Granovetter and Network: Embeddedness perspective

HSS 203 Lecture 3-2
Jan 22 2008

Granovetter and Network: Embeddedness perspective

Classic labour economists had long noted that people likely find their jobs through friends and relatives, which they viewed as source of inefficiency, and cause of nepotism and clientelism, i.e. mismatch between jobs and one’s qualifications.

Mark Granovetter used “embeddedness approach” to explain such phenomenon in labor market. He found that, people find their jobs most likely through “weak ties”. That is people you don’t know well may be the most useful people who help you find jobs.

Burt disagrees with such concept, instead he stresses it is not what strong or weak ties matter, but where you locate matters most. Entrepreneur, who often locates himself at structure holes, where he is able to get most information from his social network, is the one most likely to be successful.

By using the same concept, Granovetter criticizes economists for assuming atomized individuals. He argues that people are embedded in network of social relationship which shapes economic action and institutional outcome. Networks serves as conduit for timely and reliable information, people ties provide a basis for trust and credible commitment which prevents opportunism and malfeasance.

Oliver Williamson as one of founders of “new institutional economy” emphases the importance of institutional arrangement in providing information and preventing opportunism. The formal rules and contracts will secure economic agreements and contracts. Granovetter criticizes him overlooking the role of network, he thinks the relationship between people, especially top executives, helps to build trust and securing agreements and contracts.

The difference between Polanyi and Granovetter:

Though both of them emphasize the embeddedness of social relation in economic actions and behavior, Granovetter nonetheless disagrees with Polanyi’s acceptance of homo economicus and assumption of "self-regulating markets" in modern capitalism. He thinks that Polanyi overstates the extend of embeddedness in ancient market, but rather understates the embeddedness in modern market economies.

Granovetter argues that it is network rather than institutional arrangement that shapes economic behavior.

The weakness of his theoretic framework however is that it is based on case study, i.e. Chicago Edison company, and many empirical observation shows that social relations do not determine trust. It is maybe more acceptable to adapt both informal relationship and formal institutional approach.

Granovetter extended Polanyi’s view that economy is embedded in social relations to modern network analysis. Networks are ongoing social relationships which comprise the basis structural unit of society, which provide a basis for trust and credible commitment. Weak ties may serve as a conduit of timely and reliable information; structure holes offer an opportunity for entrepreneurship through broking.