Guest Editors' Introduction: Theoretical Introduction to the Special Issue on the Embedded Enterprise

This special issue sets out to examine the historical embeddedness of economic activity in comparative perspective. Its contributors do this by showing political, social, and cultural contingencies that affect economic outcomes and by analyzing enterprise from the level of small firms to interfirm networks to large corporations. Many fields of social science now seek to explain economic outcomes through an embeddedness framework. Anthropologists study the impact of cultural norms of behavior, such as kin relations, on economic outcomes.¹ Economic geographers examine the spatial aspects of enterprise embeddedness.² Economic sociologists have emphasized structural and institutional sources of economic success and failure.³ Political economists have been concerned with the impact of power asymmetries, such as that generated by state regulation in determining who gets what when where and how, that is, the political embeddedness of enterprise.⁴ Cognitive embeddedness is a central concern of decision-making models in business studies and psychology. Economists, and a few social scientists in other disciplines, stand alone in the use of atomistic conceptualizations of human and firm-level interaction in making forecasts and prescriptions for strategic action.

Modern economics has reached the limits of the explanatory power of its theoretical constructs in measuring actual human interaction and the complex causal connections that lead to economic outcomes. Economics sociologists, for example, have shown repeatedly that the strategic behavior of large corporations is very much subject to the kind of herd instincts that are commonly attributed to irrational individuals, as waves of management fads and restructuring sweep through the corporate landscape.⁵ There is a movement afoot within other major social science disciplines that is pushing the boundaries of existing theoretical and empirical analysis—challenging existing constructs. This movement toward the study of the embedded enterprise has its origins in the work of major thinkers and founders of the fields of political economy and economic sociology, within which notions of morality (or lack thereof) in economic action are a central theme.

In his 1944 classic The Great Transformation, Karl Polanyi bemoaned the imposition of the market over existing embedded relations between market, social, and political institutions. The commodification of capital, land, and labor in service of market demands—in the context of rapid industrialization in Europe—disembedded the market. "Disembedding" economic exchange from its social and political foundations absolved the market's beneficiaries of any social and moral responsibilities.⁶ The notion of embeddedness in economic activity was for Polanyi the antithesis of the notion of atomization in market exchange. Embeddedness connotes the complex interrelatedness of actors within their social, political, and cultural environments.

Polanyi recognized that laissez-faire economic logic was institutionalized in the West not by a natural progression of events but instead by deliberate policy aided and abetted by the empirically dubious writings of various nineteenth-century public intellectuals. For example, William Townsend (whose "findings" inspired the work of Thomas Malthus and Charles Darwin) in his Dissertation offered a clever treatise "approaching human community from the animal side" and purported the separation of the economic (now framed as following the so-called laws of Nature) from the political. For Townsend, "it is the quantity of food which regulates the human species ... hunger will tame the fiercest animals, it will teach decency and civility, obedience and subjection ... In general it is only hunger which can spur and goad them [the poor] on to labor; yet our laws have said they shall never hunger."⁷

In this way Townsend and other public intellectuals of his time ushered in the "self-regulating market" and the abolition of basic welfare supports—one way in which the market became disembedded from society. The fact that Townsend's empirical findings (supposedly based on observations on Robinson Crusoe's island off the coast of Chile) were later demonstrated to have been entirely fabricated had little impact—the course of "free market" history was set.

The absence of institutions to provide a social safety net for displaced labor led to the breakdown of the connections between market and society, beginning...