ECONOMIC SOCIOLOGY ASSIGNMENT

AYUSHI GURJAR
GROUP H
MA(P)

The market and state share an uneasy yet inseparable relation.

The developing perspective is that the market should be allowed to operate

when it can do so effectively and that the state should intervene where the
market fails. State and market have distinct but interwoven roles to play.
Their relationship can be seen as the capacity of the state to fulfil the
ambitions of the people and ensure their representation in state institutions,
as well as the market's capacity to provide for the needs of the populace
when the state has fallen short.
This relationship can be seen in the works of various thinkers who have
different takes on it. I will be discussing a few of them.

C Rangarajan in his paper, ‘State, Market and Economy: Shifting

Frontiers’, talks about the interventions in the economy by two forces:
state and market. He is a prominent economist. He says that the state vs
market debate in economic development has been able to gain a lot of
attention.
Rangarajan’s main argument in this paper is that it is not a question of
either or but a question of optimal state-market mix. To promote absolute
state participation in all facets of economic life or to call for a complete
withdrawal of government from all economic activity is neither practical nor
desirable. Depending on each country's historical experience with how the
state and markets interact, the state-market mix may differ. While the
developing opinion is that the market should be allowed to operate when it
can do so effectively and that the state should intervene where the market
fails. This acknowledges that the state and the market both have distinct
but interrelated roles to play.

Throughout his essay, Rangarajan made an effort to lay out the general
framework of the discussion, draw lessons from global experience, and
offer a framework for figuring out the appropriate state-market mix.
He also talks about different schools of thought on the state and market
relationship as the literature on the respective roles of the state and market
is long and interesting.
Adam Smith was the earliest proponent of free trade who was writing
against the background of a strong mercantilist tradition. He was in support
of state minimalism and a free market economy. He believed that a man
worked in the pursuit of self-interest. He believed that pursuing one's own
interests need not result in chaos. It is certainly possible to be organized;
individual success can result in social success.
The three main responsibilities of the state, according to Adam Smith,
should be: defending its citizens from the violence and invasion of other
independent societies, protecting every member of society from the
injustice or oppression of every other member of it, and erecting and
maintaining certain public works and public institutions which can never be
in the interest of any individual or small number of individuals to erect and
maintain, because the profit would never repay the expense though it may
frequently do much more than repay it to a great society.
Rangarajan says that the state's third role is in fact subject to numerous
different interpretations, in contrast to the first two activities—defence and
justice—which are clearly defined. In certain ways, it might include all
economic activities that involve "externalities," or instances where private
and social costs or returns differ.

John Maynard Keynes criticized what Adam Smith said. He contended that
full employment could not be achieved by market mechanisms alone. He
urged for aggressive state investment to close the investment gap that
exists between current levels and what is needed to keep full employment.
In welfare economics, it was suggested that as long as the competitive
market forces were allowed to operate freely, an economy would achieve
its goals. This gave the concept of state minimalism a new meaning and a
situation where one person's well-being could never be improved without
impacting others. This is known as "Pareto optimality."

Other authors have also argued in favour of government intervention in the

economy for other reasons. For instance, some economists have claimed
that states, as an institution, have a responsibility to keep an eye on how
people behave since, in the absence of a higher power, some participants
might break the rules and try to make money. The value of government
intervention has also been supported by economists who view the
government as the "trustee of the poor."

Rangarajan writes that it is inconceivable to debate the efficiency of

economic intervention by the state or the market in a vacuum. The nature
of the state and the composition of the markets have an important effect.
State terrorism has a long and illustrious history. Even in the economic
sphere, the state has frequently intervened in many nations against the
interests of the general populace and in favour of the men in power.

He concludes his essay by saying that the state can play a variety of roles
in every economic system. There are at least three of these tasks that can
be identified: (i) producing commodities and services, (ii) regulating the
system, and (iii) supplying "public goods'' or "social goods" such as basic
health and education. The first role of being a producer of products and
services is expressed in the planning system by public businesses that are
active in productive activities, if not throughout all economic sectors, then at
least in those that are considered to be the "commanding heights' ' of the
economy. The state is given the super authority to determine the game's
rules in the second role of "regulator."
In actuality, how well the public intervenes through regulation has a
significant impact on the quality of the economic performance of markets.
In fact, this is a market-complementary job. The third potential function of
the state is "welfare provider." Through the provision of necessary
infrastructure and active efforts at human development to increase the
potential of the masses, the state is compelled by this mission to assist
private initiatives. With the state intervening in areas where markets are
unable to function successfully, this might be seen as a "facilitator" role.

Ralf Dahrendorf in his book called, “ Essays in the Theory of Society”

where he talked about class and society and I would be talking about the
8th essay of his book, “Market and Plan”.
He begins his essay by talking about how modern society is becoming
more rational, especially in its economic processes. He writes that profit is
balanced against cost. He believes that rationality is a way of solving
problems rather than determining the morality behind the solutions. He
talks about two types of rationality: market rational and plan rational. In
market rationale, decisions are made to safeguard the function of mankind.
Here freedom is intrusive. In a plan rationale, decisions involve setting
substantive norms. Here freedom is a state which needs to be achieved.

However, there can be no clear distinction between market and plan

rationality. Market rationality requires plan rationality as protection
whenever there is a situation of privilege and deprivation. Market rationality
rules are effective only when their effects have been planned but at the
same time, planning needs to be re-examined by keeping in mind its
usefulness towards the operation of the market.

Dahrendorf then talks about why market rationality cannot be achieved. He

says it's because there exists a force which meddles with it. Force is power.
Since power exists, there are bound to be inequalities and people will
hence be inclined towards generating substantiate norms which perpetuate
privileges. However, plan rationality should be careful enough so as to not
interfere in the conflict but only regulate and channel it. This makes social
change controllable and ensures society is never overpowered or engulfed.

Everyone participates in the market's exchange and competition in an effort

to better their own lot. Any market-rational mindset begins with the premise
that the greatest number of people will actually benefit most from a market
that operates efficiently. The establishment of important social norms is the
key characteristic of the plan-rational approach, in contrast. Who gets what
and who does what is predetermined by planners. Individual or opposing
decisions have absolutely no place in the ideal plan-rational orientation.

This is very similar to Karl Polanyi’s idea of how the market is embedded
in society where it is natural and self-regulating. Planning is natural where
the state creates conditions for the operation of the market and measures
to alienate the poor.

Karl Polanyi’s “The Great Transformation” is the most strong critique of

market liberalism, which holds that autonomous markets can and should be
used to organize both national society and the global economy. His idea of
embeddedness serves as the logical beginning point for explaining
Polanyi's philosophy. This idea, which is possibly his most well-known
contribution to social thinking, has also caused a great deal of uncertainty.

The idea that the economy is not autonomous, as it should be according to

economic theory, but rather dependent on politics, religion, and
interpersonal relationships is expressed by the phrase "embeddedness".
The meaning of the phrase as used by Polanyi goes beyond the
now-common notion that market transactions rely on mutual understanding,
trust, and the legal execution of contracts.

He writes that a thorough investigation into the nature and origin of markets
is necessary given their dominant role in the capitalist economy and the
fundamental importance of the notion of barter or exchange in this
economy. According to him, a market is a place where people get together
to exchange goods or services or to buy and sell.

Polanyi believes that instead of social interactions being integrated into the
economy, the economic system is embedded in social relations. The crucial
role of the economic aspect in any other outcome is impossible given the
existence of society. Because society must be constructed in a way that
permits the economic system to operate in accordance with its own laws
once it is organised in distinct institutions with a foundation in certain goals
and bestowing a special status. This is the rationale behind the well-known
claim that a market economy can only operate in a market society.

He also talked about the self-regulating market and fictitious commodities.

In a market economy, the production and distribution of goods are ordered
by the market's self-regulatory mechanisms, which are managed,
regulated, and directed by market prices. Self-regulation implies that every
output is intended for market consumption and that all earnings come from
these sales. As a result, there exist markets for all aspects of the industry,
including items (which invariably include services), labour, land, and money.
These prices are referred to as commodity prices, wages, rents, and
interest rates, respectively.

He says that nothing less than the institutional division of society into an
economic and a political realm is necessary for a self-regulating market.
Such a duality just reiterates the existence of a self-regulating market from
the perspective of society as a whole. One could claim that the two spheres
are distinct from one another in every era and in every kind of culture.

Polanyi also writes that land and labour have historically been intertwined;
life and nature are seen as a coherent whole, with labour being a
component of both. Thus, the land is linked to kinship, community, craft,
and religious organisations such as tribes and temples, villages, guilds, and
churches. The idea is just as utopian when it comes to land as it is when it
comes to labour. One of the many essential uses of land is its economic
function. It gives stability to man's life, serves as the location of his
dwelling, ensures his physical safety, and determines the seasons and the
scenery.

The human impact of the new market society is denoted by the "great
transformation" in Polanyi's title. Before capitalism could take hold,
economic mentalities had to change to allow people to conceptualise the
market as a distinct force.

REFERENCES

1. Rangarajan, C. 2000. State, Market and Economy: Shifting Frontiers,

Economic and Political Weekly, Vol,35, pp. 1386-1390
2. Dahrendorf, Ralf. 1968. Essays in the Theory of Society, London:
Routledge and Kegan Paul. (Chapter 8, Market rationality and Plan
rationality)
3. Polanyi, Karl. 1975. The Great Transformation, New York: Octagon
Press, Chapters 5,6,14,15.