Embeddedness

The term embeddedness is generally used to describe the contingency of economic action on its social environment. More broadly, the concept functions as a heuristic to indicate the contingent nature of one phenomenon—be it a sphere of activity such as the economy or the market, a set of relationships, an organization, or an individual—on its environment, which may be defined alternatively in institutional, social, cognitive, or cultural terms. In short, analyses using the concept focus on the different conditions within which various modes of social action take place and upon which they depend.

Most prominently, the economic historian Karl Polanyi argued that the functioning of an economy could not be understood disassociated from the social world in which it was embedded. Specific organizations and institutions, and ultimately the economy as a whole, need to be understood as parts of larger, historically derived, institutional, or social structures.

More generally, the concept of embeddedness helps describe and explain how, although each seemingly follow their own distinct logics and rules, different surrounding institutions and contexts interact and may complement or conflict with each other. In recent years, this has been further developed particularly within the field of new economic sociology, which has investigated the linkages and interdependencies of economic phenomena and organizations to other social structures through social network analysis.

The resurgence of the notion of embeddedness has been accompanied by a diversification of its analytical or conceptual understandings. This has also led to a re-reading of many classic works in economic sociology for their commitment to the idea of embeddedness, irrespective of their diverse ontological commitments. For instance, Max Weber's The Protestant Ethic and the Spirit of Capitalism has been revisited as a study of sociocultural embeddedness: Weber argued that modern capitalist behavior could only develop and extend in favorable cultural contexts fashioned by the Protestant ethic and worldview.

At the same time, with its emphasis on context, the resurgent interest in embeddedness is sometimes criticized as a mere restatement of truisms recognized in many classical works of the social sciences. Yet, embeddedness approaches are typically associated with a set of ontological commitments that distinguish themselves sharply from both under- and oversocialized accounts of economic life. Embeddedness entails that actors' preferences can only be understood and interpreted within relational, institutional, and cultural contexts. This is in direct contrast to the basic ontological assumptions that inform neoclassical economic analysis, rational choice theory, and important strands of new institutional economics. These are based on the notion of undersocialized, atomized decision makers who aim to maximize their own, predetermined utilities. Specifically, and different from rational institutionalism, sociocultural embeddedness does not merely regulate behavior by shaping the way in which actors pursue their self-interest, but constitutes these interests.

On the other end of the spectrum, strong structural positions, where social conditions exist a priori to behaviors, are equally challenged. Instead, relationships between the embedded unit and its contextual world are neither fixed nor determinate or directly causal, and many analysts thus prefer to argue in terms of Weberian elective affinities or configurations.

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