Embeddedness

In economics and economic sociology, embeddedness refers to the degree to which economic activity is constrained by non-economic institutions. The term was created by economic historian Karl Polanyi as part of his Substantivist approach. Polanyi argued that in non-market societies there are no pure economic institutions to which formal economic models can be applied. In these cases economic activities such as "provisioning" are "embedded" in non-economic kinship, religious and political institutions. In market societies, in contrast, economic activities have been rationalized, and economic action is "disembedded" from society and able to follow its own distinctive logic, captured in economic modeling. Polanyi's ideas were widely adopted and discussed in anthropology in what has been called the "The formalist vs substantivist debate". Subsequently, the term "embeddedness" was further developed by economic sociologist Mark Granovetter, who argued that even in market societies, economic activity is not as disembedded from society as economic models would suggest.

According to Polanyi, in non-Capitalist, pre-industrial economies livelihoods are not based on market exchange but on redistribution and reciprocity. Reciprocity is defined as the mutual exchange of goods or services as part of long-term relationships. Redistribution implies the existence of a strong political centre such as kinship-based leadership, which receives and then redistributes subsistence goods according to culturally specific principles. Economic decision-making in such places is not so much based on individual choice, but rather on social relationships, cultural values, moral concerns, politics, religion or the fear instilled by authoritarian leadership. Production in most peasant and tribal societies is for the producers, also called 'production for use' or subsistence production, as opposed to 'production for exchange' which has profit maximisation as its chief aim.

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