The Genesis and Progress of the Socially Embedded Firm

In his seminal article Economic Action and Social Structure: The Problem of Embeddedness Granovetter argued that economic action is embedded in social relations and structures that affect its functioning, and that economic action should be analyzed as such. In theories of the business firm the idea that firms are socially embedded is widely acknowledged, but social context is typically understood as an exogenous force. When embeddedness is actually accounted for in theories of the business firm it is mostly as independent variable highlighting the structural aspects of embeddedness at the expense of more relational aspects. This short paper traces the origin and branching of embeddedness in business studies. It asserts that the concept of embeddedness is recurrently used as a concept symbol to reclassify aspects of social context, but not in a way that gives credit to the endogeneity of social context to the actions of the business firm. Finally, it is suggested that the notions of evolution and mutualism are fruitful for understanding how and why firms are embedded in different ways and to different degrees.

Introduction: This paper is concerned with the complex and dynamic relations between social context and the economic actions of business firms. The basic argument, taken from Granovetter (1985; 1992; 1993), is that all economic action is embedded and enmeshed in relationships and social institutions that affect its functioning. This is an ontological statement as well as an epistemological one. It is ontological in that it states that economic relationships and social structures might in fact be real and have causal liabilities of its own, and it is epistemological in drawing attention to the diversity of meaning, action, and subjectivity in economic relationships. Thus, embeddedness is a relational concept that links and integrates analytical levels such as action and structure, the economic and the social, individualism and collectivism, subjectivity and objectivity. This have the implication that social institutions should be analyzed as endogenous to the economic activities of the business firm.

Author: Henrik Sornn-Friese

Source: Copenhagen Business School

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