You are on page 1of 10

Economic Institutions as Social Constructions: A Framework for Analysis Author(s): Mark Granovetter Source: Acta Sociologica, Vol.

35, No. 1 (1992), pp. 3-11 Published by: Sage Publications, Ltd. Stable URL: . Accessed: 19/08/2011 15:21
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact

Sage Publications, Ltd. is collaborating with JSTOR to digitize, preserve and extend access to Acta Sociologica.

Acta Sociologica(1992)35:3-11

Economic Institutions as Social Constructions: A Framework for Analysis

Mark Granovetter Department of Sociology-, State University of New York at Stony Brook Institutional economics has moved from a position, earlierin the twentiethcentury,of drawingeclecticallyon several other disciplines,to a stance of buildingits arguments Thispaperarguesthat sucha stancecannot almostentirelyout of neoclassicalmaterials. andsuggestsa broaderfoundation providea persuasiveaccountof economicinstitutions, based on classical sociological argumentsabout the embeddednessof economic goals and activities in socially oriented goals and structures.Emphasis is placed on how economic activitycomes to be coordinatedby groupsof people ratherthan carriedout by isolated individuals.Firmsin developingcountries,businessgroups, and the origins of the electrical utility industryin the United States are posed as cases of the 'social construction of economic institutions'.It is arguedthat, althoughproperanalysisof such can be takeninto account cases involvesa high level of contingency,these contingencies in a systematictheoreticalargument,and that historicistpitfallscan be avoided. Such an argumentis posed as the distinctiveagendafor a new economic sociology. Mark Granovetter,Departmentof Sociology, State Universityof New York at Stony Brook, Stony Brook, NY 11794-4356,USA.

1. Introduction:the new
economic sociology
The disciplineof economics has seen two strongand, at firstglance, mutuallyinconsistenttrendsover the past twenty years:a return to dominance by the pure neoclassical tradition, after a period of contention with competing paradigms,and an attemptby economists to greatly broaden their subject matter. This odd, simultaneousnarrowingand broadeningof perspective has resulted from the virtual demiseof institutional economicsin its midcenturyform. Earliercontention had resultedfrom the inability of the neoclassical synthesis to explain the broad institutionalframework within which economic transactions take place.The resultingtheoreticalvacuumwas filledby 'institutionalist' economics, whose explanationsdrew on historical, political,

?) Scandinavian SociologicalAssociation,1992

sociologicaland legal factors,with minimal use of formal economic reasoning. Such widely followed American figures as ThorsteinVeblen, John Commons,Wesley Clair Mitchell and John Dunlop often seemedas closely allied to other disciplines as to economics. A broad counterattack began in the 1960s,spearheadedby Gary Becker, later joined by many of the best and brightest mathematical economists.They inventively appliedrigorousneoclassicalargumentsto problems previouslyabandonedto the institutionalists.The expansion of educational institutions, long considered a cultural phenomenon,was declaredthe outcome of rationalindividualsinvesting in their own capacities (Becker (1964), followed by a vast outpouring of literature on 'human capital'. See the critical review in Blaug (1976)). Rigid wages and long tenures in internallabor marketswere attributednot to social pressuresor a 'new industrialfeudalism'(a metaphorcommonin 1950slabor

economics), but to 'implicitcontracts'optimallystructured by rationalemployersand employees faced with otherwise difficult problems of shirking and bad faith. (See the extended discussion in Granovetter between (1988)). Huge wage discrepancies categories of workers resulted not from restrictionson entry based on differences in grouppower, but from optimalarrangementsfor distributing talentin society (e.g. Rosen 1982). Verticalintegrationoccurred not because of the suppliers' 'conspiracy against the public' denounced by Adam Smith, but as an arrangementto reduce transaction costs in marketswherebusiness had become too complex to conduct between independentunits (see especially Williamson(1975, 1985)). Economics'- disThis 'New Institutional tinguishedfrom the old by its reliance on argumentsfor the economic efficiency of - was closely allied to observedinstitutions the 'New Economic History', which made similarclaimsfor historicalsettings. Property rights, enclosures, and all manner of political and legal institutionscame to be interpreted as the efficient outcome of rational individuals pursuing their selfinterest(e.g. North & Thomas 1973; Ransom & Sutch 1982). And these new interpretationswere appliedeven to spheresfar from economists'traditionaldomain, such as the family, crime, altruismand animal behavior (e.g. Becker 1976, 1981). Representativeof the claims of this optimistic new school is Jack Hirshleifer'scomment, in a 1985 article entitled 'The Expanding Domain of Economics', that 'economics really does constitute the universalgrammarof social science' (p. 53). One unifyingtheme of my currentwork is that the new economic imperialism attempts to erect an enormous superstructureon a narrowand fragile base. A more solid foundationcan be constructed on the basis of three classic sociological assumptions:(1) the pursuitof economic goals is normallyaccompaniedby that of such non-economic ones as sociability, approval,status and power; (2) economic action (like all action) is socially situated, and cannot be explained by individual motives alone; it is embedded in ongoing networksof personalrelationsratherthan

carried out by atomized actors (for an earlierprogrammatic statementsee Granovetter (1985)); (3) economic institutions (like all institutions) do not arise automaticallyin some form made inevitableby external circumstances, but are 'socially constructed'(Berger & Luckmann1966). The extreme version of methodological that dominatesmuchof modindividualism ern economics makes it difficultto recognize how economic action is constrained and shaped by the structures of social relationsin which all real economic actors are embedded. Economists who want to reform the discipline typically attack its psychology - proposing a more realistic model of decision-making(see, e.g., Leibenstein 1976). While the psychology in neoclassicalmodels may well be naive, I claimthatthe maindifficulty lies elsewhere: in the neglect of social structure. Psychological revisionismhas a following in partbecauseit does not requireeconomists to give up the assumption of atomized actors making decisions in isolation from broadersocial influences. Mid-centuryeconomic sociology operated at the fringes of economic activity, cedingthe centraltopicsof production,distributionand consumptionto economists. The more recent generation of economic sociologists,who constitutewhat I call the 'New Economic Sociology', have looked much more at core economic institutions, andarecloserto suchintellectualforebears as Emile Durkheimand Max Weber- who economicaction as a subordinate regarded and special case of social action - than to the accommodationist stance of mid-cenI tury sociologists. An important partof this focus is a sociologicaltheory of the constructionof economic institutions. Sucha theorymust make dynamicscentral, in contrastto most neoclassical economic work on institutions which (like many branchesof economics) the comparative staticsof equiemphasizes librium states. Without explicit dynamic we have the irony that economargument, ics, despite its devotion to methodological findsitselfwithno readyway individualism, to explaininstitutionsas the outgrowthof individual action, and so falls back to accounts based on gross features of the

environment. There are two such main accounts:culturalismand functionalism. Culturalist accounts explain economic institutionsas arising from culturalbeliefs that predispose a group to the observed behavior, as in the claim that the stress in Japaneseculture on 'organic'unity and hierarchicalloyalty produces trouble-free industrial organization. Functionalist from the characaccountsarguebackwards teristicsof institutions to the reason why they must be present. Andrew Schotter,in his Economic Theoryof Social Institutions (1981)states this principlein unusuallycandid (and a sociologist might add, pre-Mertonian)form- that to understandanysocial institution requires us to 'infer the evolutionaryproblem that must have existed forthe institutionas we see it to havedeveloped. Every evolutionaryeconomic problem requiresa social institutionto solve it' (p. 2). This implicitlyassumes a system in equilibrium, since a still-evolving institutionmight not reveal by inspectionwhat problem it had evolved to solve. These highlyellipticaland often tautologicalculturalistand functionalistaccounts become superfluous once the social constructionof institutionsis properlyunderstood. But it is not enough merely to chip away at the insufficienciesof neoclassicaleconomics.A theoreticallypersuasiveeconomic sociology must also provide an attractive alternative thatimprovesupon the explanatorypowerand predictiveabilityof existing accounts. Though I argue repeatedly against the reductionist methodological individualism of moderneconomics, I have no taste for the historicistviews of some of itsotheropponents,who supposethatevery case is unique and anything can happen. I stress the contingencies associated with historicalbackground,social structureand collective action, and the constraints imposed by already existing institutions; but my aim is still that of finding general principles,correct for all times and places. This requiresthat the contingenciesthemselvesbe systematically exploredand incorporated into the theoretical structure. It also requiresus to understandunder what circumstances economic institutions are malleableby the forces of social structure andcollectiveaction, or 'lockedin' in sucha 5

way thatthese forces are mainlyirrelevant. Finally,andclosely relatedto this last issue, a sophisticated economic sociology will neitherthrowthe valuable corpusof economic reasoning out the window, nor be so seduced by it as to produce a 'rational choice' argumentthat loses touch with the classicsociological tradition;rather, it will how moderneconomics seek to understand can be integrated with a social constructionist account of economic institutions,andwhat the divisionof labormust thereforebe between sociology and economics.

2. Over- and undersocialized conceptions of human action

Before discussing institutions as such, I want to make some general comments on conceptionsof human action. I begin by referringto Dennis Wrong's (1961) article 'The OversocializedConceptionof Man in Modem Sociology'. Wrong complained that sociologistssaw people as so sensitive to the opinions of others that they automatically obeyed commonly held norms for behavior. This 'oversocialized' view resultedfroman attemptto compensatefor
the neglect of social effects in (what Talcott

Parsons (1937) called) the utilitarian tradition,whose view of economic action I would call 'undersocialized'.(For a fuller accountof this distinction,see Granovetter (1985)). As Albert Hirschman(1982) has pointed out, in classical and neoclassical economics,tradersin competitive markets are price-takersand thus interchangeable. The detailsof theirsocial relationsare irrelevant. The classical economists thus treated these relations only as a drag on perfect competition. In a famous line from The Wealthof Nations, AdamSmithdenounced the use of social occasions by traders to fix prices. Implicitlyhe recognizedthat his image of competitive markets was inconsistentwith a world where economic actors knew one another personallywell enough to collude.In recentyears, a differenttendency has emergedin economists'treatment of social influences: that is to take them

seriously but in terms close to Dennis Wrong's 'overocialized' conception: e.g. James Duesenberry's (1960) quip that 'economicsis all about how people make choices; sociology is all about how they don't have any choices to make', or E. H. Phelps-Brown'sdescription of the 'socias ologists'approachto pay determination' assumingthat people act in 'certain ways becauseto do so is customary,or an obligation,or the "natural thingto do", or right and proper, or just and fair' (1977). This conception of 'social influences' is oversocialized because it assumes that people follow customs, habits or norms automaticallyand unconditionally;nearly all economists' treatment of 'norms' has thisflavor,and discussionsof 'conventions' also run the risk of sliding into an oversocializedtreatment. But this points to an irony of great theoretical importance:the oversocialized approach has in common with the undersocializeda conception of action uninfluenced by peoples' existing social relations. In the undersocialized accountthis atomization results from the narrow pursuitof self-interest; in the oversocialized one which originated as a corrective to the undersocializedone - atomization results nevertheless because behavioral patterns are treatedas havingbeen internalizedand thusunaffectedby ongoingsocial relations. Thissurprising convergenceof underand over-socialized views helps explain why economists who try to incorporate social influenceson economic action fall so easily into oversocializedarguments. Thus it is common to attribute distinctive styles of decision-makingto members of different social classes, as the result either of class culturesor of each class'sdistinctiveexperience in the eductional system (cf. Piore 1975;Bowles & Gintis 1982). But this conceptionof how societyinfluencesindividual economic action is too mechanical: once we knowsomeone'ssocialclass, everything is so well socialized - I would say 'oversocialized'.Thus, I attempt in my work to thread my way between under and oversocializedviews, by analyzing how behavior is embeddedin concrete, ongoing systems of social relations. 6
else in his behavior is automatic, since he

3. The social constructionof economic institutions

I now proceedto discussthe impact of this 'embeddedness' on the social construction of economic institutionsby focusing on a given little attention problemtraditionally in economictheory:how andwhyeconomic activities are carried out not by isolated individuals, but by groups that entrepreneursget to cooperate in such larger entitiesas firms,industriesand inter-industry groups. In other words, I recast the problem of economic institutions as one involvingthe mobilizationof resourcesfor collective action, which opens it up to a whole stream of thought in sociology and consideredirrelpolitical sciencepreviously evant. FollowingSchumpeter(1926), one may call those who coordinate the economic activityof otherwise separate individuals, 'entrepreneurs'. But the neoclassicaltheory of the firm ignores the entrepreneur because, as William Baumol points out, its model 'is essentially an instrumentof optimality analysis of well-defined problems, and it is precisely such. . . problems

for their soluwhichneed no entrepreneur tion'(1968:67).Thiscommentsuggeststhat the emphasis in economic theory on the comparative analysisof equilibriumstates attentionto entrepreneurship, discourages whichcan best be thought of as involving situations where markets are out of Related to the failureto proequilibrium.2 vide dynamicsis the tendency to abstract awayfrominstitutionson the groundsthat opportunitiesfor profit will automatically be taken;if there are institutionalor other to the taking of such profit, these barriers will be breached,and since one can count on this takingplace, the actual process by which it occurs is not of much theoretical interest.Correspondingly, institutionsthat encourage or discourage entrepreneurship are neglected since it is assumed that it will emerge if there are profits to be made.3 This helps explain the remarkablefact that in the recently burgeoningeconomic literatureon why firms exist, exemplified
by Oliver Williamson's work on 'trans-

actioncost economics'(1975, 1985), entre-

preneurs still make no appearanceandhow firmscome to exist receives no attention. Instead, it is assumed that firms emerge when needed to reduce transactioncosts. In the functionaliststyle of the New Institutional Economics, this emergence is taken to be automatic. But economic institutionsdo not emerge automatically in response to economic needs. Rather,they areconstructedby individualswhose action is both facilitatedand constrainedby the structureand resources availablein social networks in which they are embedded. We can see this in many accountsfrom developing countrieswhere firms would greatly reduce transactions costs but cannot be constructed.What are the difficulties? Traditionaldevelopment theory took a dim view of social structureswhere economic activity was embedded in non-economicobligations,supposingthat this would preventefficientoperations.But wherethis embeddingis in fact absent, and manyindividuals appear to be rational profit maximizers - approximating the 'undersocialized'model of human action I have described above - economic activity is often stymied by lack of the interpersonal trust required to delegate authority or resourcesto others (see, e.g., Dewey 1962; Geertz1963;Davis 1973;D. Szanton1971). But if such problemsof trustare overcome, the problemforecastby traditional theories does indeedcome to pass:the fledglingfirm is often swamped by the claims of friends andrelativesfor favorsandsupport.As one abdicatedking in Bali told anthropologist Clifford Geertz, firms 'turn into relief organizations rather than businesses' (1963:123).That is, the welfareof the local communityis put ahead of that of the business as such. Certain groups, however, such as the overseas Chinese in Southeast Asia, consistentlyovercome both problems.Trustis available because the community is so close-knitthat malfeasanceis not only difficultto conceal or execute, but often even hardto imagine. Many accountsthus indicate that Chinese businessesextend credit, pool capitaland delegate authoritywithout fearof defaultor deceit. How, then, do the businessesavoid the second problem, that 7

of excessiveclaimsbased on non-economic ties? Part of the answer is that overseas Chineseare typicallya small minority,and there are simply not enough of them for suchclaimsto cause trouble.But the organizationof social networksalso limitsclaims, because people belong to non-overlapping groups.Kinshipis so clearcutthat the number of relatives with credible claims on a businessis small and well-defined. People also divideinto groupsbased on recency of immigrationand on home area in China. Particularbusinesses are organized along such kinshipand organizationallines, and it is thus sharplydefined which individuals can make claims. By contrast, most nonChinese Southeast Asian kinship patterns are more diffuse, so it is hard to limit the numberof relativeswith legitimateclaims; and people typicallybelong to many overlappinginterestgroups,so that if one is the core of a business,its membersmay still be subject to claims from fellow members of others (Geertz 1963; Dewey 1962; Davis 1973;Lim & Gosling 1983). Brieflyput, overseasChinesesocialstructure has a pattern of coupling and decoupling that produces highly cohesive groupsthat are sharplydelimitedfrom one another; thus trust is available but noneconomic claims are illegitimate beyond thesegroupboundaries.These mechanisms of couplingand decoupling,that define the boundariesof trust and social affiliation, must become central matters for a theory of economicinstitutions.It would be a fair generalization to say that across such economicactorsmayappearto boundaries, act as if following the undersocialized model of action, and within them, as if oversocialized- following the dictates of the group. But this way of viewing the mattershows that the fundamental issue is not to get the right model of individual action, but rather to understandproperly how variations in social structure create behaviorthat appearsto follow one model or the other. The locus of explanation movesawayfrom the isolated individualto a largerandmoresocialframeof reference. Following out this logic, note that the argumentabout Chinese firmsimplies that undersome conditions,it is possible to use

to devof familyandfriendship connections elop efficient firms. But one may suspect that the consequentoverwhelmingimportance of trustin such firmsdrasticallylimits expansion even when it would be economicallyrewarding.How can such a limitationbe overcome?In manycountriesthis occurs as the result of alliancesof families into 'business groups'. This widespread phenomenongoes under many names: the old zaibatsuand their modem successorsin Japan; the chaebol in Korea, the grupos economicosin LatinAmerica, the 'twentytwo families'of Pakistan,and on and on. Thoughthere are analysesof suchgroups in particular countriesand regions,we have
so far no sustained analysis of the phenom-

enon as a whole, and little realizationthat thisis a centralaspectof modem capitalism. The groupsvaryin size, structureand legal andhave originatedin a numorganization, ber of different ways. One dimension of variation, for example, is the extent to which these groups originated in a single family group which then extended its domainthroughacquisitionor alliance, as in Japanand Korea, or in the coalescence of a numberof strongfamilyor othergroups that began independentlyand laterjoined, as is more the case in Latin America. But whateverthe originand structure,it is common for them to span a number of firms and industries, and to coordinate their investmentand productiondecisions,often througha bank that is formedthroughand closely identified with the group. Such groupshave a strong and sometimes dominating role in the economies and polities of their countries. And despite the variationsin historyand structure,it is typicalfor such groupsto be composedof participants who are, to quote one economist who has studied them, 'linked by relationsof interpersonaltrust, on the basisof a similarpersonal,ethnic or communal background' (Leff 1979:663).In some cases, tne network of personal relations that initially builds the group becomes formalizedinto institutionalpatternssuch as holdingcompaniesas in Nicaragua(Strachan 1979)or patternsof mutual stockholdingas in Japan (Gerlach 1991). And then the shape of these institutions resultsmore from the originalstructureof

personalrelationsthan from the exigencies of the market - they are, in effect, congealed social networks. Economists studying these groups in developing countries, interpret them as responsesto marketimperfections,arguing thattheywill vanishas more 'sophisticated' marketsappear(e.g. Leff 1979). But when economistscome upon them in advanced economies, as in Japan, Korea, France, West Germany and others, they either arguethat they are vestigialand will fade as used to be arguedfor Japan, thoughthis is now increasinglyimplausible- or that they arise in just those economic circumstancesthat make them efficient. The argumentsfor developing and developed economies alike are functionalist tautologiesthat avoidthe centraltasks of understanding how such alliances can be constructedand why capitalisteconomies, despite their great differences, rarely consist of single, unrelatedfirms. Just as for firms and business groups, I arguethat whetherand how an industryis is a social construction.I use the organized case of the electricalutility industryin the UnitedStates from 1880to 1930.4We want to explainwhycertainplausiblealternatives to the privateinvestorowned utilities now dominant in the United States did not occur: e.g. public ownership, or private generationof electricpower by each home and largeindustrial company,whichwould have consignedutilities to a minor role. We find a series of stages where the personal networksof a few individualswere crucial.From1880to 1892,ThomasEdison mobilized his considerable personal following, includingsubstantialcapital from the GermanEmpire, in a bitter struggleto defeat bankerJ. P. Morgan'svision of an industryprovidingnot electricitybut generatorsto homesand businessesto produce their own electricityon site - the kind of systemthat, in the United States, became conventionalfor home heating. Edison had alwayspreferredcentralstationsandthoughhe was finallyousted from GeneralElectricandthe electricityindustry by J. P. Morganin 1892, the dominanceof centralstationswas by then too entrenched for even Morganto reverse.Note that Edison won this battlenot becausehis solution


was the technologically correct one, but rather because he was able to construct winningcoalitions of key actors. One of Edison's main assistantsin this battle was his personalsecretary,the Englishman Samuel Insull. In 1892, Insull movedto Chicagoto take over a small,new company, Chicago Edison, and brought with him a unique set of personal ties: to financiers in Chicago, New York and London, to local political leaders, and to inventors in both the United States and Britain. Many of these had been forged as the result of his long association with Edison. His combination of financialand technical expertise and political connections allowed him to assemblecapital, political favors and ways of operating that other utility companies had found impossibleto implement,even thoughsome were well aware of their potential. That is, his achievementswere due to his politicaland skills rather than to techentrepreneurial nologicalor organizationalinnovations. A close studyof the way Insullorganized ChicagoEdison, with the help of his extensive connectionsand technicalskills, shows that the structure of the entire industry derived from the initial organizational decisionsin what would becomethe largest andmost successfulfirm.Insullalso shaped the industryby encouragingregulationby states (rather than by the federal or local governments)and by developingthe holding companyform, that stabilizedrelations with local industry and with regulators. Soon, this network of firms, holding companies and regulatorscongealed. Personal networksstill mattered, but only those of people central in the holding companies. By the 1920s, the institutionalforms were in place, and the outcome that we now see in the industrywas alreadyvisible.

4. Discussion
In the case of the evolutionof an industry, as forthe developmentof firmsandbusiness groups, stable economic institutionsbegin as accretions of activity patterns around personalnetworks. Their structurereflects that of the networks, and even when those are no longer in place, the institutionstake on a life of their own that limits the forms 9

futureones can take; they become 'locked in'.5 Thus, economic problems and techoutnologydo not call forth organizational comesin some automaticandunconditional way. Instead, these economic conditions restrict what the possibilities are. Then, individualand collective action, channeled throughexisting personalnetworks,determine which possibility actuallyoccurs. So even in identical economic and technical conditions, outcomes may differ dramaticallyif social structuresare different. Wherefirmsare, in some sense, 'calledfor' by market conditions, they still may not arise if no group'ssocial structurecan sustain them; inter-industry'groups' may or may not arise in favorable economic conditions, dependingon the structureof connections among important families; and industriesmay be configuredin quite differentways, dependingon the shapesof the interpersonalnetworks of leading actors. There is thus, in this argument, a high level of contingencyin the outcomes. This resemblessituationsin economic dynamics that are characterizedby multiple stable points. Indeed, I believe that a equilibrium social constructionist account can help make such dynamic economic models of institutions more sophisticated. These becausethere is little modelsare frustrating substantive way to resolve their underdetermination.As in physical cases with multiple equilibria, you can understand whichstate the systemhas reachedonly by lookingat its history.But the contingencies involvedin this historyare typicallyoutside the economicframework,and thusseem ad hoc and unsatisfyingto economists;within a sociological framework, however, they can be given systematictreatment. Notice that such multiple equilibrium models, even if underdetermined,are far from the historicist argument that every case is unique and anythingis possible. In all my cases there are only a few major possibilities.In the case of electricutilities, for example, we see, in effect, three possible system equilibria- public ownership, privatedecentralizedgenerationof power, or privatelyheld utilities.Whatwe argueis even given the constraintsof the particular political, technical and economic parametersin place in late 19th century

America, other outcomes were unlikely, butanyof these three mighthave occurred. Individual and collectiveaction, channeled throughexisting networksof personal and politicalrelations,determinedwhichpossibility actuallydid occur. An importantpart of general arguments aboutsuchmatterswouldbe to characterize those circumstances under which there indeed are multiple equilibria, and networks of collective action may determine outcomes;part of my argumentabout the utilitieswas that lateron, once the industry form was locked in, the other possibilities were foreclosed, and in those periods, less contingenttheoreticalaccountsmighthave sufficed. Also centralto the projectis to formulate some theoretical principles concerning social structurethat will cut across all the cases and offer some explanatorypower. One such generalprincipleis that the level of networkfragmentation and cohesion, or couplingand decoupling,is a major determinantof outcomes.Thatwas centralin the discussionof malfeasance,in the argument about the overseas Chinese and in the discussionof -businessgroups. Such an argumentbearsalso on the case of electric utilities. If Samuel Insull, for example, had been socially located in a tightly-knit networkof close associates, he mightwell have found it impossibleto constructthe outcomeshe did. Instead, he had relatively weaker ties into several institutional spheres - financial, political and technical- that were decoupled from one another, and this was the reason for his success. The general principlemay be that the actor whose network reaches into the largest number of relevant institutional realmswill have an enormous advantage. This may be a case of what I have called the 'strengthof weak ties' (1973). It relates also to the work of Norwegian anthropologist FredricBarth, who considers the ability to breach traditionally closed spheresof exchangeas the essence of entrepreneurship (Barth 1966). The ultimate aim, then, is to produce a theoreticalargumentwith a high level of contingencythat neverthelessmeets scientific standardsof generality, and does not fall preyto ever-present temptationsof his10

toricism. Such an agenda, I argue, is central to the vitality of the new economic sociology.

Acknowledgements This paperwas presentedat a conferencesponsoredby the Centrede Rechercheen Epistmologie Appliqueof the Ecole Polytechnique,on 'The Economicsof Conventions', Paris, 27-28 March1991. It drawson my book-in-progress, Societyand Economy: The Social Construction of Economic to be publishedby HarInstitutions, vardUniversityPress. Received September1991 FinalversionacceptedDecember 1991 Notes I Fora moredetailedhistoricalaccountof the economic arguments of Durkheim& Weber,and of the interactions betweeneconomistsand sociologistsover the courseof the twentiethcentury, see Granovetter (1990). 2 For elaborationson this theme, see Blaug (1986)and Kirzner(1973). 3 For a more detailed accountof the ups and downsin the treatmentof entrepreneurship by economists,see Granovetter(1991:Ch.4). ' This section reports on collaborative work originated by PatrickMcGuireand joined later by me and MichaelSchwartz. I The idea that institutions may become 'lockedin' despitethe possiblegreaterefficiency of otherconceivableformsis a generalization of the argument for lock-in of inefficient technologiesby Paul David (1986) and BrianArthur (1989). Their line of argumentparallelsthat in industrialorganizationon 'first-mover'advantage.

References Arthur,W. B. 1989. CompetingTechnologies and Lock-Inby HistoricalEvents. Economic Journal 99, No. 394 (March). 116-131. Barth,F. 1966. Modelsof Social Organization. Royal AnthropologicalInstitute Occasional PaperNo. 23. London:RoyalAnthropological Instituteof Great Britainand Ireland. Baumol, W. 1968. Entrepreneurship in Economic Theory. American Economic Review
(Papers and Proceedings of the 80th Annual Meeting. 58 (May), 64-71. Becker,G. 1964. Human Capital: A Theoretical and Empirical Analysis. New York:Columbia

Press. University

Becker, G. 1976. The Economic Approach to HumanBehavior.Chicago:Universityof Chicago Press. Becker, G. 1981. Treatiseon the Family. CambridgeMA: HarvardUniversityPress. Berger, P. & Luckmann,T. 1966. The Social Construction of Reality. New York: Doubleday. Blaug,M. 1976.The Empirical Statusof Human CapitalTheory: A SlightlyJaundicedSurvey. Journal of Economic Literature14 (December). Blaug, M. 1986. EconomicHistoryand the Historyof Economics.New York:New YorkUniversityPress. Bowles,S. & Gintis, H. 1976.Schoolingin CapitalistAmerica. New York: Basic. David. P. 1986. Understanding the Necessityof QWERTY: the Necessity of History. Economic History and the Modern Economist. In W. N. Parker(ed.), London:Blackwell. Davis. W. G. 1973. Social Relationsin a Philippine Market:Self-Interest and Subjectivity. Berkeley, CA: Universityof CaliforniaPress. Dewey, A. 1962. Peasant Marketingin Java. Glencoe, IL: Free Press. Duesenberry,J. 1960. Commenton 'An EconomicAnalysisof Fertility'.In NationalBureau Committee for Economic Research (ed.). Demographic and Economic Change in Developed Countries, Princeton: Princeton UniversityPress. Geertz,C. 1963. Peddlersand Princes.Chicago: Univesityof ChicagoPress. Gerlach, M. 1991. Alliance Capitalism: The Social Organization of Japanese Business. Berkeley: Universityof CaliforniaPress. Granovetter,M. 1973. The Strengthof Weak Ties. American Journalof Sociology78, 13601380. Granovetter, M. 1985. Economic Action and Social Structure: The Problem of Embeddedness. AmericanJournal of Sociology 91, 481-510. Granovetter, M. 1988. The Sociological and Economic Approach to Labor Markets: A Social StructuralView. In G. Farkas & P. England (eds.), Industries, Firms and Job: Sociologicaland EconomicApproaches.New York: Plenum Press. Granovetter,M. 1990. The Old and the New Economic Sociology: A History and an Agenda. In R. Friedland& A. F. Robertson (eds.), Beyond the Marketplace: Rethinking Economyand Society. New York: Aldine. Hirshleifer,J. 1985. The ExpandingDomain of Economics. American Economic Review 85. 53-68. Hirschman,A. 1982. Rival Interpretationsof Market or FeeSociety:Civilizing,Destructive

ble?Journalof EconomicLiterature 20, 14631484. Kirzner, 1. 1973. Competitionand Entreprenof ChicagoPress. eurship.Chicago:University and Economic Leff, N. 1979. Entrepreneurship Development:The ProblemRevisited. Journal of Economic Literature 17 (March),

Leibenstein,H. 1976. Beyond Economic Man. Cambridge,MA: HarvardUniversityPress. Lim,Y. C. & Gosling,L. A. P. (eds.), 1983. The in Southeast Chinese Asia, VolumeI: Ethnicity and EconomicActivity. Singapore:Maruzen Asia. McGuire,P. 1986. The Control of Power: The PoliticalEconomy of Electric Utility Developmentin the United States, 1870-1930.PhD Dissertation,Departmentof Sociology, State Universityof New York at Stony Brook. North, D. & Thomas, R. 1973. The Rise of the Western World: A New EconomicHistory. New York: CambridgeUniversityPress. Parsons,T. 1937.TheStructure of SocialAction. New York: McGrawHill. Phelps,B. & Henry, E. 1977. The Inequalityof of CaliforniaPress. Pay. Berkeley:University Piore, M. 1975. Notes for a Theory of Labor Market Stratification.In R. Edwards, M. Reich & D. Gordon (eds.), Labor Market Segmentation. Lexington,MA: D. C. Heath. Ransom,R. Sutch, R. & Walton, G. 1982. Explorations in the New Economic History: Essaysin Honor of Douglass C. North. New York: AcademicPress. Rosen, S. 1982.Authority,Controland the Distributionof Earnings. Bell Journal of Economics 13, 311-323. Schotter, A. 1981. The Economic Theory of SocialInstitutions. New York:Cambridge UniversityPress. TheTheory J. 1979119261. Schumpeter, of Economic Development. Second Edition. New Press. Brunswick,NJ: Transaction Smith, A. 1776 (1976). The Wealthof Nations. Chicago:Universityof ChicagoPress. Strachan,H. 1979. Nicaragua'sGrupos Economicos: Scope and Operations.In S. Greenfield, A. Strickon & R. Aubey (eds.), in Cultural Context.AlbuquerEntrepreneurs que, NM: Universityof New Mexico Press. Weber, M. 1921 (1968). Economyand Society. Edited and translatedby GuentherRoth and ClausWittich.New York: BedminsterPress. Williamson,0. 1975. Marketsand Hierarchies. New York: Free Press. 0. 1985. TheEconomicInstitutions Williamson, New York: Free Press. of Capitalism. Wrong,D. 1961.The Oversocialized Conception of Manin ModernSociology.AmericanSociologicalReview26, 183-196.