Systems of Exchange: The Academy of Management Review January 2004

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Systems of Exchange
Article in The Academy of Management Review · January 2004

DOI: 10.5465/AMR.2004.11851707 · Source: OAI
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Academy of Management Review
2004, Vol. 29, No. 1, 28-19.
OF EXCHANGE
SYSTEMS
NICOLEWOOLSEY BIGGART
University of California at Davis
RICK DELBRIDGE
University of Cardiff
We develop a classification scheme of systems of exchange using concepts from

network analysis, economics, and cultural sociology. This classification illustrates
that the "free market" is but one possible type of economy and that other types are not
best understood as imperfections. This classification helps to distinguish analytically
among qualitatively different types of exchange arrangements and suggests bases
from which to develop theories about the organization of markets and exchange
systems of various types.
Thirty years ago, organization theorists fo Palmer, 1983; Podolny, 1993). The other concep
cused largely on the internal organization of tualizes markets as cultural arenas or focuses
firms and other bureaucratic structures. In re on markets as constructed social worlds (e.g.,
cent years, however, they have turned increas Abolafia, 1997; DiMaggio, 1994; Fligstein, 1996;
ingly toward trying to understand the economic Zelizer, 1988).
context within which firms operate. Prompted These are not antithetical,
conceptualizations
the of networked out of and are associated
especially by development but they do emerge
markets in Asia, organization scholars have rec with different intellectual traditions and re
ognized that market organization, not only firm search there has been
methodologies. Hence,
organization, is a crucial factor in explaining little discussion or
relatively theory building be
the activities and character of firms and other tween these scholarly Our intent in this
groups.
economic actors.
article is to merge selective elements of these
When organization analysts turned toward in a new un
conceptualizations way that offers
the examination of markets, the prevailing con
derstandings to all approaches. To achieve this,
ceptualization of a market came from econom we develop a classification scheme that differ
ics. a construct, the eco
Being parsimonious entiates of exchange on the basis of
systems
nomic idea of a market failed the needs of many
actors' logics of action and the structure of so
empirically oriented organization analysts, par cial relations between actors. The result is a
ticularly those rooted in anthropological and so
system typology (Layder, 1998) that facilitates
ciological traditions. Subsequently, in a flurry of
the codification of exchange and provides the
writings, scholars promoted alternative ways of
basis for subsequent analysis, prediction, and
conceptualizing market organization. Two sets
explanation.
of ideas about the nature of markets emerged. We do three things here. First, we briefly re
One conceptualizes markets as structures of so
view current conceptualizations of market or
cial relations and focuses on the organization of
ganization. Second, we suggest a classification
market roles into status hierarchies and net
of systems of exchange using key insights from
works (e.g., Baker, 1984, 1990; Burt, 1983, 1992;
these conceptualizations, each of which cap
tures elements of exchange in some settings. We
We earlier versions of
this paper at the Amer
use the term systems of exchange to distinguish
presented
ican Sociological Association meetings and at the Economic some types of organized exchange from the
Sociology Colloquium, Wharton School of Business, Univer
price-based market assumed in the traditional
sity of Pennsylvania. We thank Paula En
George Boyne, economic approach. "System" suggests that el
gland, Sy Goldstone, Mauro Guillen, Gary Hamilton, Rich
ements of each type of exchange arena are
ard Swedberg, and Richard Whipp for their comments on
the manuscript, and the AMR reviewers for their helpful stable, loosely coupled, and interdependent
critiques. arrangements that combine to produce a dis
28
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2004 Biggart and Delbridge 29
tinctive social and economic "world" (Scott, 1998: homogeneous commodities such that a con
91). The "market" is but one form of exchange sumer does not prefer one seller's commodities
arena found in society. We argue that there may over another's, independent and dispersed ac
be qualitatively distinct types of socially or tors, and complete knowledge of all offers to buy
ganized exchange that support substantively and sell (Stigler, 1968). As Demsetz comments,
different orientations to economic action and, "Markets [now] became empirically empty con
hence, culturally different trading arenas. We ceptualizations of the forums in which exchange
illustrate this classification scheme with empir costlessly took place" (1982: 6).
ical examples, and, we suggest how this Modern economists view the market as a
finally,
conceptualization provides a promising basis price-setting mechanism and have left its work
for economic and organization theory develop ings implied ratherexplicitlythandiscussed
ment and empirical analysis. (see Barber, 1977; Coase, 1988; Rangan, 2000; and
Stigler, 1968; for discussions of this point).2 Al
though economists recognize that "real" mar
ECONOMIC CONCEPTS OF THEMARKET to the hypothesized
kets do not conform ideal,
As economic historian Douglass North has they find it a useful fiction and a basis against
noted, "It is a peculiar fact that the literature on which to compare both empirical and logically
economics ... contains so little discussion of the derived instances of markets. Deviations from
central institution that underlies neo-classical the ideal are conceptualized as imperfections
economics?the market" 710). Classical(1977: and social relations between economic actors as
economic theorists
conceptualized markets as friction.
concrete places, but their focus was on under Institutional economists, who examine both
standing economic production and price setting, historical and contemporary marketsettings,
not exchange. Consequently, they failed to de have broadened this concept of the market sub
velop a theoretically useful conceptualization of stantially and "relaxed" each of the stringent
empirical markets.1 The economic concept of the assumptions of the model?for example, by as
market became increasingly abstract following suming information asymmetry or quality differ
the Methodenstreit or "Battle of Methods" at the ences in products. For the most part, though,
close of the nineteenth century (Swedberg, 1994). institutional economists have preserved the
Substantive historical and social approaches to central assumption of individual rational inter
economics were rejected in favor of mathemati est as the basis for economic action.
cal models of market behavior. The demands of However, institutional economist Oliver Wil
mathematics favored minimalist
assumptions liamson 1985) has examined
(1975, the role of
about market characteristics. authoritative social relations as part of a mar
The "perfect market" became a hypothetical kets and hierarchy debate, discerning those con
ideal wherein conditions for exchange provide ditions under which transaction costs are less?
the greatest good for the greatest number (Pa for example, the asocial market or the social
reto optimality). For neoclassical economists, a relations of the firm?for any given economic
perfect market an empirical
is not reality but, situation. Thus, social forms of governance, such
rather, a series of assumptions: a sufficiently as relational contracting (or bilateral gover
large number of firms so that no one makes nance), are rational responses to specific trans
more than a negligible contribution to output, action characteristics, such as recurrent ex
changes involving some

specificity. asset
Economists have also drawn on game theory
1
(1994) recognizes the contribution of Marshall,
Swedberg to explore more realistically issues of interde
who saw the market as an empirical phenomenon in its own
to Swedberg, in the 1910s pendence between actors. Games such as the
right. According Marshall (writing
through 1920s) believed that the following five factors were
important in understanding markets: space, time, formal

2
regulation, informal regulation, and the
familiarity between There has been discussion of alternatives to the market
buyer and seller. Thus, Marshall regarded markets as either in the economics field of industrial organization. Authors of
or "general" (Marshall, 1919) where in a partic such work have typically concentrated on transaction costs
"particular"
ular market a social bond exists between the buyer and the in exchange and discussed inter alia joint ventures (e.g.,
seller that makes the transaction easier, but where in a Berg & Friedman, 1978), vertical integration (Blois, 1972), and
general market the transaction is anonymous. cooperative agreements (Mariti & Smiley, 1983).

30 Academy of Management Review January
prisoners' dilemma illustrate that "the interde tablished in the 1980s in Whites (1981), Burt's
pendence between
different people's welfare (1982), and Baker's (1984) research. Each re
may make the pursuit of individual interests searcher analyzed the network structure of em
produce inferior results for all" (Sen, 1982: 6), pirical markets to demonstrate the significance
such as circumstances where cooperation would of actor connections in influencing market be
be rational and might evolve given some social havior of various types. For instance, White
structure (Axelrod, 1984). Game theorists clearly (1981) argued against the idea that market ac
demonstrate the importance of reputation, his tors are autonomous and unaware of each other.
tory, and social relations generally in establish He demonstrated that markets are composed of
ing efficient market exchanges under certain "tangible cliques," where each producer
conditions, but their use of experimental and watches the others and responds to fellow pro
logic-based research methodologies cannot eas ducers' actions rather than to the behavior of
ily translate into an understanding of how these consumers. This structural approach to markets
factors shape actual market relations outside continues to be an active research trajectory (cf.
the experimental setting. Baker, Faulkner, & Fisher, 1998; Burt, 1992).
MARKETS AS SOCIAL STRUCTURES MARKETS AS CULTURAL ARENAS
Challenges to the economic conceptualization Theorists of the social structural approach to

of markets and economic action developed in markets show
importance the
relationship of
the 1980s as organization theorists and other structure in some, but not all, market settings.
social scientists became interested in the empir They have been criticized, however, for failing to
ical analysis of economic action. The conceptu take seriously the idea that values, beliefs, or
alization of markets as social structures, devel culture is central in understanding markets
oped in a seminal article by Mark Granovetter (Abolafia, 1997; DiMaggio, 1990; Zelizer, 1988).
(1985), moved discussion away from the neoclas This leaves them to assume, logically, that it is
sical idea of the market as a logical abstraction the structure of ties, not the content of ties, that
("the sum of all buyers and sellers"). Rather, makes a difference in outcomes.4 Nor do they
scholars increasingly argued that there are mar take up the idea that various cultures can pro
kets, historically developed and varied institu duce, inform, and sustain different types of
tions that both shape and constitute exchange structures. Proponents of the structural ap
relations. Social relations and institutions in the proach recognize the potential significance of
marketplace are not merely imperfections, ra the interrelations of actors but neglect the pos
tional strategic devices, or a contextual factor, sibility of varying cultures or logics of action in
as traditional economists assume. Rather, the which actors may be embedded.
market is constituted by concrete social rela DiMaggio explicitly addresses this shortcom
tions and is not simply a collection of rational ing in claiming "categories of economic action
individuals. are culturally variable and socially constructed"
Granovetter's article revived Polanyi's (1957) and in demonstrating that culture does "more
idea that economic action is embedded in social than mediate structural or material influences.
relations of various
types.3 This approach, pri Culture cannot merely reflect structural posi
marily developed through mathematical net tions or material conditions for a 'cultural effect'
work analysis of real market settings, was es to be claimed" (1994: 28).
DiMaggio and Zukin (1990) identify three ways
in which culture can affect economic behavior:
3
In fact, Polanyi for substantively different (1) by influencing how actors define their inter
(1971) argued
types of economic action, each of which could be found in all
societies: reciprocity, exchange on the basis of goodwill or
4
obligation; redistribution, the movement of goods or services Uzzi (1997) takes a preliminary step toward the analysis
to a "center" and then outward taxation);
(e.g., and ex of the content of ties in networks with his recognition of
change, transactions in the market proper. The social struc "arm's length" and "embedded" ties in New York's apparel
tural school has used the idea of embeddedness, but without industry. His analysis concentrates on the concept of struc
seriously considering the type of market in which embedded tural embeddedness rather than cognitive, cultural, or polit
ties take place. ical forms.

ests (consfifufive effects), (2) by constraining ferent economic systems. Various "exchange
their efforts on their own behalf (regulatory ef arenas" exist in the global and domestic econ
fects), or (3) by shaping either a group's capacity omy and are not necessarily vestiges of premod
to mobilize or its goals in mobilizing. A simple ern or ethnic enclave exchange systems des
version of
this may be that actors have two tined to develop at some future moment into a
"frames" for action, embodying individual and "proper" market, although different types of ex
"other-regarding" sentiments, respectively, de change dominate in some periods and in some
pending on the situation (see also Etzioni, 1988; locales.
Harsanyi, 1955; and Sen, 1982). Systems of exchange?like business systems

Friedland and Alford (1991) suggest that, for (Whitley, 1992), or a Taylorist production system
each of several domains (family, polity, econ (Taylor, 1911)?are composed of elements re
omy), there is a fundamental "logic of action," lated synergistically in economic processes of a

which implies a range of goals, strategies, and discernible type. While elements can be exam
bases of evaluation. Accordingly, the logic of the ined independently as units of analysis (e.g.,
marketplace emphasizes utilitarian reasoning, division of labor, compensation system, author
efficiency, and means-end calculation from the ity structure), they are organized in ways dis
standpoint of the individual, whereas the logic tinctive to each system, and they include an
of the family emphasizes mutual support and a interpretive schema
that explains and justifies
collective orientation. For DiMaggio (1994), cul arrangements. Therefore, system elements are
ture may represent a finite set of context more than the sum of constituent parts and have
dependent orientations and a set of rules for complementarities among them.
switching among them. Moreover, there are likely to be important
Actors, therefore, may have different under commonalities between micro and macro units
standings of "rationality" at different times, de of analysis within the same system of exchange.
pending on their situation, the social structures For example, economic individualism is weak at
of the exchange settings, and the social struc both the level of individual actors and firms in
ture's cultural context. In other words, prefer Japanese society. Individual and firm identity
ences are socially formed and institutionally formation take place in group settings (Gerlach,
shaped by the specific context (Douglas & Isher 1992; Kondo, 1990). Groups shape economic
wood, 1979). This is important, because what orientations and strategy in important ways
"rational" action means in practice can vary at both levels of analysis, as well as social
across different types of exchange arenas?that organization.
is, "rationality is itself a culturally variable con We use the term exchange to refer to a "vol
cept" (DiMaggio, 1994: 48). untary agreement involving the offer of any sort
of present, continuing, or future utility in ex
change for utilities of any sort offered in return"
SYSTEMS OF EXCHANGE or
and that may involve money, goods, services
The threeconceptualizations that we have (Weber, 1978: 72-73). Exchange is one of four
briefly characterized?the economic, the social basic economic activities, the others being sav
structural, and the cultural?each make impor ing, consumption, and production, which, in
tant contributions to our understanding of ex practice, may be combined (e.g., home pur
change organization and action. They are not, chasing can involve consumption and saving,
however, as so often assumed, necessarily op simultaneously). Each form of economic action
positional. We take a core element of each to may be subject to organizing, rationalizing, and
construct a systems of exchange classification institutionalizing.
scheme. We use this
terminology, and not mar
ket, because we want
to suggest that the market
CLASSIFICATION AND TYPES IN ECONOMIC
as conceived by traditional economic ap
SOCIOLOGY AND ORGANIZATION ANALYSIS
proaches is but one, albeit important, type of
exchange system. Other types, we argue, are Classification is an intellectual strategy for
neither corruptions nor imperfections of a mar developing theoretically meaningful categories
ket but, rather, may be qualitatively different or types of observed phenomena. Types and ty
arenas for exchange that constitute socially dif pologies, as distillations of empirical observa

32 Academy o? Management Review January
tions, are useful in comparative analysis, hy mony ofinterests. These are communicated
pothesis formation, and causal explanation through the implicit rules of tradition.
(Martindale, 1981). Layder (1998) notes that typo Powell's (1990) work on networks also offers an
logical analysis facilitates systematic and or alternative to the market-hierarchy dichotomy.
dered questioning across phenomena ("How Powell distinguishes the network as a form of
and why is this similar/different?"), which has economic organization with a complementary
the effect of generating codes, categories, and and relational basis for action between interde
concepts that, in turn, stimulate further concep pendent actors, such as small biotechnology de
tual analysis. Moreover, it encourages theoreti velopment firms allying with large, well-funded
cal elaboration "chains of pharmaceutical companies able to test and de
through reasoning"
by suggesting connections among emergent velop promising drugs.
"Overall, the development of typolo Boisot and Child (1988) extend these frame
concepts:
works in their analysis of the transaction
gies can clarify thinking, suggest lines of expla gover
nation and give direction to the theoretical nance structures associated with the infor
1998: 74). Typology build mational aspect of transacting. They develop a
imagination" (Layder,
is in the two-by-two typology around the extent to which
ing particularly helpful, Layder argues,
back and forth between theoretical information is diffused/undiffused and codified/
"zigzagging
uncodified. Markets and bureaucracies share
ideas, data collection and analysis" (1998: 77)?
emer the impersonality of codified information, differ
that is, the dialectical interplay between
based on the gathering of data ing in the degree to which that information is
gent theorizing
shared. Ouchi's clans reflect a situation where
and the use of extant theory.
information is diffused but the lack of codifica
Classification schemes such as typologies
tion requires personal, nonhierarchical relation
make useful distinctions among complex exam
ships in transactions. From this typology a
ples of phenomena and, by simplifying and cod
fourth structure is apparent, which Boisot and
ifying, turn our attention to critical factors fre
Child identify as fiefs. Fiefs emerge when the
quently found together in empirical situations.
information is both uncodified and undiffused.
For example, in recent years organization ana
Here, personal relationships are hierarchically
lysts, noting the importance of knowledge in a
coordinated.
postindustrial economy, have developed classi
While the above authors distinguish markets
fication schemes and typologies that distin
from other forms
economic of organization,
guish among knowledge types (Hargadon &
Swedberg (1994) offers two types of markets as
Fanelli, 2002; Spender, 1996). Our intent is simi on
social structures. Building Weber, his central
lar: to construct theoretically meaningful typifi are arenas
argument is that markets for compe
cations of exchange systems by extracting cru
tition for exchange, and he is interested in how
cial factors that seem common to a number of
competition among a large number of actors
economic settings. We abstract from these cases a
(buyers and sellers) becomes exchange among
in order to build simple, but not oversimple, few. Swedberg elaborates his argument con
by
types that can be used in theory formation and the social structures of ideal types of (1)
sidering
empirical analysis. historical markets and (2) modern capitalist
There are several useful
typologies of eco markets, as competition becomes exchange.
nomic organization. For
instance, Ouchi (1980) The typologies of Ouchi, Powell, Boisot and
develops Williamson's transaction cost ap Child, and Swedberg useful ideas about
provide
proach in outlining the "clan" form of economic various elements of economic and eco
activity
association, a third mechanism for mediating nomic organization, and each has been a help
transactions, in addition to markets and hierar ful conceptual apparatus for researchers. Ou
chies. In clans, socialized actors eschew oppor chi's and Powell's models theretofore
posited
tunism and achieve efficiency under conditions unexamined and insufficiently theorized eco
of high performance ambiguity in a manner not nomic structures of relation (clans, networks)
possible for markets or bureaucracies.
The clan and stimulated the examination of conditions
operates under norms of reciprocity and legiti under which each would arise. Boisot and Child
mate authority, but the common values and be hypothesized a setting in which the character of
liefs of actors create goal congruence and a har relations would shape and reflect the character

of information among actors, critical for theoriz change" or "model economies" sufficiently com
ing the economics of information. Swedberg plex to stimulate insights about connections
posited a possible relationship between number among various elements internal to the types,
of traders and the character of relations among and comparison between the types. Our paper
them. bears some resemblance to the work of Douglas
We likewise contribute an economic classifi and Isherwood (1979), who typologized different
cation scheme?one that aims to fuse elements social structural environments for saving in
of the economic, social structural, and cultural their work on the anthropology of consumption.
approaches to market organization. Research These authors contrast the extent to which the
ers' attempts to make sense of very different imposition of group values curtails individual
patterns of economic organization and practice autonomy, and the degree to which individuals'
in the global economy, and policy makers' at transactions are restricted or "insulated."
tempts to construct meaningful multilateral
trading regulations, motivate our attempt to con
SYSTEMS OF EXCHANGE: RATIONALITYAND
struct an intellectual base point for classifying
SOCIAL RELATIONS
and then explaining differences. We combine
insights from each of the three dominant ap We posit
qualitatively different types of ex
proaches to economic understanding?eco change systems that vary along two dimensions
nomic, cultural, and structural?to show how (Figure 1). Each dimension is a critical compo
different rational orientations toward action, nent of exchange between actors and is identi
and different structures of relations, combine fied by both classical (Parsons, 1968; Weber,
to produce qualitatively different systems of 1978) and modern
theorists (e.g., Frank, 1987;
exchange. Kahneman, Knetsch, & Thaler, 1986; Mans
We that this schema will give theoret
believe bridge, 1990) as a variable component of eco
ical foundation to those studying "varieties of nomic action. The first dimension distinguishes
capitalism" and economic relations between between two approaches to action, instrumental
differently organized economies. Our intention rationality and substantive rationality, and
is to generate hypothetical "worlds of ex speaks to the actor's strategic orientation
FIGURE 1
Systems of Exchange
Structure of social relations
Particularistic
Universalistic
(act toward outsiders
(act toward all the same)
differently)
Instrumental
rationality
(means Price system Associative system
calculus)
Basis
of
action
Substantive
rationality
(calculus in
Moral system Communal system
relation to an
end)

("What are my interests?")?a distinction pro into account the relative importance of various
posed by Max Weber (1978). The second distin ends, the means needed to achieve them, and
guishes between two orientations toward other the consequences that may come from pursuing
people, universalism and particularism, and is alternative means (Kalberg, 1980).
concerned with how the actor understands his or Actors are often concerned with cost minimi
her obligations to the other party in an ex zation, profit maximization, and other forms of
change ("How do I treat my exchange partner?"). efficiency. Modern capital accounting, formal le
Weber and Parsons, writing in the early de gal procedures, and bureaucratic rules are in
cades of the twentieth century, were concerned strumentally rational insofar as they enable cal
with trying to understand the development of culability and procedural consistency, and all
the world order of industrial capitalism, and were associated with the development of market
they did so in part by looking at the character of capitalism in Europe (Carruthers & Espeland,
non-Western societies such as India and China, 1991). No particular goal is necessarily implied
which did not develop capitalism indigenously. when people act in an instrumentally rational
They noted that these and other non-Western way; rather, goals may be weighed as alterna
cultures typically did not contain the instrumen tives. When economists a rational assume
ori
tal rationality or belief in individualism that entation, they typically to refer
instrumental ra
tends to characterize Euro-American societies tionality, which they regard as a universal
(although this is variable even in the West, as orientation, although recent research shows this
game theorists suggest; see Marwell & Ames, to be a highly variable orientation (Frank, 1987;
1981). They saw these differences rooted in so Kahneman et al., 1986).
cial orders structured on different principles of Substantive rationality is oriented toward val
action and social relations. ues?for example, environmentalism or social
The development, in the
twenty-first century, welfare. As
Jon Elster puts it, "Substantive ra
of a global economic system and awareness tionality is guided by its consequences" (2000:
that economies and societies vary substantially 23) or ends, whereas instrumental rationality is
even when industrialized suggests that differ guided by means. Substantive rationality can,
ences may be systemic and that they are not like instrumental rationality, be calculating and
differences of degree destined to disappear over employ reason, but a substantive or ethical
good
time as they "converge" (Biggart & Guillen, (e.g., greening the economy, redistributing in
1999). In the literature on comparative capital come, caring for employees) is at its base. Sub
ism, scholars argue that there are important stantively rational action is rational in the sense
bases on which economic and social orders con that action is predictable and not capricious, but
tinue to vary among societies, but, we argue it need not follow the procedural rigor of instru
here, they vary within societies as well. Earlier mental rationality, and actors often feel morally
concerns about the foundations of economic or or emotionally bound to pursue the substantive
ganization as structured on differences in ration goal (e.g., fight poverty), even if they are not
ality and individualism continue to be sugges successful in achieving the end. The probability
tive bases for understanding differences. of success is not critical to substantive ration
ality, whereas it is always part of the calculus of
instrumental rationality.5
Rationality
Instrumental rationality is "determined by ex

pectations as to the behavior of objects in the
5
Both instrumental and value rationality can be at the
environment and of other human beings; these
basis of the pursuit of public or private ends. Public
expectations are conditions' or 'means' for the
groups?for example, publicly held firms or business asso
attainment of the actor's own
rationally pursued ciations?can pursue their ends in a
instrumentally (e.g.,
and calculated ends" (Weber, 1978:24). An action profit-maximizing way) or in a way that is oriented toward
is instrumentally rational when someone at collectively held values (e.g., in a way that sustains "fair"
prices). Perhaps more obvious, private individuals and

tempts to consider all possible means to an end
groups can also pursue economic ends in either an instru
and weighs the alternative means in a decision or substantively or
mentally rational way. It is not the public
making calculus, often in a quantitative analy nature of the economic actor that determines the
private
sis or accounting (Weber, 1978). Actors may take type of rationality.

Political and
religious organizations may ob Social Relations
viously be
substantively rational with their ori
The systems of exchange schema's second di
entation toward particular goals, but economic
mension reflects the structure of social relations
organizations such as cooperative food markets
in a system of exchange, which may be as small
and socially
responsible investment funds are
as an ethnic enclave or as large as a suprana
rationally oriented toward substantive pur
tional regional economy.
poses.6 While analytically distinct, in practice, In recent years, many scholars have adopted
instrumental and substantive rationalities are
the Polanyian idea that economic relations are
often combined in some way. Instrumentally ra
embedded in society, usually by mathemati
tional techniques may be raised to the plane of
cally and diagrammatically examining the net
values when practitioners view them as the only
work structure of relations (Burt, 1988; Granovet
"morally" or "politically" correct way to make
ter, 1985; Polanyi, 1957; Uzzi, 1997). Structural
choices or to conduct activities. Similarly, those
embeddedness, however, leaves open the ques
attempting to achieve some moral or ethical
tion of the character and cuJfure of social rela
goal may choose to use procedurally rational
tions in which economic actors are embedded
techniques as the best way to reach their sub
stantive ends.Substantive together.
rationality operates the nature of social relations can
in the economy not as an alternative to eco Although
vary dramatically, Parsons (1968) proposed the
nomic motives but as a type of economic motive,
simple dualism of universalism and particular
one that jointly optimizes values and outcomes,
ism as two fundamentally different orientations
whereas instrumental rationality is motivated
toward others in society (see also Hamilton,
by the optimization of ends.
1978, for an application of this idea to economic
In allowing for two types of rationality, we
behavior). Before they can act in reference to
intend to account more fully for the varied and
others, people must decide whether to judge a
socially constructed logics that inform economic
person by general criteria or criteria unique to
action?a key assumption of those who see mar
that person. In political settings, universalism is
kets as cultural worlds. The empirical record
expressed as individualism?the right of every
suggests that instrumental rationality is but one
person to be treated equally?and in economic
possible form of
rationality and that cultural
settings, universalistic relations are those in
differences render some populations of firms
which actors, either individuals or corporate ac
and people, and some societies, more able to act
tors, treat, in principle, all exchange partners
in the instrumentally rational way demanded by the same: "For instance, the duties of honesty
capitalism as practiced in the United States
and fair treatment are held to apply to business
(e.g., see Shweder & Miller, 1991). Nonetheless,
with everyone, not only with one's rel
the variability of types of rationality, we dealings
despite atives and personal friends" 1968: 550).
(Parsons,
agree with a central economic tenet?the idea
treatment can be either because of in
that exchange behavior is rational, or at least Equal
difference or because a higher principle (e.g.,
intendedly so, whatever type of rationality may
corporate regulations, law, universal ethical
inform it.7
code) regulates social relations and demands
that all receive the same treatment before the
6 law or principle. For example, the U.S. Foreign
Weber called these orientations to action zweckrational
orientation to discrete individual and wertra Corrupt Practices Act prohibits U.S. citizens from
(rational ends)
tional (rational orientation to an absolute value). engaging in bribery, even in countries where it
7Beckert (1996) identified two deviations from is customary, and insider trading laws prohibit
recently
rational economic action: irrational behavior with or without the private sharing of corporate information.
regret. Irrational behavior with regret violates the predic The existence of a universalistic orientation
tions of economic theory insofar as an actor behaves irra
does not mean that actors have an asocial ori
tionally. However, once the consequences of economic irra
entation but, rather, that exchanges are con
tionality become clear, the actor regrets the action. In
Beckert's words, the actor "intentional ducted at arm's length, or that social relations
displays rationality."
Alternatively, irrational behavior without regret represents
a conscious deviation from economic rationality in that an
actor holds convictions about just or appropriate behavior (Beckert, 1996). The latter case is consistent with Weber's
and lets decisions be guided by these normative standards notion of substantive rationality.

between parties are subordinated to a suprare scheme, like all theoretical models, is its useful
lational standard, such as equal treatment. ness in aiding understanding?not its empirical
Even arm's length trades are social insofar as validity.
they take into account the actions of others and
depend on social routines and conventions in
FOUR DIFFERENT SYSTEMS OF EXCHANGE
order to execute exchanges.
In settings where a particularistic orientation The two dimensions yield four systems of ex
exists, the nature of the parties' relation to each change (Figure 1). Each system assumes a char
other is taken into account when parties conduct acteristic economic logic that supports a typical
exchange. Particularistic societies demand that type of economic actor, orientation to action, and
actors orient themselves preferentially to those relationship between actors (Table 1). We as
within the structure of relations in which they sume that economic actors can either be a sin
are embedded?for example, a family, profes gle person or a corporate actor (e.g., firm) in each
sional association, group, ethnic
class, or system. For example, in the United States, eco
caste?and treat those their group affil
outside nomic independence is the dominant orienta
iation differently (Parsons, 1951). Examples in tion for both individuals and firms (and at
clude the requirement that one favor family the firm level?and in some cases individual
members in Chinese societies, or that partners level?this is sustained by regulation), while in
favor one another in a joint venture. Ties are Scandinavian economies individuals and firms
"strong" in the sense that social
identities make are oriented toward corporatism, a system that
a claim on the actors (even though they may not includes elements of social welfaregroupand
know each other well, or at all). Under particu organization. Two different logics are
economic
laristic circumstances, "social capital" can be reflected in the exchange systems of each soci
come important as a way of facilitating ex ety, and the logics operate at multiple levels.
change (Coleman, 1988).8 Each element (Table 1) of the types is part of a
The two dimensions yield a fourfold table (Ta conceptually whole model economic system.
ble 1), with each entry representing a qualita The elements are therefore not units of analysis
tively different system of exchange. Each of but, rather, assumed components of a hypothet
these system types is a theoretical construct like ical system. Each element can be treated as a
any model, including the economic model of a hypothesis or as a basis for variation seeking
"perfect market," and no empirical exchange with a "real" economic setting (as the assump
setting is represented by the hypothetical sys tion of a neoclassical market is used as a basis
tem types we posit. However, scholars have for identifying "imperfections," or whose indi
noted thatuniversalism and instrumentalism vidual assumptions may be "relaxed").
were historically linked in the West and that
particularism and substantive rationality repre
Price System of Exchange
sent the historical roots of East Asian capitalism
(Orr?, Biggart, & Hamilton, 1997), and we provide The price-based exchange arena approxi
examples throughout to show the ways in which mates the "free" market depicted by neoclassi
the classification system makes meaningful dis cal economists and is best exemplified by auc
tinctions between varieties of exchange arenas. tion markets, such as equity markets or other
We believe that elaborating the elements of settings where strangers compete primarily on
four different systems of exchange provides price (or quality as a proxy for price). Actors
more realistic conceptualizations than a single enter into price-based markets assuming that
market model, while allowing reasonable parsi other actors, both sellers and competing buyers,
mony in theorizing. The test of a classification are driven to get the lowest possible price for a
desired good. In the purest examples, actions
are motivated by self-interest and unaffected by
8
Portes and Sensenbrenner (1993) recognize that social social or moral considerations the self
beyond
capital may facilitate both instrumental and substantive
interestedmorality of "greed is good."
(what they term principled) action. They introduce value
as a source of social which
This market type is the intellectual and polit
introjection capital, "emphasize[s]
the moral character of economic transactions that are guided ical basis for Anglo-American-style economies.
by value imperatives" (Portes & Sensenbrenner, 1993: 1323). There is a presumption that economic order will

to g CL -<a 0 CO
^3
Coll?gial kinor Community;

order
pricing
association;
tiered coll?gial
Preferential, to
group
Subordination
System
Communal group
ethnic Group
member
norms
Disloyalty
Relational
Ethically
individual/firm
committed
Organization
of
committed
actors;
Subordination
ethical standard
Disregard
principle
ethical
of
to
Closest
Morally regulated
exchangefair
to
price
value;
certifiers
third-party
System
Moral
Principled
Systems
of Actors andAction
TABLE
1 Exchange:
Individual
or
actor in
corporate
self-interest
Horizontal
and
vertical Autonomous
System
Associative
Long-term
price Reciprocity
gain
Mutual network Social
ties
networks
Autonomous
individual/firm
of
"playing
regulation
Social or
relations
System Auction
Price market
Spot gain
priceIndividual
Self-regulation
Self-interest field"
Breach
of
system
norms
Mutual
to
action
Allocative
principle expectation System
System
Elementsof Orientation
actor regulation
Organization Normative
exchange

emerge from the independent and selfish acts of ness consortia are examples of exchange based
autonomous individuals seeking their own on durable associations between actors. Actors
gain?the "invisible hand" envisaged by Adam in economic alliances assume that, over the
Smith (1976). This market type emerged out of long run, mutual support and reciprocity?not
the institutional history of Western Europe, autonomous self-interest?will result in the best
where crucial underlying conditions devel economic outcome
for the parties. Associative
oped?notably, individualism, democratic gov exchange, the like
price system of exchange, is
ernment, and decentralized private spheres oriented toward instrumental rationality and
(Biggart & Hamilton, 1992; Carruthers, 1996; profit maximization, but actors work in concert
Hirschman, 1977; Polanyi, 1957). with one or more partners in pursuit of economic
Empirical research on markets shows that ends.
auctions, usually described as the "purest" Western scholars became aware of the impor
price-driven markets, are, in fact, mixed types. tance of associative exchange with the develop
Charles Smith's study of commodity auctions ment of Asian economies?forexample,
(1989) shows that fresh fish, antique, and live Gerlach's study (1992)
Japaneseof business
stock auctions operate according to agreed-on groups and Redding's work (1990) on Chinese
rules of participation. Similarly, Mitchel Abola capitalism. The typology developed in Boisot
fia's (1997) study of financial markets in the and Child's (1988) critique and extension of
United States shows the variability of this type. transaction cost economics rests, in part, on that
Abolafia found that the bond market, where theory's inability to conceptualize particularistic
actors typically do not see each other, resem economic relations typical of Chinese societies.
bles, in important ways, the ideal type but that Asian societies never developed the institu
the stock and commodities exchanges are tional conditions, such as unbridled individual
strongly influenced by both social relations and ism, and the legal systems that underlay prop
conventions. erty rights and contracts?that support markets
The utilitarian assumption underlying price of autonomous individuals. Rather, Asian mar
driven markets is that the greatest good for the kets assume relations or networks exist between
greatest number will be obtained when actors, economic actors, although the character and ob
either individuals or firms as fictive individuals, ligational basis of network relations varies sub
are autonomous. Regulators, such as the Secu stantially (Orr? et al., 1997). Actors in business
rities andExchange Commission in the United networks compete based on price but not as
States and the Competition Commission in the individuals; rather, they compete as partners or
United Kingdom, exist to prevent actors from allies in competition with other actors who may
forming economically significant social ties in also be organized into networks or partnerships.
the marketplace. Social relations, such as nep Vertical networks like Korean chaebol, includ
otism and insider trading, are against the logic ing Samsung (Biggart, 1998), and Japanese "in
of impersonality fundamental to the market, and dependent groups," such as Toyota Motor Com
they threaten the efficient movement of goods pany, are examples of vertical networks where
and people according to principles of supply powerful economic actors control networks of
and demand. smaller firms (Gerlach, 1992). Horizontal net
works tend to link independent actors, including
individuals, households, and firms, into mutu
Associative System of Exchange
ally beneficial business arrangements. Often,
Associations or alliances between economic horizontal networks are based on a common so
actors, often firms, are "voluntary arrangements cial identity, such as ethnicity (Hamilton, 1997)
involving durable exchange, sharing, or co or religion (Uzzi, 1997), or they may organize the
development of new products and technologies" independent actors who are members of an in
(Gulati, 1995: 619). Economic alliances can re dustrial sector (Piore & Sabel, 1984; Saxanian,
duce costs for the allies (Hennart, 1988), involve 1994). In some instances, alliances based on eth
skill sharing (Hamel, 1991; Kogut, 1988), or im nic or cultural ties are mixed types and shade
prove the parties' strategic positioning (Kogut, into what we call communal exchanges, where
1988). Strategic alliances between multinational social relations have a value that shapes the
enterprises and government-sponsored busi economic relationship.

While price-based and associative systems of distributive justice (Shanahan & Turna, 1994),
are consistent with instrumental ra environmentalism (Berger, 1994), or religious be
exchange
tionality, two further systems of exchange? liefs (Biggart, 1989; Wuthnow, 1994). Even repug
moral and communal systems?are not. We dis nant values, such as a belief in ethnic superior
agree with Beckert's (1996) view that actors in ity, can shape exchange. Actors are rational but
modern societies do not willingly transcend eco only insofar as their actions are oriented toward
nomic interests in order to act in accordance putting in place a value or as their substantively
with normatively held convictions. Beckert argues, rational actions are bound by a moral code. Mor
"This cannot be expected in modern societies be ally informed economic behaviors are found in
cause of the institutionalization of instrumental exchanges between large companies in the
behavior orientation and systemic mechanisms global economy, as well as between individuals
that discourage deviations from instrumental ra within a local
community.
tionality in market contexts" (1996: 818). Recent examples of the institutionalization of
Beckert and many others accept what is often moral-based exchange systems are voluntary
now a truism based on a partial reading of Po corporate codes of conduct that regulate labor
holds that "all economic systems standards in international trade. Reported ex
lanyi. Polanyi
known to us up to the end of feudalism inWest ploitation of third world workers by such com
ern Europe were organized on the principles of panies as Nike and Disney led to the establish
reciprocity or redistribution, or householding, or ment of an international standard on social
some combination of the three" (1957: 54-55). accountability?SA8000?under which compa
These systems were not based on the principle nies' employment and working practices are au
of gain but, rather, "custom and law, magic and dited by independent assessors (Crowe, 1998).
religion." Polanyi argues that it was only with Adherents to the codes agree, among other stan
the advent of the "market pattern" that an in dards, not to employ children under 15 years of
strumental orientation came to dominate both age, not to use forced labor, and to pay enough
economy and
society. for basic needs and not merely the legal mini
Polanyi further argues, however, and we mum. Large retailers adhering to the standards
agree, that all forms of economic action can and agree to purchase only from manufacturers that
often do coexist, or are combined, in all societies subscribe to SA8000 and not those that sell at the
(Smelser & Swedberg, 1994). Indeed, by assum lowest price. Tsogas (1998) reports that a Euro
ing the predominance and pervasiveness of an pean retailer, C&A, set up an independent sub
instrumental rationality, researchers may over sidiary to monitor subcontractors against the
look forms of rational economic action other company's code of conduct and stopped busi
than instrumental rationality in the relations of ness with nineteen suppliers during an eigh
economic actors, whether they are individuals, teen-month period following code breaches.
firms, or industries. There is ample evidence Socially responsible investment funds only
that modern actors use substantive rather than purchase and sell shares of firms that have com
instrumental rationality in some transactions mitted to moral values of various sorts, includ
and that these are not merely imperfections, re ing prohibitions on animal testing, support for
sidual categories, or transitional institutions. union labor, vendor standards, and absence of
genetically modified organisms in their prod
Moral of Exchange ucts. For example, the New Alternatives Fund
System
(NALFX) invests in companies pursuing alterna
Moral exchange arenas9 have, at their base, a tive energy sources, and the Meyers Pride Value
belief in a substantive good or value, such as Fund (MYPVV) buys stock in companies with
progressive policies toward gays and lesbians.
9
All of the exchange types that we describe have moral These funds are committed to trading in stocks
dimensions, to be sure, but substantive rationality places of companies in order to achieve the best return
vaiues as the primary orientating factor of action, whereas consistent with an underlying value.
instrumental rationality places primacy on rational methods
The demand for socially responsible trading
from which a moral good (e.g., utilitarianism) might emerge.
There is also a tradition of moral of the market,
has spawned watchdog organizations?"third
critique
known as the moral economy. See Lie (1997) for an overview party certifiers"?that are arbiters of adherence
of this discussion. to standards used to produce goods and services

claiming to maintain a moral position. One ex not surprising in a world where ideas
religious
ample is the development of organizations that colored social action of all types, including
certify sustainably harvested trees?that is, exchange.
lumber that has been removed from forests in Morality continues to find a place in contem
which the health of the forest ecosystem is porary economic life, however, with prohibitions
maintained, including not only tree revitaliza or restrictions on the sale of sex, adults as
tion but wildlife and watershed protection. slaves, children for adoption, child labor, votes,
At least four third-party certifiers are active glo political influence, some animals for consump
bally?two in the United States (Scientific Cer tion, and human biological parts?what Walzer
tification and Smart Wood), and two in the (1983) calls blocked exchanges. Even where ex
United Kingdom (SCG and Woodmark). Major change is permitted, the environmental move
retailers and manufacturers, including Home ment and other political movements that es
Depot and Smith and Hawken, have agreed only pouse values have made important inroads to
to trade in certified green wood. limit the
price-based exchange goods of in
Local currency systems are often moral ex many settings, and to create support for morally
change arenas. In the United Kingdom, Local circumscribed exchange.
Exchange Trading Systems (LETS), where buy A moral orientation can be found today in the
ers and sellers trade goods and services in local Islamic banking community, which must accom
units without coins or notes and with no interest modate the Koran's proscription against interest
payable on debts, are reported to contribute pos payments. Islamic banks provide products that
itively to social cohesion and the redistribution do not involve investment in conventional (i.e.,
of income (Williams, 1996). LETS members inter Western) financial services, because charging
ested in redistribution buy from poorer groups interest is seen as usury. Islamic law also bans
and use positive discrimination when charging investment in alcohol, tobacco, por
gambling,
those less well off (Lang, 1994). LETS systems nography, and pork products.
combine elements of a moral exchange system Islamic banking is a relatively recent phe
in their concern for social welfare, but because nomenon, with banks
emerging in Saudi Arabia
they favor traders within the LETS, they also and the United Arab Emirates in the mid 1970s
have elements of the fourth type?the communal (Tran, 2002). It has expanded rapidly, with Is
system of exchange. lamic banks now estimated to serve about 1.2
Exchange arenas based on moral precepts billion Muslims and to manage $180 billion
were common in the premodern Western world, (BBC, 2002). Most recently, an international Is
where religious values permeated all spheres of lamic financial market (IIFM) was set up in Bah
life, including the economic. Value-based ideas rain to deal with products that comply with
such as a "just" price, which considered the Sharia law. A small number of Western banks
moral worth of the actors and the products or have also begun offering services compliant
services, were commonplace in the Middle Ages with Islamic law, and it has been suggested that
(de Roover, 1974). The "Quaker ethic" demanded the ethical credentials of Islamic financial prod
Quaker retailers sell goods to all at a fixed ucts may hold a wider appeal (Tran, 2002).
price, rather than haggle, which was the pre
vailing practice. "The Quakers' insistence on
Communal System of Exchange
selling a particular item at the same price to all
customers, regardless of their social class, was When exchange occurs
between parties char
based on their religious assertion that the seed acterized by particularistic relations?for exam
of God existed in all people" (Kent, 1983: 18 ple, relations of kinship, ethnic ties, or common
19).10 Ethics of conviction and responsibility are membership in a social order?the nature of that
relationship may color the exchange. The sub
stantive basis of the relationship?filial piety,
10
A can be altered to reflect the wealth of the and collegiality?will
"just" price consanguinity, influence
buyer?for example, a higher price for the wealthy?
the terms of exchange, including whether or not
whereas a "fixed" price is given to all. Both are reflections of
ethical While is the price-setting mech
the exchange takes place and the price set. Al
principles. haggling
anism of auction markets today, it is interesting that fixed though communal and associative relations are
prices have come to dominate most retail exchange. both based on particularism?treating some

partners with special consideration?"the 1978). Alternatively, communal relations such as

former always entail a sense of belonging to kinship and alumni ties can be "used" as the
gether, while the latter have to do with rational basis for forming associative economic rela
involving interests" (Swed tions, as Biggart (1989) notes was common in
agreement, typically
berg, 1998: 33). direct selling.
Communal relations are those in which actors In a similar vein, Das and Teng (2002) have
share identity in a community or have some recently drawn on social exchange theory to
basis for a shared bond. Communal exchange consider how alliance constellations such as
can take place between those who share a tie R&D consortia
may be controlled through the
such as friendship, common alumni affiliation, encouragement of generalized reciprocity. In
or professional or regional identity that tends to their terms, alliance constellations develop a
support an "ingroup/outgroup" orientation coop?rative macrocuJfure and social sanctions

(Schluchter, 1981; Weber, 1978)?what Ouchi to guard against instrumental self-interest.
(1980) and Boisot and Child (1988) refer to as One of the best-documented "alternative" ex
clan. Members of the group are treated prefer change systems is the Mondragon Co-operative
entially, while outsiders are less well treated or Corporation (MCC), an excellent example of an
are rejected entirely as exchange partners. The exchange system built on both communal and
bases on which exchange takes place are often associative foundations. MCC is the corporate
dictated by the customary rules of participation umbrella for cooperative enterprises that have
and distribution established by the group. These grown in the Basque region of northern Spain,
rules or distributional bases are rooted in the where, according to Cooke and Morgan, "the
substantive rationality that forms the basis for potential of associative action is nowhere more
the relations between the parties (e.g., equity apparent" (1998: 174).
relations between colleagues, favorable terms MCC creates a central governance structure
for senior members of a family, loyalty to the for the cooperatives, but there is a balance be
nation). tween central control and local initiative of in
Some contemporary groups
religious attempt dependent cooperatives. All of the co-ops sign a
to maximize exchanges with
fellow members, Contract of Association, which includes a clause
helping to bolster the economic vitality of the on intragroup relations:

community. Criminal brotherhoods such as the
and Russian The Associated Co-operatives will respect the
Sicilian Mafia, Chinese Triads,
principle of intergroup loyalty and mutual assis
Mafiyas fiercely regulate the terms and condi
tance when formulating future plans concerning
tions of exchange and distinguish between in selection of personnel, the establish
production,
siders and outsiders. In Russia the Mafiya is ment of business links between co-operatives,
distorting attempts to establish a price-based where to place orders, and other facets of their
market (Castells, 1998), and it is establishing business by which other co-operatives associated
with the [credit co-operative] Caja Laboral could
network links with other criminal groups. be made to benefit, without affecting the interest
In many instances, communal exchange is ex of the Co-operative itself in
autonomy (as quoted
change in kind, or barter?for example, the ex Campbell, Keen, Norman, & Oakshott, 1977: 60).
change of personnel or professional services. In
fact, the U.S. government is attempting to define While the Contract of Association requires
as fraud the medical profession's practice of that co-ops not compete with an existing mem
"professional courtesy" in situations where ber of the group, each is free to buy and sell its
"doctors treat other doctors and their families for products where it chooses, and there is no obli
free, or provide discounted services by forgiving gation to source from other members of the
their colleagues' insurance co-payments" (Jef group. MCC believes this would lead to a pro
frey, 1999: B4). tectionist with

ethos, higher costs and lower
Communal and associative relations, while quality (Cooke & Morgan, 1998).
analytically distinct, are often combined in The organizational form for the regional ex
practice. If associative relations between, for ex change system is clearly associative but, just as
ample, strategic allies endure over time, affec clearly, is rooted in communal social relations.
tive relations will often begin to alter the instru Those who have studied the Mondragon eco
mental bases of the initial relationship (Weber, nomic system note that it is embedded in his

tory, geography, community identity, and In contrast to price- and morality-based ex

Basque ethnic solidarity (Bradley & Gelb, 1983; change arenas, in associative and communal
Campbell et al., 1977; Kasmir, 1996; Thomas & exchange systems, social relations are expected
Logan, 1982;Whyte &Whyte, 1988). to play a role in trading. Actors who fail to take
account of the social relations between ex
change partners breach exchange system
norms. The classification system suggests that
LOGICS OF EXCHANGE
appropriate trading partners in one system may
These four systems represent qualitatively be prohibited in another; insider trading is nor
different orientations toward economic ex mative in business groups, strategic alliances,
change using theoretical dimensions derived and family networks. Failing to favor friends
from research and observation about the consti and allies breaches norms.
tution of economic action in Western and non Each of these systems logically results in very
Western economies. Each system of exchange different structures of economic organization. In
we extrapolated constitutes a
hypothetical its purest type a price-driven system would lead
world peopled by different economic actors dif to an auction market, where social relations had
ferentially motivated to trade. In each system no influence on bidding and ultimate
prices. In
the logic of exchange varies qualitatively, as do an alliance exchange system, depending on the
assumptions about those with whom one should nature of the alliances, stable bilateral or mul
trade, along with the norms of exchange. One tilateral relations, including horizontal and ver
would expect the structure of trading, including tical networks, would be expected to develop
the presence and structure of networks, to differ over time. Price competition would exist in this
dramatically in each system of exchange. system, but between trading alliances, not
For example, in an exchange arena based on among individual actors or firms.
price?a market?actors assume that those they Exchange systems based on moral precepts
meet are driven by self-interest and that price, might look like an auction
market with strang
not social relations or private beliefs, will deter ers entering into exchanges. However, instead
mine offers to buy and sell. When actors in a of distribution being determined only by price,
market do not act in this way?for example, by trading in some valued good would be deter
favoring others or exercising nonprice consider mined by some measure of compliance with the
ations?they breach the norms of the market. In ethical base of the system, regulated perhaps by
extreme cases they may be sanctioned for col self-policing or arbitrated by a third party out
lusion, insider trading,
or price discrimination. side the exchange. Third-party certifiers have
The breach of this norm has been at the root of developed in a number of industries to perform
investment scandals in the United States in the this function.
early twenty-first century. Communal exchange takes place within the
In an exchange arena based on moral pre bounds of the group according to shared norms,
cepts, parties to exchange may also be strang whether based on religious precepts, sworn loy
ers. However, a substantive value, not only alty, nationality, professional norms, or blood
price, is a determining factor in the exchange of ties. Exchange with outsiders might take place,
goods. Goods are traded when they meet stan but only under different terms, if at all. One
dards for their production or use, and any addi might anticipate that group authorities, such as
tional costs for meeting those standards are elders, professional leaders, or coll?gial
bodies,
borne by the exchanging parties. The price is a might regulate communal
exchanges. The
fair or just price, not necessarily the lowest pos American Medical Association, for example, es
sible price for a like good or service. In recent tablishes coll?gial norms for relations among
years a number of "fair trade" organizations members who often refer cases to one another.
have sprung up. These are either traders or cer Clearly, the types represent not only different
tifiers (such as the Fair Trade Foundation in the probable organized structures of economic ac
United Kingdom) that guarantee that the local tion and differently motivated actors but also
producers of goods or produce?for example, very different cultural worlds. Logically, the in
coffee, sugar, bananas, cotton?receive a fair strumental and individualistic economic culture
amount from the subsequent sale of their wares. of a price-driven system is antithetical to value

based between strategic partners in In a few instances below we

appropriate the
exchange
an associative exchange.
observations of
organization researchers to
Real
systems of exchange, including those we show how they fit within the typology to suggest
used as illustrations, as opposed to those de that the classification offers a way to connect
scribed by our analytic construct, are mixed work not previously connected. We believe that
types. Historical examples would be expected to this offers the possibility of generating new the
have elements of more than one type. For exam oretical insights and accumulating in new ways
ple, as we suggested, Asian business groups our understandings about firms and markets,
often combine elements of communal and asso without making unrealistic assumptions about
ciative exchange, with Japanese groups better the character of exchange relations or the ration
described as having associative exchange with ality of actors.
elements of communalism (Gerlach, 1992), and
Chinese family networks having more influence
Conceptual Clarity
from communal elements such as kinship (Ham
ilton, 1997). Western market societies based on a Mutual neglect by economists, theorists of
belief in the importance of price-driven ex economic networks, and the culture of economic
change nonetheless impose restrictions on pol organization proceeds, in part, from different
lution and other environmentally damaging ac questions of interest, but also from different con
tion and, hence, incorporate moral elements ceptualizations of what constitutes a market. For
and, alliances. Stigler (1968) the market is a set of conditions,
increasingly,
while for Abolafia (1997) it is a moral community.
The typology offers a useful model that draws
DISCUSSION AND CONCLUSION
lines around different but related forms of ex
In the systems of exchange classification we change behavior and and it short
organization,
follow Layder's call
for "structural or system ty circuits futile debates "really" con
about what
pologies" over and above "action or behavioural stitutes a market. To
further confidence in the
latter concerned primarily with model, we can treat each element as a hypothesis
typologies"?the
subjective meaning, lived experience, motiva subject to confirmation, revision, or refutation.
tions, and attitudes. "The importance of system
or structural typologies is that they concern
with depicting the settings and con Conceptual Complexity
themselves
texts of behaviour and thus provide the neces Each exchange system type represents a so
sary requirements for more inclusive
pow and cial world with hypothesized elements that are
erful explanations of social life" (Layder, 1998: mutually consistent and presuppose internally
74). Further, "The use of system typologies has coherent relationships and meanings?what
the effect of broadening the scope of analysis by Max Weber referred to as eiecfive affinities
attending to wider aspects of social organiza (Howe, 1978). While each element of a trading
tion and social relations" (Layder, 1998: 75)?that system can be treated as a variable, the connec
is, the context in which subjectivity is experi tons between elements may be subject to inves
enced and enacted. tigation also. Therefore, the model allows re
We argue here for the value of a systems of search into the complementarities of market
exchange classification scheme?a "thought factors (Milgrom & Roberts, 1992) and the possi
model which combines ideas and evidence into ble futility of piecemeal export of select ele
an analytic construct" (Martindale, 1981: 54). We ments into essentially different systems of ex
intend for this scheme to provide an intellectual change?for example, newly marketizing
basis for the analysis of exchange
relations; this nations (Stark & Bruszt, 1998).
classification neither oversimplifies by reduc The types each invite us to consider the sys
ing all exchange to variations of a single model temic nature of various economies. For example,
nor treats all systems of exchange as histori there have been numerous arguments for the
cally unique occurrences. As Tiryakian notes, imposition of Western corporate governance
"The methodological functions and significance standards (European Bank for Reconstruction
of a typological classification are basically two and Development, 2002) and the eradication of
fold: codification and prediction" (1968: 178). "enterprise network socialism" (Bernstam &

Rabushka, 2000) in Russia. Our framework dem mension. For example, Zelizer's (1985) work on
onstrates the inherent difficulties of such think the social history of life insurance for children
ing, since systems of exchange have historically can be restated more generally as "when the
been predicated on very different logics of ac value of a material good is reframed as a moral
tion and social relations. Empirical research has good, it will no longer be subject to exchange
regularly demonstrated the "path dependence" based on price," or "relations between firms will
of such transition processes (Stark, 1996). Ober move from price-based to associative relations
schall comments, regarding change in China, as an industry becomes increasingly concen
that trated" (Pfeffer & Salancik, 1978).
in the absence of political and It might also be possible to conjecture the
accountability
with but shallow submission to the discipline of causal nature of system change. For example,
the market, the fixers and wheeler-dealers thrive repeated exchanges may breed trust, and mar
on corruption that is forever denounced yet will ket exchange in char
may become associative
not diminish until the institutions of a market
acter (Zucker, 1986). In contrast, the breakdown
economy are more fully established (1996: 1034).
of the Japanese keiretsu system, an example of
More recently, research in the Republic of Ta associative exchange, to market exchange
tarstan has shown the continuing dependence based on price has taken place where Japanese
of former state-owned enterprises on historical auto firms have accepted Western capital.
ties: Toyota, which remains wholly Japanese owned,
is pursuing a strategy of strengthening its tradi
The post 1992 reform strategy was essentially de
signed to break up historical ties and to allow the tional keiretsu relations.
creation of [newly] generated ones along the It is possible to identify circumstances where
lines of a free-market It appears that dominant actors have been to manage
"big bang". able
too much emphasis on the power of capital rela
shifts in the nature of exchange. Dyer and No
tions and market forces to change Russian soci
beoka (2000) describe how Toyota has created
ety and economy has meant that the institutional
forces that govern the economy (particularly his and managed knowledge-sharing networks,
torical ties) have been ignored (McCann, 2002: 10). both in Japan and subsequently in the United
States. They show how Toyota has created a
strong network identity with rules for participa
Analysis of Variance
tion that motivate members to share valuable
Like all models, including econometric mod knowledge and prevent free-riders. Toyota con
els, ideal types represent a basis for comparing tributed to its strong network ties in the United
empirical instances of a phenomenon with a States through the promotion of norms of recip
baseline. When organization theorists ask how rocal knowledge sharing and consulting as
"bureaucratic" a given organization is, implic sistance. In particular, the emergence of trust
itly they are comparing it to an ideal-type bu indicates the transition from low to high embed
reaucracy, seeking to measure its conformity to dedness, where social relations are
particular
or variance from a baseline model. The systems istic and exchange is regulated through norms
of exchange classification allows us to formu of reciprocity.
late measures of each of the types and then to
ask such questions as "How communal or self
Multilevel Analysis
interested is exchange between firms with inter
locking boards of directors, or in communities The model presumes to operate at multiple
with elite social clubs?" (Mizruchi, 1996). units of analysis. It supports theorizing about
exchange relations at the level of actors' identi
ties, roles, meanings, and actions and at the
Dynamic Analysis level of institutional such as structures
factors,
Ideal types crystallize hypothesized elements of control and patterns of organization. For ex
of empirical instances and, by their nature, are ample,
new
exchange arenas will draw on ac
static constructs. The fourfold schema, however, tors' existing stocks

of resources, knowledge, and
can be used to hypothesize conditions under organizational experiences and will not be con
which exchange relations will move from one structed de novo (Westney, 1987; Romanelli,
type to another, or to different places on a di 1991). We assume in this article that both corpo

rate and individual actors populate each ex economics) and social context (the redistribution
change arena, but this can be subject to re effects of Japanese business relationships).
search and modification. Their findings show that in Japan the redistribu
tion effects are stronger than agency effects,
with poorly performing firms benefiting from the
Comparative Analysis transfer of financial resources from more profit
The model provides a basis from which to able firms. Their research supports others' find
compare two empirical instances of exchange ings (Lincoln, Gerlach, & Ahmadjian, 1996;
systems and, further, to generate causal expla Morck & Nakamura, 1999) that Japanese firms
nations for differences between cases (Ragin, support other firms with which they have strong
1987; Smelser, 1973). For example, small firms ties, but it goes further in indicating that "tradi
with inadequate resources are more likely to tional norms of mutual assistance (Dore, 1983)
engage in alliance exchange than larger firms and risk reduction (Nakatani, 1984) extend be
in the same industry (Powell, Koput, & Smith yond formal networks to Japan's broader enter
Doerr, 1996). Or non-Western societies without a prise system" (Gedajlovic & Shapiro, 2002: 573).
tradition of individualism are more likely to or This reflects the importance of engaging with
ganize exchange in associative or communal different systems of exchange in exploring eco
trading arenas than are Anglo-American societ nomic organization and performance.
ies (Biggart & Guillen, 1999). Or firms in knowl We believe there are at least two ways in
edge-based industries engage in trades with which this typology might address contempo
more cognitive complexity than firms in ma rary concerns with market organization and dy
terials-based industries, and therefore are more namics. First, it offers a way out of debates over
likely to engage in associative
exchange (Cohen what "really" constitutes a market and ration
& Fields, 1999). ality. Rather than assume that economists are
Consider the lack of convergence in corporate "right" that markets are composed of autono
governance. Some have argued that globaliza mous and price-seeking actors (Stigler, 1968), or
tion should herald the adoption of a common set that it is "obvious" that durable exchange set
of practices, but empirical evidence suggests tings constitute a social world where norms of
variety remains. These variations may be ex participation shape price (Smith, 1989), or that
plained by examining the nature of social rela markets are best described as networks (Baker,
tions and logics of action that inform exchange 1984), the
typology would lead us to ask the
in differing settings. For example, reference to following: Under what conditions do each of
associative and communal exchange systems these assumptions hold? In which cases does
explains findings that Japanese banks bolstered substantive rationality, not just instrumental ra
struggling firms with which they had close ties tionality, influence economic action? Each of
during times of financial difficulty (Morck & Na these perspectives has valuable insights, but
kamura, 1999). More recently, Khanna, Rogan, none, by itself, helps us to understand the vari
and Palepu (2002) reported some evidence of de ety of exchange settings and their differing logics.
jure convergence, although not to U.S. stan Second, the typology gives us a theoretical
dards, but virtually no evidence of de facto sim entr?e into some of the most interesting social
ilarity in corporate governance. These authors and economic issues of the day. For example,
conclude that either differences in national sys debates within the International Monetary Fund
tems result in appropriately different gover about the restructuring of Asian economies were
nance structures or that globalization effects are very much about the correctness of a market
not strong enough to overcome local effects. system versus the associative and communal
Our system typology also provides a frame systems in place. The difficulty of marketizing
work for interpreting the impact of competing health care systems in the United States is, in
logics of action. In an interesting recent study, important ways, a reflection of the reluctance of
Gedajlovic and Shapiro (2002) considered the physicians to move from an associative moral
impact of economic and social influences on system, where professionals control care ac
firm performance in Japan. They show that firm cording to nonprice standards, to a price-driven
profitability in Japan is influenced both by eco setting. The recent scandals surrounding ac
nomic incentives (as per the agency theory of counting standards demonstrate the challenge

of regulating a corporate America that has been Biggart, N. W. 1998. Deep finance: The organizational bases
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Nicole Woolsey Biggart is dean of the Graduate School of Management and the
Jerome J. and Elsie Suran Chair in Technology Management at the University of
California at Davis. She is interested in the social structural and cultural bases of
economic and organizational life.
Rick Delbridge is professor of organizational analysis at Cardiff Business School,

University of Cardiff, and fellow of AIM?the Management Research Initiative in the
United Kingdom. He received his Ph.D. in organizational sociology from the University
of Wales. His research interests include the organization and management of
innovation.

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We develop a classification scheme of systems of exchange using concepts from

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changes involving some

important in understanding markets: space, time, formal

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MARKETS AS SOCIAL STRUCTURES MARKETS AS CULTURAL ARENAS

Challenges to the economic conceptualization Theorists of the social structural approach to

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Harsanyi, 1955; and Sen, 1982). Systems of exchange?like business systems

omy), there is a fundamental "logic of action," lated synergistically in economic processes of a

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This content downloaded on Sat, 15 Dec 2012 21:20:32 PM

Structure of social relations

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Instrumental rationality is "determined by ex

prices). Perhaps more obvious, private individuals and

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Coll?gial kinor Community;

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partners with special consideration?"the 1978). Alternatively, communal relations such as

support an "ingroup/outgroup" orientation coop?rative macrocuJfure and social sanctions

helping to bolster the economic vitality of the on intragroup relations:

frey, 1999: B4). tectionist with

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tory, geography, community identity, and In contrast to price- and morality-based ex

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based between strategic partners in In a few instances below we

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static constructs. The fourfold schema, however, tors' existing stocks

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dragon experience. London: Heinemann.

Burt, R. 1982. Toward a sfrucfuraJ theory of action: Network

sphere. Carruthers, B., & Espeland, W. 1991. Accounting for ration

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versity of California Press.

Redding, G. 1990. The spirit of Chinese capitalism. Berlin: de

migration: Notes on the social determinants of economic

Ragin, C. 1987. The comparative method: Moving beyond versity Press.

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pan. Cambridge, MA: Harvard University Press. tional Behavior, 8: 53-112.

Rick Delbridge is professor of organizational analysis at Cardiff Business School,

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