonliberal Training Regimes: Germany and Japan Compared,” in Origins of Nonliberal Capitalism: Germany and Japan in Comparison, ed. Wolfgang Streeck and Kozo Yamamura (Ithaca, N.Y., 2001), 200–227. 18. For a theoretical review see Kathryn Ibata-Arens, “The Comparative Political Economy of Innovation,” Review of International Political Economy 10, no. 1 (2003): 147–65. 19. Gary Herrigel, Industrial Constructions : The Sources of German Industrial Power (Cambridge, U.K., 1996); Gary Herrigel and Charles Sabel, “Craft Production in Crisis,” in The German Skills Machine: Sustaining Comparative Advantage in a Global Economy, ed. Pepper D. Culpepper and David Finegold (New York, 1999), 77–114; Ibata-Arens, Innovation and Entrepreneurship in Japan. See also Michael J. Piore and Charles F. Sabel, The Second Industrial Divide: Possibilities for Prosperity (New York, 1984); AnnaLee Saxenian, Regional Advantage : Culture and Competition in Silicon Valley and Route 128 (Cambridge, Mass., 1994); Pepper D. Culpepper, “Employers, Public Policy, and the Politics of Decentralized Cooperation in Germany and France,” in Varieties of Capitalism, ed. Hall and Soskice, 275–306.
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This literature’s subnational focus is, however, a source of its weakness. Though innovative communities have been found to share important similarities across economies, prescriptive policy recommendations with broad applications have proven difficult—by the very intricately locally embedded nature of these innovative activities. The focus on subnational variation in forms of economic embeddedness is in many respects akin to research on embeddedness in economic sociology, where scholars have studied how interfirm interactions and the structure of social networks shape economic actions.
Economic Sociology Research within economic sociology on embeddedness can roughly be divided into two main streams: work on structural embeddedness and work on institutional embeddedness. These two streams both have their roots in Granovetter’s 1985 article. While structural approaches to embeddedness tend to employ network analysis methods, institutional approaches have been more eclectic in their methodological orientation.20 Structural approaches to embeddedness focus on the relational ties among peer firms. They predict a number of performance and strategic outcomes based on a firm’s location in a network of organizations. Pioneering this approach, Ron Burt has identified the bridging of “structural holes” as the strategically most advantageous position for a firm. Through his research on an anonymous U.S. high-tech firm, Burt illuminates the advantages that accrue to individuals who serve as links or bridges (“brokers”) between otherwise unconnected networks (that is, structural holes) within the firm. Works have since extended such analyses to interfirm networks. Although network analyses are beginning to move beyond the strong focus on structural ties, research on embeddedness that relies on such analyses tends to be ahistorical in the sense that the prior development of networks and the meaningfulness of dyads and other ties within the network under examination are not analyzed specifically. Although this approach has been very powerful in elucidating the underlying dynamics within clearly delimited organizations or populations and has revealed many counterintuitive findings, it has also been criticized for being overly structural.21
20. Granovetter, “Economic Action and Social Structure.” 21. Ronald S. Burt, Structural Holes: The Social Structure of Competition (Cambridge, Mass., 1992).
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Institutional approaches have been most concerned with isomorphism, or the convergent similarity found among members of a given population of enterprises. Relying on the theoretical foundations provided by Pamela Tolbert and Lynne Zucker and Paul DiMaggio and Walter Powell, such approaches have traced how cultural schemata and conceptualizations of economic rationality often drive populations to similar behavior and structures, contrary to what one might expect given the differences among population members in organizational history, technology, and environment.22 In one of the most prominent examples of this literature, Neil Fligstein showed the extent to which changes in antitrust legislation in the United States precipitated a paradigm shift in how managers thought of economic action. While Fligstein traces such paradigm shifts over the course of the twentieth century, he leaves the origins of the conceptions of the firm that were institutionalized at various times relatively unclear.23 The embeddedness literature in economic sociology has been criticized for its lack of attention to power and individual agency. Comparative research in this regard seems particularly promising. Comparative approaches may offer conclusions about the scope conditions of embeddedness in different institutional circumstances, which might be thought of as mediated by power and interests.24 Much of the literature on embeddedness so far has focused on the enabling function of social institutions and relations, but some more recent work also focuses on the conditions under which embeddedness may constitute a hindrance to strategic action or entrepreneurial activities. Some of these concerns are shared by work in the political economy literature and in the more prescriptive business literature as well.25
22. Pamela Tolbert and Lynne Zucker, “Institutional Sources of Change in the Formal Structure of Organizations: The Diffusion of Civil Service Reform, 1880– 1935,” Administrative Science Quarterly 28 (March 1983): 22–39; Paul J. DiMaggio and Walter W. Powell, “The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields,” American Sociological Review 48 (April 1983): 47–160. 23. Neil Fligstein, The Transformation of Corporate Control (Cambridge, Mass., 1990). 24. Frank Dobbin, Forging Industrial Policy: The United States, Britain, and France in the Railway Age (Cambridge, U.K., 1994). 25. Research in the field of business focuses on firm-level strategies of dealing with various aspects of enterprise embeddedness—for example, in how firms attempt to structure their embeddedness to suit the needs of enterprise. See Kenichi Imai, Benchaazu Infura [The Infrastructure of Venture Companies] (Tokyo, 1998). Another focus in recent works is on social capital. See Nan Lin, Karen S. Cook, and Ronald S. Burt, eds., Social Capital: Theory and Research (New York, 2001).
Guest Editors’ Introduction
Business History We see the work of economic sociologists and related embeddedness studies as complementing new moves by business historians. Increasingly, business history has sought to expand its engagement beyond the firm and beyond the confines of neoclassical economic theory. Kenneth Lipartito and David Sicilia, in their introduction to Constructing Corporate America (2004), have noted that the Williamsonian and Chandlerian tendencies, once dominant in the field, have reached their limits, even with respect to the modern corporation. Viewing corporations solely in terms of transactional and coordinative efforts has missed their often more significant social and cultural missions.26 In applying political and cultural analysis to the large firm, Lipartito and Sicilia follow Karl Polanyi, who pointed out in a 1957 essay that (formal) economists and their compatriots in other disciplines misinterpret history through the use of heuristics in assuming markets when there are none and ignoring the substantive (socially embedded) aspects of trade and money, such as reciprocity.27 Likewise, the essays herein offer a historically grounded and theoretically provocative approach to the study of embedded enterprise.
Preview of Articles Our contributors provide interdisciplinary perspectives to expand the theoretical and empirical boundaries of the notion of the embedded enterprise. These disciplinary perspectives include business history (Gaggio), sociology (Kuo), political science, and economic history (Ibata-Arens and Obayashi, Lin). Cases focus on Europe (Gaggio) and Asia (Ibata-Arens and Obayashi, Kuo, Lin). Contributions fall into a number of broad empirical and theoretical categories. Empirical categories include the privatization of state enterprise (Lin), small and medium-sized enterprises (Ibata-Arens and Obayashi), local industrial districts (Gaggio), and maritime trade (Kuo).
26. Kenneth Lipartito and David B. Sicilia, eds., Constructing Corporate America: History, Politics, Culture (New York, 2004). For a discussion of the importance of capturing the historical contingency of hierarchy over time, see also Naomi Lamoreaux, Daniel M. G. Raff, and Peter Temin, “Beyond Markets and Hierarchies: Toward a New Synthesis of American Business History,” American Historical Review 108 (April 2003): 404–33. 27. Karl Polanyi, “The Economy as an Instituted Process,” in Trade and Markets in the Early Empires, ed. Karl Polanyi, Conrad Arensberg, and Harry W. Pearson (Glencoe, Ill., 1957), 243–70.
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The contributions resonate with a number of issues arising from the problematics of dichotomy, heuristic, and linearity in standard interpretations. Participants examine social capital—norms and trust in social organization facilitating cooperation—in a variety of contexts, challenging the dichotomy of market versus hierarchy. Gaggio examines how locality, community, and tradition were shaped by political and techno-economic practices in industrial districts of gold jewelry producers in the so-called Third Italy. Gaggio finds that politics and ideology (regarding understandings of the economy) placed pressures on trust and the nature of economic action. Works on business organization emphasize how power and ideology shape enterprise embeddedness and how enterprises navigate (or are captured by) certain powerful institutions (Gaggio, Ibata-Arens and Obayashi). Knowledge—its acquisition, diffusion, and contested meanings—is a central issue in the contributions examining work organization. Authors also examine subethnic interfirm networks (Kuo) and the associational activities of entrepreneurs (Ibata-Arens and Obayashi). Lin examines how certain types (and degree of) embeddedness shape and constrain national policy within Chinese central state industrial policies. Lin finds that the asset control strategies employed by Beijing over former state-owned enterprises in the oil and petrochemical sectors have generated an outcome of destabilized intra- and interfirm exchange relations (what can be called “political externalities”) that undermine the intended process of marketization of industrial relations. Ibata-Arens and Obayashi show how nationallevel policies in Japan originating in the 1930s and 1940s created certain associational hierarchies with unintended consequences on entrepreneurial activity throughout the postwar period. Contrary to the received wisdom on so-called trust-based relational contracting, Japanese entrepreneurs have chafed under postwar production hierarchies. Some entrepreneurs formed alternative interfirm associations. Kuo examines how shifting national identities have had an impact on economic activity. Kuo finds that, faced with economic crisis in Singapore during the 1930s Great Depression, Chinese entrepreneurs effectively used notions of “Chinese nationalism” to increase sales within the “compatriot” Chinese ethnic community. These entrepreneurs deployed their embedded identities strategically, however, in challenging Japanese imperialism in the region, while at the same time deferring to British colonial rule. Taken together, these essays show how various types (and levels) of embeddedness have impacted economic outcomes in different countries and across time periods. The essays also provoke further debate into the way embeddedness is conceptualized and applied in
Guest Editors’ Introduction
social science research. These debates center on questions of the descriptive and analytical power of this approach. Finally, nonWestern analyses of embeddedness may help us to transcend theoretical and conceptual biases in Western social sciences. Research questions elicited from the embedded enterprise approach illustrated by the essays here can be summarized into three categories of critical questions. These questions center on the descriptions, utility, and variations of the notion of embeddedness in enterprise activity. Does a single scale of embeddedness of economic organizations exist? Through what factors (social, political, cultural) and by what measures do we assess embeddedness? What are the key institutional complementarities that comprise successful “systems” of embedded enterprise? What explanatory, predictive, and perhaps prescriptive power does the embeddedness approach have? How does embeddedness vary across nation and institutional type? Do subnational (regional, district) differences matter more than national ones to the day-to-day operations of enterprises? How does globalization affect embeddedness? Are, for example, certain subnational agglomerations of firms becoming more alike across nations than like other agglomerations within nations?
Conclusion It is likely that the division of labor between the various social sciences regarding the study of the embedded enterprise will persist. Business historians will continue to identify broad patterns and contingency involved in economic outcomes. Political economists will analyze the nature and impact of power relations, particularly power asymmetries, on the success or failure of national and regional innovation systems. They will also continue to make policy prescriptions in this regard for national, regional, and local governments. Economic sociologists will refine their tools in capturing causal connections between levels of embeddedness in interfirm networks. Anthropologists will demonstrate the critical role of culture and negotiated ethnic identities in structuring the nature of exchange. With this special issue we are hoping to introduce these complementary approaches to each other and to show that multidisciplinary approaches to a common rubric are not only a particularly useful way to generate thought-provoking questions, but also to begin to specify some of the answers to such queries. By pushing approaches in a number of social science disciplines toward a more historical account of embeddedness, we are trying to refocus this literature on important questions regarding the genesis and meaningfulness of
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social relations that enterprises often take to be the seemingly natural environment to their operations. Bibliography of Works Cited Books Amsden, Alice H. Asia’s Next Giant: South Korea and Late Industrialization. New York, 1989. Bergère, Marie-Claire. The Golden Age of the Chinese Bourgeoisie, 1911– 1937. New York, 1989. Burt, Ronald S. Structural Holes: The Social Structure of Competition. Cambridge, Mass., 1992. Cochran, Sherman. Big Business in China: Sino-Foreign Rivalry in the Cigarette Industry, 1890–1930. Cambridge, Mass., 1980. Dobbin, Frank. Forging Industrial Policy: The United States, Britain, and France in the Railway Age. Cambridge, U.K., 1994. Dore, Ronald Philip. Flexible Rigidities: Industrial Policy and Structural Adjustment in the Japanese Economy, 1970–80. Stanford, Calif., 1986. ———. Stock Market Capitalism: Welfare Capitalism, Japan and Germany versus the Anglo-Saxons. Oxford, U.K., 2000. Evans, Peter. Embedded Autonomy: States and Industrial Transformation. Princeton, N.J., 1995. Fields, Karl J. Enterprise and the State in Korea and Taiwan. Ithaca, N.Y., 1995. Fligstein, Neil. The Transformation of Corporate Control. Cambridge, Mass., 1990. George, Alexander L., and Andrew Bennett. Case Studies and Theory Development in the Social Sciences. Cambridge, Mass., 2005. Hall, Peter A., and David Soskice, eds. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. Oxford, U.K., 2001. Herrigel, Gary. Industrial Constructions: The Sources of German Industrial Power. Cambridge, U.K., 1996. Ibata-Arens, Kathryn. Innovation and Entrepreneurship in Japan: Politics, Organizations, and High Technology Firms. Cambridge, U.K., 2005. Imai, Kenichi. Benchaazu Infura [The Infrastructure of Venture Companies]. Tokyo, 1998. Lin, Nan, Karen S. Cook, and Ronald S. Burt, eds. Social Capital: Theory and Research. New York, 2001. Lipartito, Kenneth, and David B. Sicilia, eds. Constructing Corporate America: History, Politics, Culture. New York, 2004. Malinowski, Bronislaw. Argonauts of the Western Pacific. London, 1922. Piore, Michael J., and Charles F. Sabel. The Second Industrial Divide: Possibilities for Prosperity. New York, 1984. Polanyi, Karl. The Great Transformation. Boston, 1944. Saxenian, AnnaLee. Regional Advantage: Culture and Competition in Silicon Valley and Route 128. Cambridge, Mass., 1994. Schumpeter, Joseph Alois. Capitalism, Socialism, and Democracy. 4th ed. London, 1954.
Guest Editors’ Introduction Scott, James. The Moral Economy of the Peasant. New Haven, Conn., 1976. Stopford, John M., and Susan Strange. Rival States, Rival Firms: Competition for World Market Shares. Cambridge, U.K., 1991. Yamamura, Kozo, and Wolfgang Streeck. The End of Diversity? Prospects for German and Japanese Capitalism. Ithaca, N.Y., 2003. Zukin, Sharon, and Paul DiMaggio, eds. Structures of Capital: The Social Organization of the Economy. New York, 1990.
Articles and Essays Baker, Peter. “Spatial Outcomes of Capital Restructuring: ‘New Industrial Spaces’ as a Symptom of Crisis, Not Solution.” Review of Political Economy 8, no. 3 (1996): 263–78. Culpepper, Pepper D. “Employers, Public Policy, and the Politics of Decentralized Cooperation in Germany and France.” In Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, ed. Peter A. Hall and David Soskice. Oxford, U.K., 2001, pp. 275–306. DiMaggio, Paul J., and Walter W. Powell. “The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields.” American Sociological Review 48 (April 1983): 147–60. George, Alexander, and Timothy McKeown. “Case Studies and Theories of Organizational Decision Making.” In Advances in Information Processing in Organizations, ed. Robert Coulam and Richard Smith. London, 1985, pp. 21–58. Granovetter, Mark. “Economic Action and Social Structure: The Problem of Embeddedness.” American Journal of Sociology 91 (Nov. 1985): 481–510. Herrigel, Gary, and Charles Sabel. “Craft Production in Crisis.” In The German Skills Machine: Sustaining Comparative Advantage in a Global Economy, ed. Pepper D. Culpepper and David Finegold. New York, 1999, pp. 77–114. Ibata-Arens, Kathryn. “The Comparative Political Economy of Innovation.” Review of International Political Economy 10, no. 1 (2003): 147–65. Lamoreaux, Naomi, Daniel M. G. Raff, and Peter Temin. “Beyond Markets and Hierarchies: Toward a New Synthesis of American Business History.” American Historical Review 108 (April 2003): 404–33. Polanyi, Karl. “The Economy as an Instituted Process.” In Trade and Markets in the Early Empires, ed. Karl Polanyi, Conrad Arensberg, and Harry W. Pearson. Glencoe, Ill., 1957, pp. 243–70. Thelen, Kathleen, and Ikuo Kume. “The Rise of Nonliberal Training Regimes: Germany and Japan Compared.” In Origins of Nonliberal Capitalism: Germany and Japan in Comparison, ed. Wolfgang Streeck and Kozo Yamamura. Ithaca, N.Y., 2001, pp. 200–227. Thompson, E. P. “The Moral Economy of the English Crowd in the Eighteenth Century.” Past and Present 50 (Feb. 1971): 76–136. Tolbert, Pamela, and Lynne Zucker. “Institutional Sources of Change in the Formal Structure of Organizations: The Diffusion of Civil Service Reform, 1880–1935.” Administrative Science Quarterly 28 (March 1983): 22–39.
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Uzzi, Brian. “Social Structure and Competition in Interfirm Networks: The Paradox of Embeddedness.” Administrative Science Quarterly 42 (March 1997): 35–67. ———. “The Sources and Consequences of Embeddedness for the Economic Performance of Organizations: The Network Effect.” American Sociological Review 61 (Aug. 1996): 674–98. Zorn, Dirk. “Here a Chief, There a Chief: The Rise of the CFO in the American Firm.” American Sociological Review 69, no. 3 (2004): 345–64.
