If economic action is embedded in networks of relations (cf. Granovetter 1985), it is logical to begin our investigation by discussing the nature of those relations. A main issue is how much economic activity is carried out between individuals who have personal knowledge of one another that affects their economic action, and how this compares with the rather impersonal relations implicit or explicit in most neoclassical economic theorizing. Where such personal knowledge is important, we need to identity the dimensions of these relationships along which variation affects economic outcomes.

Much of this chapter discusses economic activity in tribal and peasant...

Throughout his career Schumpeter tried to develop a kind of broad general economic science, which he usually referred to asSozialökonomik.* The most thorough exposition of what Schumpeter meant by this term (which he had borrowed from Max Weber), can be found in his posthumously publishedHistory of Economic Analysis. Sozialökonomik, we here read, consists of several different “fields”: “economic theory,” “economic history,” “economic sociology,”and“statistics”(1954c:12–24). None of these fields or perspectives can by itself exhaust the economic phenomenon, Schumpeter emphasized; they all have to cooperate in analyzing it. Exactly how this cooperation would work, we are...

My starting point is this: a player brings capital to the competitive arena and walks away with profit determined by the rate of return where the capital was invested. The market-production equation predicts profit: invested capital, multiplied by the going rate of return, equals the profit to be expected from the investment. Investments create an ability to produce a competitive product. For example, capital is invested to build and operate a factory. Rate of return is an opportunity to profit from the investment.

Rate of return is keyed to the social structure of the competitive arena and is the focus...

Trust, the mutual confidence that no party to an exchange will exploit the others’ vulnerability, is today widely regarded as a precondition for competitive success. As markets become more volatile and fragmented, technological change more rapid, and product life cycles correspondingly shorter, it is too costly and time-consuming to perfect the design of new products and translate those designs into simply executed steps. Those formerly charged with the execution of plans—technicians, blue-collar workers, outside suppliers—must now elaborate indicative instructions, transforming the final design in the very act of executing it. But in a world of half-formed plans to...

From William Whyte’sThe Organization Man(1956) through Rosabeth Kanter’sMen and Women of the Corporation(1977), the portrayal of the large successful American corporation in social sciences and the business press closely followed Doeringer and Piore’s (1971) description of an internal labor market (Hirsch 1985). Successful managers at many of the most visible and admired firms entered early, climbed up the rungs of the company job ladder, and played out their careers as “company men,” embodying organizational memory and firm-specific skills of particular value to their companies. From 1950 to 1985, this mobility model socialized corporate managers and formed...

In this chapter I consider markets in Western production economies. Each market operates itself and reproduces itself without external planning or tangible auctioneer. It ties to other markets in a production network via the actions of specialized firms. Western economics texts (e.g., Mansfield 1975) conceive of each market separately in terms of price schedules of aggregate supply and demand, for a product specified abstractly, and with little attempt to specify mechanisms. These aggregate schedules are unobservable either by participants or by observers.¹ And what is a product? Each actual market emerged amid some network of other existing production markets. When,...

For over ten years, I have been engaged in a study of real-world auctions, including fish, cattle, tobacco, stock, bond, real estate, fine art, antique furniture, gun, horse, book, manuscript, and automobile auctions, to name just a representative sample (c. Smith 1989). During these ten years I have not only collected a tremendous amount of data and information, but also deepened my understanding of a number of social practices. Perhaps most importantly, I was forced to reexamine the very conception of an auction. This has necessitated not only generating a new classification system for grouping auctions, but also fashioning a...

In his study of the development of sociology, Bruce Mazlish reminds us that sociologists have had a longstanding “obsessive concern” with the cash nexus, with the vision of an ever-expanding market inevitably dissolving all social relations and corrupting cultural and personal values (1989:9). But, paradoxically, it has remained a remarkably unsociological obsession. Mesmerized by this vision of inexorable force, sociologists implicitly adopted an extremely simple conception of the process, making it resemble the sweeping away of landmarks by a giant flood. That left unaddressed the crucial question: How do real markets work? Markets were seldom studied as social and cultural...

In 1880 Thomas Edison had only recently perfected the incandescent light, and virtually no homes or factories were yet served by electricity generated either on-site or in separate central stations. Lighting was overwhelmingly dominated by natural gas. By 1890, on-site generation of electric power had been promoted but already overtaken by the central stations of an investor-owned electric utility industry. This fledgling industry consisted of scores of independent local firms using different technologies and organizational structures, hobbled by local government, dependent on local investors and equipment manufacturers, and engaged in destructive competition. By 1929, the industry was dominated by a...

This chapter attempts to explain why the measurement and explanation of organizational performance have proved so intractable. It is, however, somewhat broader in scope than the title implies. The core argument is that the properties of performance measures desirable for purposes of organizational control are comparability and variability. This argument, in turn, bears on some very fundamental issues in organizational theory. Among these issues are Williamson’s M-form hypothesis, which is reinterpreted here; the tendency of organizations to cluster into distinct fields and then to mimic one anothers’ structures and practices as noted by institutional organizational theorists; and some limits of...

From 1930 to 1980, managerialism was the dominant model of corporate control in advanced capitalist societies. Managerialists argued that large corporations had become powerful, independent institutions controlled by inside managers, who were free from the constraints of stockholders and financial institutions (Berle and Means, 1932; Berle, 1954; Dahrendorf, 1959; Bell, 1961; Baran and Sweezy, 1966; Galbraith, 1967; Herman, 1981). This model had important implications for organizational theory. The claim that large corporations are independent of external influence encouraged researchers to focus on characteristics of the individual firm and to downplay its environment. Although interest in the business environment has increased...

Much of the corporate restructuring during the 1980s and early 1990s can be traced to a more open contest for control of large business firms. The intensified struggle derived from a weakening of the long-standing dominance of professional managers over the fate of many major corporations. In decades past, there had been a gradual but seemingly inexorable shift of control of large corporations from founding owners and shareholders to nonowning professional managers. This was the “managerial revolution” identified by Adolph Berle and Gardiner Means in their 1932 landmark study of corporate organization and governance. A company’s board of directors was,...

In the last thirty years, many regions of the United States have experienced considerable changes in the structure of their economies. The rise of international competition, combined with the failure of U.S. industrial leaders to modernize outmoded manufacturing technologies, has wrought decline in this nation’s industrial competitiveness and provoked widespread job loss (Bluestone and Harrison 1982; Rains, Berson, and Gracie 1982; Cohen and Zysman 1988; Wallace and Rothschild 1988). These developments have sparked increasing interest in the growing concentration of employment in a set of private business activities defined as theservice sectorof the economy (Shelp 1981; Stanback, Blaue,...

It is clear that the last fifteen years have seen dramatic changes in the form taken by economic organizations in North America, Europe, and Japan, generally favoring decentralized structures and loose alliances. In this chapter I briefly characterize this development, review three explanations for it, and argue that none of them have provided fully satisfactory accounts for the changes. One of the new forms to emerge,nondependent subcontracting, is discussed next. The most interesting form,networks of small firms, is the focus for the rest of the chapter. It is the least significant form in terms of economic output—on...

Within both the Marxist and liberal paradigms of economic development, it has been widely accepted that, as industrialization preceded putting-out, small-scale production would eventually be superseded by larger and more complex organizational forms. Marx’s description of this process, and his foreboding that the “country that is most developed industrially only shows, to the least developed, the image of its own future” (1977:19), were later to be mirrored by his severest critics who insisted the developmental patterns of all industrial societies were converging (Kerr, Dunlop, and Myers 1960). Indeed, the near disappearance of small-scale production in the United States, until recently...