Regional Conference Presentation: Community Exposure to Texas Oil and Gas Extraction Facility Venting and Flaring Practices
Tomorrow at the Southwestern Social Science Conference (Austin, TX, Hyatt Regency, Big Bend B from 1:00 pm - 2:15 pm), I will be presenting my research on the relationship between Texas oil and gas extraction facility venting and flaring volumes in 2012 and the characteristics of surrounding communities. You can find my presentation below. I am looking forward to interacting with more of my fellow social scientists!
I am getting deeper into my dissertation research and understanding the data. I found out that the Production Data Query Dump file is only half of the data the Texas Railroad Commission has on venting and flaring volumes. Apparently there is another file that will cost me over $375 regarding venting and flaring volumes at processing plants (but details on what would be included have yet to be made available). Luckily, my recent research has focused on venting and flaring volumes at the oil and gas extraction facility (i.e., the producing well).
Although there are bumps in the road and it is taking longer than I thought, I am making progress on achieving my output goals. First of which is a map associated with one of the papers that will emerge from my dissertation research regarding the characteristics of communities most exposed to Texas oil and gas venting and flaring volumes (at extraction facilities; not processing plants). You can visit the web application I built by clicking here or seeing the map below.
Tomorrow I am guest lecturing for Dr. Morris' organizational sociology course. You can find the slides for my lecture below.
For my dissertation, I am merging together various files from the Texas Railroad Commission.
This took a lot of time and work, but I was able to finally complete the task last week. You can find a map of data connections at http://prezi.com/albf920zd5jf/?utm_campaign=share&utm_medium=copy or view it below:
My Dissertation Research in the Texas Federal Statistical Research Data Center: The Effects of Organizational Characteristics and the Characteristics of Organizational Insititutional Enviornments on Texas Oil and Gas Venting and Flaring Practices
Today at 10 at the Texas Federal Statistical Research Data Center (TXRDC), I will be making a presentation about my proposal to access Census and IRS restricted data at the TXRDC (click here for more information about the event). This presentation will be useful to graduate students interested in using RDC datasets for their dissertation research. I provide some insight on the type of dissertation research that is conducted at an RDC, understanding Census terms for business data, research timelines, and other tips.
If you cannot make it, you can find my presentation below.
I am in the early stages of my dissertation, but am finally developing some output.
I received a research grant from Texas A&M's Department of Sociology to purchase a series of files from the Texas Railroad Commission. I linked the data and developed the map writing a series of Stata and Python commands. Click here for the code I wrote to transform the purchased dataset to be viewed in ArcGIS.
I was then able to develop my first ever mobile map, using ArcGIS and my affiliation with Texas A&M University's ArcGIS organization account. I still have some work to do in regards to checking the accuracy of geocodes, but I have developed my first draft of a mobile-friendly GIS of Texas gas well flaring and venting emissions in 2012. You can see my map below.
As you can see, there is a significant amount of variation in regards to the amount of gas Texas gas wells vented or flared in 2012. My dissertation will explain this variation by quantifying the effects of various organizational, community, and political-legal characteristics on Texas gas well venting and flaring emissions.
As a recipient of the Melbern G. Glasscock Center for Humanities Research 2015-2016 Glasscock Graduate Research Fellowship, I will be presenting my research this upcoming Tuesday. The details are as follows:
Corporate-State Relations and State Environmental Policy:
Texas Oil and Gas Flaring Regulations, 1890-2014
Tuesday, 9 February 2016, 4-5 p.m.
Glasscock Center Library, 311 Glasscock Building
Texas A&M University
This colloquium is free and open to the public.
Click here for the program flyer.
Click here for a copy of the presentation.
The prevalent ideology in the late 20th century changed from embedded liberalism to neoliberalism. Embedded liberalism is the ideology that in order to manage economic instability, economic markets should be moderated by the political/legal system. Embedded liberalism, prevalent during the post-WWII period, was supported by Keynesian economics. Keynesian economics popularized the idea that governments could stabilize economic markets by managing aggregate demand through state expenditures. However, Keynesian economics lost its popularity in the 1970s when the United States faced stagflation. Keynsesian economics fails to explain stagflation, since government spending cannot manage a situation where you have inflation without economic growth. As a result, during this period, Keynsianism fell as the prevailing ideology and neoliberalism began to rise. Neoliberalism is the idea that government interference is harmful to economies. As such, neoliberalism significantly contrasts with embedded liberal ideology. The rise of neoliberalism has a major impact on current market conditions.
Neoliberalism, the prevailing ideology in the late 20th and early 21st centuries, emerged alongside three other distinct but interrelated phenomena: (1) corporate efforts to dismantle the social contract, (2) emphasis on increasing shareholder value, and (3) the spread of financialization. These phenomena are not distinct to the United States, but have also occurred in other advanced capitalist countries to an extent.
The late 20th century is marked by increased corporate efforts to dismantle the social contract. The social contract, a term first introduced by Hobbes, is the idea that cooperation in society is not coerced, but induced by self-interest. Society is unified through a social contract. Individuals voluntarily give up their power to an authority under the assumption that cooperation will result in social benefits. However, modern corporations have increasingly focused on maximizing capital accumulation at the expense of social benefits. They have politically mobilized to dismantle social welfare policies, minimize corporate taxes and accumulate capital regardless of social benefit. This has resulted in increased inequality and the fall of the American middle class.
The mechanism underlying corporate efforts to dismantle the social contract is economic stagnation and the fall of corporate embedded liberalism as the prevailing ideology. According to Mizruchi (2013), the fall of corporate embedded liberalism is the result of a fracturing of the corporate elite. Due to decreased cohesion of the capitalist class, when the United States faced stagflation, corporations mobilized to pursue their immediate self-interest and dismantle the social contract rather than act in the long-term interest of the capitalist class as a whole (which relies on the continued legitimacy of the social contract). In short, historical conditions (like stagflation and the fracturing of the American corporate elite) created incentives for corporations to politically mobilize and influence pulbic policy to dismantle the social contract and take back social benefits workers achieved after World War II.
Corporate efforts to dismantle the social contract occurred not only in the United States, but in other advanced capitalist countries, like the United Kingdom. During the 1980s, companies in both the United States and the United Kingdom politically mobilized to overcome problems with capital accumulation by lobbying for public policy which dismantles the social contract. As a result, both President Ronald Reagan and Prime Minister Margaret Thatcher pushed forward neoliberal public policy. Just as the late 20th and early 21st centuries in the United States was characterized by tax cuts, increased privatization, and social welfare roll-backs, the United Kingdom was also characterized by similar neoliberal public policy.
Emphasis on increasing shareholder value emerged along with the dismantling of the social contract. They occurred in relation to each other such that emphasis on increasing shareholder value justified corporate dismantling of the social contract. Empahsis on shareholder value was supported by Milton Friedman's shareholder theory. From this perspective, it is the social responsibility of the company to increase profits. Friedman's efforts were so widely embraced, that he received the 1976 Nobel Prize. Friedman's perspectives greatly influenced the neoliberal polices pushed forward by both Reagan and Thatcher.
Change in ideology (from embedded liberalism to neoliberalism) is the primary mechanism underlying increased shareholder value. Like neoliberalism, Friedman's shareholder theory idealizes profits over general social welfare. As such, neoliberal ideology perpetuated Friedman's shareholder theory. As a result of changed ideology, managers have become increasing dependent on shareholder value to maintain their value and status. Since the professional success of managers depends upon increasing shareholder value, managers have used their power to increase shareholder value, regardless of social costs.
Although you see increased emphasis on shareholder value in other advanced capitalist countries, you see it to a lesser extent. Still there is evidence that large British companies have skirted social responsibility in the pursuit of increasing shareholder value. For example, HSBC, a large British financial services company, was caught money laundering and committing financial malfeasance in the pursuit of increasing shareholder value. However, emphasis on shareholder value is not as prevalent in Britian as it is in the United States. For example, whereas shareholder theory is the prevailing form of thought in the United States, the United Kingdom adopted the 2006 Companies Act, which emphasized stakeholder theory over shareholder theory. Stakeholder theory, a thoery prevalent in Europe, is the idea that corporations are responsible to numerous stakeholders, not just shareholders. As such, in Europe, although shareholder value is considered important, corporate social responsibility is considered even more important.
The late 20th and early 21st century was also characterized by increased financialization. Financialization is the influence of finance on the economy. Finance is part of the secondary circuit of capital. The primary circuit of capital is the productive circuit. The production capitalist uses capital to buy the means of production and labor power to create value and surplus value. The surplus value is reinvested, and there is another circuit of capital, continuing the production process. As long as there is surplus value you can feed back into the system, production can continue. However, capitalism doesn't always expand, which is why there is the secondary circuit of capital. The secondary circuit of capital is the credit system. The finance capitalist uses capital to loan money to the production capitalist, under the assumption that the production capitalist will make enough profit to pay off the loan with interest, so the finance capitalist can reinvest and make more profit. Not only are production capitalists involved in the credit market, so are consumers. The rise of financialization can be seen in the expansion of the credit market (by finding new participants and inventing new financial markets) in the late 20th and early 21st centuries.
The rise in financialization occured in relation to the rise of shareholder value. In fact, neoliberalism, the rise of shareholder value and economic stagnation were the primary mechanisms underlying increased financialization. Neoliberal ideology perpetuated the deregulation of financial markets. Whereas previous policy limited the risky financial market to investment banks, neoliberal public policy deregulated and opened up the financial market to non-banks. Increased emphasis on shareholder value put corporate managers in a bind in the 1980s, as they had trouble increasing shareholder value during a period of economic stagnation. To generate profit during a period of decline, corporate managers attempted to expand capital accumulation by developing new markets to expand into. One example is the creation of derivate products. Derivatives are paper contracts that are derived from an underlying real commodity. For example, the futures market for farmers is a derivative used by farmers to hedge their market risk. From the farmer's perspective, they are investing a large amount of money but are not sure of the price of their crop in the future; they want to be guaranteed a particular price. Futures contracts are agreements by investors to pay a set future price for the commodity. If, once the farmer grows their crop, the price of the crop is more than the price agreed in the futures contract, the investor will make a profit. However, the derivative market is risky. Unregulated, reckless derivative trading, facilitated by neoliberalism, resulted in the 2007-2008 economic collapse.
Increased financialization (and its consequences) is not distinct to the United States. It is prevalent in other advanced countries and around the world. For example, derivative markets have spread not only in the United States, but in other countries as well. Just like what occurred in the United States, an under-regulated derivative market rapidly grew in the 1990s in Europe. As a result, the 2007-2008 economic collapse not only affected U.S. companies, but companies in Europe and around the world.
In conclusion, neoliberalism is the primary mechanism underlying three major changes in the late 20th and early 21st centuries: (1) corporate efforts to dismantle the social contract, (2) emphasis on increasing shareholder value, and (3) the spread of financialization. Neoliberalism is not distinct to the United States. Other advanced capitalist countries have also adopted neoliberal ideology, to different extents. As a result, you also see similar changes in other advanced capitalist societies.
Current research on political sociology draws heavily from Marxist and neo-Marxist perspectives. Marx revealed the contradictions inherent in the capitalist mode of production. Neo-Marxists built upon Marxist theory to explain the ideological and repressive functions of the capitalist state. Furthermore, modern research on the politics of public policy examines empirical events, providing further support for neo-Marxist explanations of the state.
Marxism and Neo-Marxism
Although he did not have a clear theory of the state, Marx's theory of capital influenced a wide range of political scholars. One group heavily influenced by Marx's theory were neo-Marxists. Neo-Marxists attempted to explain how politics and public policy work within the capitalist system. Specifically, they address how the state helps reproduce capitalist relations and the relationship between corporate and state actors.
Marx's Theory of Capital
According to Marx, the key elements which form human history are linked through the production process:
Due to the importance of the production process in explaining human history, Marx (1867) analyzed the current mode of production: capitalism. Capitalism is the pursuit of capital. It is not stagnant; it is a perpetual process by which capital is accumulated. A singular circuit of capital is as follows:
First a capitalist uses money to buy commodities sold on the market: the means of production and wage labor. Then, labor power and the means of production interact throughout the labor process to create a commodity to be sold on the market for profit. For capitalist relations to be reproduced, the capitalist must use the profit to go through the circuit again and again. In order for the production process to work, there must be the continuous flow of capital.
However, there are problems inherent in capitalist production- particularly class struggle, overproduction and underproduction.
Class struggle relates to the exploitation of workers inherent in the capitalist system. Capitalism requires profit and profit is achieved through capitalist exploitation of workers. Exploitation is operationalized as surplus labor / necessary labor. Even considering the buying and selling of labor power is done fairly, the worker is still exploited through capitalist requirements for surplus value. Surplus value is made up of relative surplus value and absolute surplus value. Relative surplus value is value arising from shortening the time necessary to produce, but keeping the working day constant. Absolute surplus value is value arising from increasing the time of production by extending the working day. Either way, capitalist surplus value requires labor to work more than necessary to produce. In short, worker/capitalist conflict is inherent in capitalism.
Capitalism also tends towards either overproduction or underproduction. When capitalists face stagnating markets, they must either externalize costs or expand into new markets (Harvey 2010). Overproduction and underproduction is the result of these mechanisms. Overproduction is the result of competitive pressures to devalue labor. Capitalist accumulation is facilitated by increased exploitation and production. As such, capitalism tends to produce more than social consumption capacities. Capitalism also tends toward underproduction. Underproduction results from capitalist exploitation of environmental resources. Capitalism requires expanding markets and society must continuously increase its production and consumption capacities, depleting natural resources. Additionally, to stimulate profits, capitalists will externalize costs and pollute the environment, eventually destroying the environment in which it is embedded (a.k.a., ecological rift). In short, capitalism destroys the social and environmental conditions necessary for the system to be reproduced.
In order to perpetuate capitalist relations despite its inherent contradictions, the capitalist superstructure provides support for the economic base. The superstructure is the cultural, legal, ideological, religious and political relations in society. There is a reciprocal relationship between the base and the superstructure- they support each other. For example, property does not exist without a legal concept and property is not necessary for the economic relations of capitalist relations. In conclusion, according to Marxist theory, the political superstructure provides support for the economic base.
Capitalist Power Blocs
Neo-Marxists expand upon Marxist theory by explaining just how the political superstructure provides support for the economic base. According to Poulantzas (1973), the state serves the function of mediating class conflict. As such, in order to serve its function, the state must be relatively distinct from a singular class faction. The state maintains relatively autonomy, meaning it is distinct from but embedded within economic relations. As a result, the state has the capacity to support working class interests, while making decisions within capitalist contexts. The question becomes: Considering relative autonomy, how does the political superstructure become reflective of the economic base?
Poulantzas (1973) answers this question by claiming the state becomes reflective of the economic base through power blocs. According to Poulantzas (1973), a power bloc is made up of an alliance between several class factions. Class factions are different segments of capital. Examples of different class factions are the landed class and the merchant class. Several class fractions can politically mobilize to form a power bloc necessary to influence public policy in such a way to reproduce capitalist relations.
According to Gramsci (1971), capitalists are able to influence the state through cultural hegemony. Hegemony is the ideological predominance of corporate values, norms and beliefs. Cultural hegemony is part of the ideological superstructure, which provides support for the economic base. Through ideological dominance, capitalists are able to ensure capital relations are reproduced.
The Fiscal Crisis of the State
According to O'Connor (1973) the state has run into fiscal crisis as a result of its attempts to manage capitalist crises. The state tries to manage the inherent contradictions of the capitalist system through social expenditures and social capital spending (O'Connor 1973). Social expenditures are the state's attempt to legitimize the capitalist system and "maintain social harmony" (O'Connor 1973:7). Social capital spending is the state's attempt to stimulate capital accumulation through social investment (which increases the productivity of labor) and social consumption (which reduces the reproductive costs of labor). Through these efforts, the state helps reproduce capitalist class relations and temporary resolve crises emerging from the inherent contradictions of capitalist production. However, in order to maintain legitimacy, the state must continuously increase expenditures, leading to a fiscal crisis.
Social Structures of Accumulation
According to the social structures of accumulation framework (McDonough, Reich and Kotz 2010), institutions supporting capital accumulation are characterized by a life cycle of exploration, consolidation and decay. As such, political institutions go through life cycles of exploration, consolidation and decay. During exploration, groups experiment with different political arrangements which will facilitate capital accumulation. During consolidation, policy and regulation which facilitates capital accumulation becomes institutionalized. During decay, political institutions fail to support capital accumulation and the cycle goes back to the exploration phase- a new institution facilitating capital accumulation will rise and fall.
The Politics of Public Policy
Like Marx, research on the politics of public policy emphasizes the historical development of class relations. Policy and capital relations are are the result of constantly evolving historical relationships (Isenberg 2000). As such, research analyzes the historical development of critical aspects of U.S. public policy including welfare policy, the anti-welfare counter movement and neoliberalism.
The Development of Welfare Policy
Research on the development of welfare policy provides support for O'Connor (1973) and Poulantzas (1973). Research supports O'Connor through its analysis of the development of the welfare state. The politics of public policy research demonstrates how class conflict results in social expenditures like social security and welfare policy (Jenkins and Brent 1989). Like Poulantzas, public policy research emphasizes the historical power bloc (Jenkins and Brent 1989). Welfare policy is the result of historically contingent political resources and actors (Hicks and Misra 1993). Drawing from Poulantzas, research finds policy is related to the historical development of a power bloc resulting from class conflict. Social movement organizations create a sense of crisis among elites. As a result, class factions politically mobilize to create a dominant power bloc necessary to push forward and implement welfare policy (Jenkins and Brent 1989).
State Structure and Increased Inequality
Although liberal corporate policy was implemented after World War II, by the 1970s, a counter-movement developed to roll-back social welfare and deregulate business policy. Deregulation resulted in increased inequality and the financial crisis (Panitch and Konings 2009). According to Mizruchi (2013), deregulation and the decline of liberal corporatism is the result of decreased business unity. By the 1970s, business had successfully attacked regulation, organized labor and the power of the central bank. However, by defeating these forces, corporations lost focus on the long-term stability of the economy as a whole. As a result, factions attempted to manage the fiscal crisis of the state by decreasing social expenditures, leading to increased inequality and social turbulence.
Public policy and the development of state structure is problematic, as it can be used as a tool for business elites to achieve their interests (Woods and Morris 2007), or it can drift from its original purpose (Hacker and Pierson 2010). According to Woods and Morris (2007), state structures helped unify business and exclude opposition groups. Like Woods and Morris (2007), Hacker and Pierson (2010) find organized interests shape public policy. However, whereas Woods and Morris (2007) examine the politics underlying NAFTA, Hacker and Pierson (2010) examine the politics underlying increased social inequality. According to Hacker and Pierson (2010), increased inequality is the result of changes in: (1) financial markets, (2) corporate governance, (3) industrial relations and (4) taxation. Although policy to increase equality was enacted, because of changes caused by corporate actions, policy drift occurred.
According to the politics of public policy research, welfare policy was degraded through long, purposeful corporate actions. Like Gramsci (1971), research finds hegemony is a key factor influencing social outcomes. Corporations have the power to implement long-term efforts to guide public perceptions and change public opinion from strongly supporting welfare policy, to opposing it. For example, Quadagno (1998) finds public confidence in social security has declined as a result of a long, successful strategy by right-wing opponents. Elites perpetuated "the perversity thesis" which popularized the claim that welfare is a policy which creates incentives for individuals to not be productive members of society (Somers and Block 2005). In short, by influencing ideology, corporations were able to roll-back welfare reforms.
In addition, deregulation and public-private partnerships have been able to shift New Deal policy away from focus on the welfare of citizens and towards emphasis on economic growth. For example, Molotch (1998) found HUD was co-opted by capitalist growth machines. HUD now works through private partnerships which decide where and how to build, resulting in increased inequality (Molotch 1998). In conclusion, although social welfare policies were implemented following World War II, due to capitalist efforts, welfare policies have eroded, increasing social inequality.
Neoliberalism and the State
Neoliberalism is a dominant ideology perpetuating inequality around the entire world. According to Harvey (2012:6): "The neoliberal turn has restored class power to rich elites." Neoliberalism is an ideology which claims the most amount of wealth accumulates through free market fundamentalism. However, neoliberalism goes beyond liberal economics by pushing for the financialization of everything. As a result, the state has set in motion international policy aimed to expedite market liberalization around the world (Harvey 2007).
Drawing from Poulantzas and the social structures of accumulation framework, public policy research demonstrates how neoliberalism is a historical ideological structure which emerged to support capital accumulation (Prechel and Harms 2007). According to Prechel and Harms (2007), neoliberalism is an ideology which emerged out of the interests of a historically contingent power bloc. During the decay-exploration social structures of accumulation transition, the power bloc politically mobilized to implement neoliberal policy in order to better accumulate capital.
Public policy research demonstrates how neoliberalism and the state has facilitated the development of the global financial real estate market which contributed to the recent global financial crisis (Gotham 2006). According to Gotham (2006), the state shapes global capital flows; specifically, influenced by neoliberal ideology, the state facilitated the financialization of local real estate through the expansion of mortgage-backed securities and real estate investment trusts (REITs). In an attempt to stimulate capital accumulation, decision makers aimed to de-localized property and place local real estate into the global financial market. Although this increased the power of the economic elite, neoliberal policy has not been effective at revitalizing capital accumulation (Harvey 2007). Influenced by neoliberalism, public policy provided support for the development of REITs and mortgage-backed securities which eventually resulted in the 2007-2008 global financial crisis. In short, capitalist hegemony influences state policy in such a way that increases capitalist power at the extreme detriment of others around the world.
The politics of public policy is highly related to neo-Marxist literature. Whereas neo-Marxism provides a theoretical explanation of how politics and public policy work within the capitalist system, research on the politics of public policy provides empirical support expanding upon their claims. By connecting modern events with neo-Marxist theory, research on the politics of public policy provides further support for Marx's theory of capital.
Amenta, Edwin. 1993. “The State of the Art in Welfare State Research on Social Spending Efforts in Capitalist Democracies since 1960.” American Journal of Sociology 99:750–763.
Gotham, Kevin. 2006. “The Secondary Circuit of Capital Reconsidered: Globalization and the U.S. Real Estate Crisis.” American Journal of Sociology 112:231–275.
Gramsci, Antonio. 1971. Selections from Prison Notebooks. New York, NY: International Publishers.
Hacker, Jacob and Paul Pierson. 2010. “Winner-Take-All Politics: Public Policy, Political Organization, and the Precipitous Rise of Top Incomes in the United States.” Politics and Society 38:152–204.
Harvey, David. 2007. A Brief History of Neoliberalism. Cambridge, MA: Oxford University Press.
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Harvey, David. 2012. Rebel Cities: From the Right to the City to the Urban Revolution. New York, NY: Verso.
Hicks, Alexander and Joya Misra. 1993. “Political Resources and the Growth of Welfare in Affluent Capitalist Democracies.” American Journal of Sociology 99:668–710.
Isenberg, Dorene. 2000. “The Political Economy of Financial Reform: The Origins of the US Deregulation of 1980 and 1982.” Pp. 247–269 in Capitalism, Socialism, and Radical Political Economy, edited by Robert Pollin. Northampton, MA: Edward Elgar.
Jenkins, J. Craig and Barbara Brents. 1989. “Social Protest, Hegemonic Competition, and social Reform: A Political Struggle Interpretation of the Origins of the American Welfare State.” American Sociological Review 54:891–909.
Marx, Karl.  1976. Capital: Volume I. London, UK: Penguin Books.
McDonough, Terrence, Michael Reich, and David M. Kotz, ed. 2010. Contemporary Capitalism and Its Crisis: Social Structure of Accumulation Theory for the 21st Century. Cambridge, MA: Cambridge University Press.
Mizruchi, Mark. 2013. The Fracturing of the American Corporate Elite. Cambridge, MA: Harvard University Press.
Molotch, Harvey. 1998. “Urban America.” Pp. 53–71 in Social Policy and the Conservative Agenda, edited by Clarence Y.H. Lo and Michael Schwarz. Malden, MA: Blackwell.
O’Connor, James. 1973. The Fiscal Crisis of the State. New York, NY: St. Martin’s.
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Quadagno, Jill. 1998. “Social Security Policy and the Entitlement Debate: The New American Exceptionalism.” Pp. 95–117 in Social Policy and the Conservative Agenda, edited by Clarence Y.H. Lo and Michael Schwarz. Malden, MA: Blackwell.
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Woods, Tim and Theresa Morris. 2007. “Fast Tracking Trade Policy: State Structures and NGO Influence During the NAFTA Negotiations.” Pp. 177–204 in Politics and Globalization: Research in Political Sociology, Vol. 15, edited by Harland Prechel. Oxford, UK: Elsevier.
Ever since Polanyi (1994) demonstrated the economy cannot be considered an entity separate from society, research has focused on embeddedness. Studies have revealed the effects of embeddedness on the internal organization of individual corporations, the network of organizations, the behavior of institutional fields and the political action of economic elites. Embeddedness is a critical line of research as it is related to organizational efficiency and major social problems, like organizational wrongdoing and economic collapse.
Embeddedness is the way individuals and organizations are constrained by social relations, such that they cannot be viewed as distinct entities (Granovetter 1985). This means that social relations are a critical aspect of economic behavior. As such, embeddedness examines the effect of embeddedness on the behavior of organizations by focusing on the social network.
Social networks can be considered to be made up of either few or many structural holes. Social networks with few structural holes have numerous social relations which overlap. On the other hand, social networks with numerous structural holes have little redundancy between actors. Social networks influence the position of economic actors. As such, it is a critical factor when studying economic behavior.
The social embeddedness of economic actors plays a function. Functions of embeddedness include: facilitating innovation through joint problem solving (Powell, Koput and Smith-Doerr 1996), regulating social behavior and facilitating trust (Crutchley, Jensen and Marshall 2007), managing uncertainty (Podolny 2001), and providing information and understanding of the environment (Uzzi 1997).
Social networks provide economic actors with the capacity to have flexible working groups, better capable of innovation. Powell, Koput and Smith-Doer (1996) find when knowledge base is complex and expanding, innovation occurs within networks rather than individual firms. Social networks facilitate learning and knowledge. When knowledge is complex and expanding, it is difficult for knowledge to be obtained within the rigid, single organization. Knowledge is created within a community made up of a social network of individuals and organizations. As such, a social network is an effective vehicle for learning. Individuals within the social network can join to solve problems faced by the community, facilitating innovation.
Embeddedness is a critical aspect of economic behavior as economic exchange requires trust. Embeddedness serves the function of regulating social behavior and ensuring trust. Organizations with little embeddedness are more likely to exploit information asymmetries and act wrongfully, as embeddedness regulates social behavior. For example, Crutchley, Jensen and Marshall (2007) found when outsiders are less involved in an audit committee, accounting fraud is more likely to occur. With little involvement from external actors, the audit committee is less pressured to cause problems within the organization by pointing out possible problematic activity. In short, economic embeddedness regulates behavior to ensure trust.
Embeddedness also serves the function of managing uncertainty by providing information and understanding of the environment (Uzzi 1997). Particular social relations facilitate the management of different types of uncertainties. Structural holes are more beneficial and social status less beneficial in environments characterized by egocentric uncertainty (Podolny 2001). Egocentric uncertainty is the uncertainty of the focal actor in efficiently producing a commodity that will be desirable by exchange partners. By having numerous structural holes, organizations can have a broader reach and better obtain information about the broader market. Structural holes are less beneficial and social status more beneficial in environments characterized by altercentric uncertainty (Podolny 2001). Altercentric uncertainty is the uncertainty of exchange partners in the quality of the commodity brought to the market. Status provides a way for external actors to judge the likelihood that the commodity will be of good quality based on collective interpretations. Market uncertainty influences the value of particular social positions: network position and social status.
Embeddedness affects the internal organization of individual corporations. For example, Castilla (2011) found that embeddedness effects social inequality in organizations. Managerial assessment of employees is affected by: (1) the social network of past and current managers, (2) the similarity between past and current managers, and (3) the social similarity between the manager and the employee. As such, individual advancement in an organization is related to the individual's social network and status. This results in inequality in organizations, where those in positions of power all have similar characteristics and social networks.
Embeddedness affects the network of organizations- how organizations are related to each other. The economic position of the organization in the network is not related to things the individual organizations control. Instead, it is the result of how the organization compares to others, the actions of others and its status (MacKay and Phillips 2005).
Embeddedness also affects the behavior of institutional fields. According to Stearns and Allan (1996), economic behavior (mergers) is not because of efficiency, but institutional embeddedness. A permissive state allows those on the fringe to innovate which facilitates mergers. Merger waves occur when those actors are viewed as successful and others imitate.
Embeddedness affects the political action and power of economic elites. Classwide rationality (a major factor contributing to the power of the economic elite) is related to the way economic actors are included in diffuse social networks (Useem 1982). Furthermore, capitalist PAC contributions are related to regulatory embeddedness, social status and network position (Burris 2005). In short, the political action of economic actors is not just affected by rational economic reasoning, but social embeddedness.
However, the extent to the effect of social embeddedness on corporate behavior is not constant over time. According to Mizruchi, Stearns and Marquis (2006), the effect of social embeddedness is historically contingent. The effect of social network on corporate behavior has declined over time due to the following factors: (1) professionalization of finance, (2) internalization of financial and (3) increased market volatility.
Embeddedness is related to organizational efficiency. For example, embeddedness is related to the cost of capital (Uzzi 1999). At the dyad level, firms with strong social ties with their lender get the lowest rate. At the network level, firms with a network of embedded and arms-length ties get the lowest rate. However, embeddedness is beneficial only up to a certain extent (Uzzi 1997). Embedded ties help distill information when time is of importance. However, too many embedded ties can decrease efficiency. Furthermore, embeddedness can lead to the development of broader social problems.
Embeddedness relates to broader social problems, like corporate fraud and the financial crisis. For example, Prechel and Morris (2010) found political and organizational embeddedness created dependence, opportunities and incentives for individuals to commit financial malfeasance. Although embeddedness is related to major economic problems, this can be empowering. Once the underlying social arrangements are identified, they can be rearranged to improve the problem. This is why Abolafia (2010) emphasizes the need to fix academic, political and regulatory structures to ensure we do not have another financial crisis. Economic structures can be fixed by also fixing the institutions in which the economic structures are embedded.
Embeddedness effects a range of factors including corporate and institutional behavior and market relations and outcomes. However, the effect of social embeddedness on corporate behavior is not constant- it varies over time (Mizruchi, Stearns and Marquis 2006). As such, future research should reveal precisely which conditions relate to the effect of embeddedness on organizations.
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Kate Willyard is a political and economic sociologist interested in human organization and the environment.