Section two:
Social Construction of Economic
Institutions
March, 2014
outline
Social Construction of Economic Institutions:
Societies and Economic Systems
Critique of neo-classical economics,
Social Embeddedness of Economic Actions,
Culture, Networks and Social Capital/Trust and
Efforts and Motivations
Societies and Economic Systems
• While economists focus on the complex workings of
economic systems (such as monetary policy, inflation,
and the national debt),
• Sociologists focus on interconnections among the
economy and other social institutions.
• To better understand the economic system, we will
examine how economic systems came into existence
and how they have changed over time.
Historic Changes in Economic Systems
• In all societies, the specific method of
producing goods is related to the techno-
economic base of the society.
• In each society, people develop an economic
system, ranging from simple to very complex,
for the sake of survival.
Preindustrial Economies
• Hunting and gathering, horticultural and pastoral, and agrarian
societies are all preindustrial economic structures—economies
where in most peoples engage in primary sector production, i.e.
the extraction of raw materials and natural resources from the
environment.
• These materials and resources typically are consumed or used
without much processing.
• The production units in hunting and gathering societies are small;
most goods are produced by family members.
• The division of labour is by age and gender
• The potential for producing surplus goods increases
as people learn to domesticate animals and grow
their own food.
• In horticultural and pastoral societies, the economy
becomes distinct from family life.
• The distribution process becomes more complex with
the accumulation of a surplus such that some people
can engage in activities other than food production.
• In agrarian societies, production is related primarily to producing food.
• However, workers have a greater variety of specialized tasks, such as
warlord or priest; for example, warriors are necessary to protect the
surplus goods from plunder by outsiders.
• Surplus goods are distributed through a system of barter—the direct
exchange of goods or services considered of equal value by the
traders.
• However, bartering is limited as a method of distribution;
equivalencies are difficult to determine (how many tef equals one
chicken?) because there is no way to assign a set value to the items
being traded.
• As a result, money, a medium of exchange with a relatively fixed value,
came into use in order to facilitate the distribution of goods and
services in society.
Industrial Economies
• Industrialization brings sweeping changes to the system of
production and distribution of goods and services.
• Drawing on new forms of energy (such as steam, gasoline, and
electricity) and technology, factories proliferate as the primary
means of producing goods.
• Wage labour is the dominant form of employment relationship;
workers sell their labour to others rather than working for
themselves or with other members of their family.
• In a capitalist system, this means that the product belongs to the
factory owner and not to those whose labour creates that
product.
• Most workers engage in secondary sector production
—the processing of raw materials (from the primary
sector) into finished goods. For example, steel workers
process metal ore; auto workers then convert the ore
into automobiles, trucks, and buses.
• In industrial economies, work becomes specialized and
repetitive, activities become bureaucratically
organized, and workers primarily work with machines
instead of with one another.
• This method of production is very different from
craftwork, where individual artisans perform all steps
in the production process.
• Mass production results in larger surpluses
that benefit some people and organizations
but not others.
• Goods and services become more unequally
distributed because some people can afford
anything they want and others can afford very
little.
Postindustrial Economies
• A postindustrial economy is based on tertiary
sector production-the provision of services rather
than goods as a primary source of livelihood for
workers and profit for owners and corporate
shareholders.
• Tertiary sector production includes a wide range of
activities, such as fast-food service, transportation,
communication, education, real estate, advertising,
sports, and entertainment.
CONTEMPORARY ECONOMIC SYSTEMS
• During the twentieth century, capitalism and
socialism have been the principal economic
models in industrialized countries.
• Sociologists often use two criteria— property
ownership and market control to distinguish
between types of economies.
Capitalism
• Capitalism is an economic system
characterized by private ownership of means
of production, from which personal profits can
be derived through market competition and
without government intervention.
• Most of us think of ourselves as "owners" of
private property because we own a car, a
stereo, or other possessions.
• However, most of us are not capitalists; we spend
money on the things we own, rather than making
money from them.
• Capitalism is not simply the accumulation of wealth,
but is the "use of wealth '" as a means for gathering
more wealth".
• Relatively few people own income-producing
property from which a profit can be realized by
producing and distributing goods and services.
• Everyone else is a consumer.
"Ideal" capitalism has four distinctive
features:
(1) private ownership of the means of
production,
(2) Pursuit of personal profit,
(3) Competition, and
(4) Lack of government intervention.
Socialism
• Socialism is an economic system characterized by public
ownership of the means of production, the pursuit of
collective goals, and centralized decision making.
• Like "pure" capitalism, "pure" socialism does not exist.
• Karl Marx described socialism as a temporary stage en
route to an ideal communist society.
• Although the terms socialism and communism are
associated with Marx and often are used interchangeably,
they are not identical.
• Marx defined communism as an economic system
characterized by common ownership of all economic
resources.
Mixed Economies
• As we have seen, no economy is truly capitalist or socialist;
most economies are mixtures of both.
• A mixed economy combines elements of a market economy
(capitalism) with elements of a command economy
(socialism).
• Sweden and France have mixed economies, sometimes
referred to as democratic socialism—an economic and
political system that combines private ownership of some of
the means of production, governmental distribution of some
essential goods and services, and free elections.
• Government ownership in Sweden, for example, is limited
primarily to railroads, mineral resources, a public bank, and
liquor and tobacco operations.
• Compared with capitalist economies, however, the
government in a mixed economy plays a larger role in setting
rules, policies, and objectives.
• The government also is heavily involved in providing services
such as medical care, child care, and transportation.
• In Sweden, for example, all residents have health insurance,
housing subsidies, child allowances, paid parental leave, and
day-care subsidies.