Interpretation of Society and Economy ---- get Feng Qina

Society and Economy, an obscure sociology book, a friend recommended to me to read, but it is really difficult to read, well on get, see Ms. Feng's interpretation, share out.

The author of the book is Mark Granovetter, a professor at Stanford University. Granovetter is a sociologist, but, every year, the selection of the Nobel Prize in Economics, Granovetter is the candidate with a high reputation. Moreover, economists writing papers also especially love to quote him, so he also won the economics of the "citation laureate award".

Why is a sociologist so valued by economists?

It's because Granovetter has spent his life doing one thing: taking on economics. And it is to run to the turf of economics, in the field of production, distribution and consumption, and economics positive open bar. Because of the bar with posture, level, so, Granovetter not only in the discipline of sociology has a high prestige, some economists were also brought to run, began to carry out economic research in accordance with his method.

So what exactly did Granovetter say that made such a splash in both disciplines? The answer lies in this new book of his, Society and Economics.

We all know that Weber and Parsons, the greats of sociological theory, both published a magnum opus called Economy and Society, which was about the impact of economic activity on society. Granovetter's book upside down, the "social" to the "economic" front, called "society and the economy", emphasizing the impact of social factors on the economy, and from the micro, to the meso, and then to the macro, put forward a set of research methodologies and theoretical propositions. If you want to understand this topic, this book is one of the most systematic and authoritative entrances.

The writing style of this book is not what we usually call sprawling, but another four words: painstaking. Granovetter wrote the first draft 23 years ago. Then, over the course of 23 years, it was revised over and over again. Suffice it to say, every sentence has a source, and no place is without an origin.

Mr. Duan Yongzhao, a senior media person, made an analogy, which is very graphic. He said that Granovetter is like a geologist, using a spade, a pickaxe, and a brush to scrutinize the backbone and branches of past theories in the rock faults. The purpose is to ground his theoretical insights on a solid foundation.

Having introduced the background to the creation of this book, let's move on to its content. Three crossings of Granovetter's pen.

Part I

In the book, Granovetter first set up a target, which is economics imperialism.

The so-called "economic imperialism" is the belief that all phenomena can be explained by economics. For example, why are modern people reluctant to have children? Because in the agricultural society, children are investment goods, one more child is one more labor force, so people are willing to give birth; but now, children are consumer goods, it is not cost-effective to raise children, so the fertility rate has decreased.

Another example is, why do people love to listen to pop music and not classical music anymore? Economists explain that it's because the cost of time is different. Pop is short and quick, and you get the thrill right away; classical music, on the other hand, you have to spend time to learn and distinguish. So, in a fast-paced era like today, classical music is not as popular.

You see, what is one characteristic of traditional economics? It's the assumption that all people are rational, and that they do everything to minimize costs and maximize benefits. This was supposed to be the most basic claim of economics. However, in recent decades, economists have found that the assumption of rational man has gone terribly wrong, and have begun to put all sorts of patches on it.

Among them, the most famous one is called "behavioral economics", which specializes in studying the loopholes of human rationality, that is, irrational behaviors that do not meet the maximization of returns. For example, the endowment effect. If you lose 100 dollars in your pocket, you will be very distressed; even if you find another 100 dollars, you can't make up for this distress. There's also the mental account effect, where you buy a piece of clothing and haggle over 10 dollars; if you buy a car, you might be able to get it 1,000 dollars cheaper by talking to the sales two more times, but you feel that it doesn't matter if it's not cheaper. It's all the same money, and you look at them in very different ways. This is the mental account effect. The money you spend on clothes exists in a different mental account than the money you spend on a car. Behavioral economics is the obvious science today, and if you follow the Nobel Prizes in economics in recent years, you will see that many of them have gone to behavioral economists.

But, in Granovetter's view, what behavioral economics has done is, at best, minor tinkering. After the patching, economics' assumptions about human nature still don't fit the real world we live in.

It's like when Ptolemy's geocentricity went wrong in the 15th and 16th centuries, and you added 800 principal wheels and average wheels to get the numbers right, and it didn't help. There has to be a concept like heliocentrism out there to instantly change the way we look at the world.

This brings us to the first intersection in the book Society and Economy: what is it like to be a human being in economic activity?

In Granovetter's view, people in the assumptions of economics, whether they are rational or irrational, are essentially isolated, atomized human beings. You see, those experiments in behavioral economics are all about finding a random person and stranding him in a lab, stripping away all of a person's social relationships, and then examining him.

But in reality, people live in social relationships, and social relationships agree on a variety of rules. These rules tell people what behavior is appropriate and what behavior is forbidden.

For example, in the view of many economists, a store that starts to have a queue means that the price is not set high enough, and that the price should be raised immediately. See, that fits the assumption of a rational person, right?

But what about the reality? It may be that prices shouldn't go up, and they can't go up. For example, if a typhoon comes and there is a food shortage, can the supermarket increase prices? If you increase the price, this supermarket will not be able to make it in the community in the future. The community residents will feel that you are morally flawed, taking advantage of the situation and falling on your sword. Even in extreme cases, people may smash up your store and take what's in it, because that's the behavior that's consistent with fairness and justice.

As another example, when you're on the bus, you don't have a seat. Can you pull out your money and say to the person next to you, I'll buy you a seat? Probably no one would do that. But in the view of traditional economics, this is a market failure, a failure to optimize the allocation of resources, and should be allowed to buy and sell seats. But in the view of sociology, this is so out of character. The rules of society require us to give up our seats for free to the elderly, the sick and the disabled, but selling bus seats for money is not acceptable, what will people think of me? You see, this is another example that goes beyond the rational and irrational dimensions.

You might say that the reason people don't maximize their benefits in these two examples is to avoid punishment, and behind avoiding punishment is also rational choice. So let's look at another example.

We all know the term "landlord and shabby gentry", which refers to the local landlord who exploits and oppresses the sharecroppers. But in fact, the so-called "landlord and shady gentry" is a recent phenomenon. In an agricultural society, the relationship between landlords and sharecroppers was relatively cordial and not as tense as we think. The landlords were the protectors of the tenant farmers. If there is a disaster this year and the grain harvest is not good, the landlord will charge less rent and even send some grain to the tenant farmers to help them tide over the difficulties.

So when did the relationship between landlords and sharecroppers begin to deteriorate? In Granovetter's opinion, it was because of urbanization. Living conditions were better in the cities, so landowners moved to the cities. And what happened to the land in the countryside? It was left in the hands of agents. Once there were agents, the relationship between landowners and tenant farmers changed. In the past, we were neighbors. We had to take care of each other. Now I don't know you, so this moral obligation is lifted. When an agent collects rent, he's on a mission. The first thing I want to do is to make sure that I have a good understanding of what is going on in the world and what is going on in the world.

You see, in this example just now, what is at work? It's the relationships between people, it's the sense of identity shaped by the relationships, and it's the sense of morality agreed upon by the identity. They are not external and coercive, but exist within people without rational thought or calculation. This is the first encounter between Granovetter and economics.

Part II

Let us turn to the second encounter: how does economic activity unfold?

We have just said that social relations are very important to our understanding of human behavior. But strangely enough, social relations have never been a topic of interest to economics. Even when they have been mentioned, they have been looked down upon and dismissed.

For example, Adam Smith said that people who do the same kind of business rarely meet. If they do meet, it is for the purpose of colluding to raise prices, without any good intentions. Adam Smith even advised the government not to publicize the register of trades, because it would allow people in the trade to find other traders.

Why, you may ask, do economists hate social relations so much? This is because in the view of traditional economists, the only perfect market is a perfectly competitive market. And the premise of perfect competition is that everyone is atomized, making decisions independently of each other, unaffected by social relations.

But Granovetter didn't see it that way. One of his most famous theories, which you may have heard of, is called the "weak ties" theory. It says that finding a job is a market phenomenon, an economic behavior, but in the process of finding a job, social relationships are very important. He did a survey and found that 60% of the good jobs are not through formal recruitment channels, but through the introduction of acquaintances.

So what kind of social connections can help us? Granovetter found that you have to turn not to friends and family, but to those with whom we have only a one-sided acquaintance. Friends and family are similar to our circle, the information we have is similar to ours, they know the job opportunities, you also know. On the contrary, those friends who have only one acquaintance can bring us fresh information and more job opportunities. This is the theory of "weak ties".

In fact, it's not just about finding a job, it's also about recruiting. Nowadays, there is a popular term called "internal promotion", which means internal recommendation. Bosses like to recruit new employees through the recommendation of old employees. The reason is very simple, since the employees work in a company, then he would not dare to fool the boss, recommended by the people must know their roots, very reliable. After the new employee joins the company, the old employee also feels obliged to help him integrate into the company. If something happens to the person they introduced, it's not good enough, and you can't hang up your face.

You see, one is to recruit employees, one is to find a job, these are the purest economic activities, need to be through the acquaintance relationship to achieve the highest efficiency.

So Granovetter is wrong when he says that economics rejects social relationships. Because in the real world, a lot of economic activity takes place between acquaintances. You go and look at all the economic crimes, what with fraud, pyramid schemes and illegal fund raising, most of them are conducted through acquaintances. Legitimate business that's even more so. People will do business together because they are friends. People will say make a friend while doing business instead of having their mind set on making money.

So, to figure out how the economy works, you have to study social relationships. Further, you have to look at the network of relationships between people, which sociologists often refer to as the "social network".

To make this clear, Granovetter devotes a chapter to the phenomenon of trust.

What is trust? One of the most classic definitions I've read in this book: by trust, you put yourself in a position where you are at the mercy of others to do harm. When you taste it, doesn't it make sense?

Under what circumstances would you trust someone? That is, this thing is obviously risky, but you do not care, but still entrusted this thing to him, this is called trust. For example, if you give your child to your parents, this is a kind of trust, you believe that he will be good for the child. Also, if you lend money to someone else, this is also a kind of trust. You neither signed a contract with him nor sent a person to keep an eye on him every day, but you believe he will return the money.

You see, trust promotes cooperation and saves a lot of transaction costs. However, traditional economics rarely discusses the topic of trust. Because we all think that trust is only a small-scale phenomenon, and we only talk about trust between acquaintances. Now is a society of strangers, have to talk about interests, only interest is the basis of all cooperation. As for trust, it doesn't matter whether there is or isn't, it can be replaced by other means, such as setting up a third-party supervisory account or carrying out credit rating.

So what about the society of acquaintances? For example, our East Asian civilization, we all love to engage in relations, love to divide people into close and distant. Wouldn't it be difficult for such a civilization to build large-scale cooperation?

The political scientist Francis Fukuyama, in a book called Trust, says that where family businesses are prevalent, as in France, Italy, Taiwan and Hong Kong, it is very difficult to develop large private enterprises. There is only one way for a place to develop, and that is the Western way of market economy and democratic politics. This is the famous "final conclusion of history". Fukuyama's view is shared by many people. Therefore, scholars and business journalists have been singing the praises of family businesses.

But what is the reality? The hard facts tell us that the role of the family in business has not declined in any of the past half-century. If you don't believe me, look at the list of the world's Fortune 500 and more than 1/3 of them are family-owned, including Walmart, Michelin, Louis Vuitton, BMW, and Warren Buffett's cash cow, Berkshire Hathaway. You can also take another look at the S&P 500 and you'll see that family-owned businesses are doing much better and getting bigger than non-family-owned businesses.

Is that strange? We're talking about "family" here. How many people can a family be? How can these people manage a business of tens of thousands or even millions of people?

Not to mention, some scholars have actually done research on this. For example, some people have studied the Chinese enterprises in Singapore, and found that these family businesses were concentrated in the early days of small service industry, retail and import and export trade industry, but later on, they expanded to manufacturing, banking, rubber collection industry, and turned into a cross-country and cross-industry super giant. How did this expansion happen?

Researchers have found that the expansion of family businesses relies not on the businesses themselves getting bigger and bigger, but on the fact that they set up or acquire many subsidiaries, and then take control of those subsidiaries through holdings and cross-shareholdings, forming a pyramid-shaped structure. Outsiders can invest but have no say and do not dilute the family's control.

More interestingly, in these subsidiaries, family members are the de facto controllers and hold important positions on the board. Around these family members, in turn, a circle of professional managers has formed to serve as the company's top executives. These professional managers owe allegiance to the family members, who in turn show loyalty to the family as a whole. In such a social network, it is kinship and trust that sustains cooperation, not some legal contract.

You see, the re-conceptualization and discovery of the family business breaks Fukuyama's "theory of trust" and "the end of history". There are many different paths to development in different countries and regions. The East Asian civilization, which emphasizes family solidarity and acquaintance society, can also transform small-scale trust into the ability to build large-scale economic organizations through social networks.

More importantly, we need to realize that trust plays a crucial role in economic activity, from trust between friends, to trust between employees and bosses, to trust between family members, trust is the lubricant of market transactions. And trust works because each of us is not atomized, but embedded in a social network.

This is the second intersection in the book Society and Economy.

Part 3

Let's look at the third intersection: how do societies evolve?

In economics, all social change, good or bad, is the result of individual rational choice. What is society, you think? Society is just a name for an imaginary head, the real existence of nothing more than one after another person. Therefore, all social phenomena can be speculated and understood by individuals.

For example, demand. The so-called demand is the simple sum of goods that all people are willing to buy. And then there are institutions. A so-called system is a solution invented by an individual to solve a particular problem. This idea, we can call it "rational choice theory". Many economic models can be subsumed under this theory.

But, says Granovetter, no, this way of thinking makes the mistake of "reductionism". What is the "reductionist" error? That is, according to reason, the social level of phenomena can only be explained by society, the individual level of phenomena can only be explained by the individual. There is an insurmountable gap between individual behavior and the social trend. If you do not fill this gap, and categorically explain social phenomena in terms of individual factors, you are committing the error of reductionism.

How do you fill this gulf? Granovetter says you need a bridge in the middle, and that's the social network. If the individual is a micro-concept and society is a macro-concept, then the social network is a meso-concept that links society and the individual.

Putting it this way, it's still a bit abstract, so let's look at an example, the Medici family.

The Medici family, as you may know, was a famous family in Europe from the 14th to 17th centuries, not only holding the European banking industry, but also producing 4 popes and 2 French queens. Why was this family so powerful? We've heard a variety of explanations. The most common explanation is that because a certain wise and great man changed the course of history. For example, Giovanni Medici shifted the family industry from wool processing to banking and amassed a great deal of wealth; then Cosimo Medici seized power and became the ruler of Florence; and then there was the great Lorenzo Medici, who burned a Renaissance with his money.

All of these explanations, in Granovetter's view, commit the error of chemical reductionism in explaining society in terms of individuals, and it ignores the layer in the middle, which is the social network.

The Medici family occupies a special place in the social network, called the "structural hole". A structural hole is a concept in sociology. It is about two groups of people who do not interact with each other, so there is a gap between these two groups of people, called the "structural hole", who occupies the position of the structural hole, who can enjoy a special dividend.

So what kind of structural hole did the Medicis occupy? If you are familiar with history, you will know that the Medici family naturally straddled two social networks. On one side, there was the aristocracy. The Medici family was born into the aristocracy, and it solicited the support of the aristocracy through marriages with the aristocracy. On the other side, there was the emerging bourgeoisie, or the rich and powerful. The Medici family is good at doing business, and is willing to make friends with these tycoons, and can also mingle with them.

And the aristocrats and the rich, these two groups of people were originally incompatible. The aristocrat disliked the thugs have no culture, no status; and in the eyes of the thugs, the aristocrat is down and out, poor as a ding dong. These two groups of people do not interact with each other, well water does not offend river water. However, the Medici family has the ability to connect the two circles, so that the power of the aristocrats for the use of the thugs, so that the wealth of the thugs for the service of the aristocrats, the two groups of people are inseparable from him. Therefore, for a while, the Medici family's popularity can be said to be unrivaled.

But this is not the whole truth. The Medici family has been able to leave a colorful history, more importantly, it also did what no one has done before, that is, sponsored the Renaissance. The Medici family sponsored many artists including Masaccio, Da Vinci, Michelangelo, and Raphael, as well as political scientist Machiavelli and scientist Galileo. So why did the Medici family sponsor the Renaissance? Was it because of a love of the arts and sciences? Was it for love and charity? None of that is true. It did it to wield power.

In the past, when we talked about "power," we talked about the individual's possession of resources, especially the means of production. But in fact, in the view of sociologists, you possess resources, others rely on you, listen to you, this is only the most elementary form of power. The more advanced form of power is the power of legitimacy, that is, the power that your position gives you, the power that you gain through election or appointment by your superiors. The most advanced form of power is agenda-setting, which means influencing people's perceptions and ideas. For example, the idea of "what resources are important" and "how people perceive these resources". Influencing these ideas is a form of power.

For example, you have to obey what your boss says because you expect him to pay your salary, which is power based on dependence. The words of the department head, you also have to obey, because the leader is appointed by the company, which is based on the legitimacy of the power. But there's a third type of power that I just talked about, which is agenda-setting, in other words, changing the way people understand something, and thus changing the course of history.

The Medici family was very good at agenda setting. It was more than simply having money; it was turning money into a great work of art, into aesthetic preferences and cultural soft power, accelerating the new trend of religious secularization and creating the new culture of the Renaissance.

Returning to the earlier question, how does society evolve? Looking at it locally, it is easy to draw a conclusion and attribute it to the efforts of specific individuals. But in reality, we also have to see the meso-social network, the position of the Medici family as a structural hole in the network, and the zeitgeist of the rise of the bourgeoisie and the secularization of religion. From the micro to the meso to the macro, like gears, it is an interlocking, cascading relationship. Without any link in the middle, our understanding of the facts is not comprehensive.

After criticizing economics, Granovetter takes aim at sociology itself. The mistake economists love to make, he says, is to explain society in terms of individuals. And the mistake sociologists love to make is to explain the individual in terms of the society, believing that everything about the individual is determined by the society. This is also an error of reductionism, which has a name, "cultural determinism".

There are various versions of cultural determinism. For example, the "national character" that we Chinese love to talk about is a kind of cultural determinism. Because of the character of our nation, each of us has a certain kind of behavior.

There are also scholars studying the distribution of the automotive industry chain in the world, found that South Korea's automobile assembly industry is very strong, China Taiwan's auto parts industry is very developed, and Argentina do not do anything, this is why?

The scholars explained that it is because automobile assembly requires large-scale capital investment, and South Korea's cultural tradition is more suitable for the establishment of such mega-companies; while the auto parts industry, the need for a number of responsive small companies, this manufacturing method in Taiwan has deep cultural roots. As for Argentina, there is no cultural tradition of building either large corporations or small supply chains, so no automotive industry whatsoever can get off the ground.

You see, the so-called "cultural determinism" actually contains the shadow of the "final conclusion of history" behind it. The idea is that some places have more advanced systems and cultures that are more suitable for industrialization and modernization; some places have backward systems and cultures, and your industrialization and modernization can't get up. However, Granovetter then said that the influence of systems and culture is not decisive. Institutions and culture are not so much a script for individual action as a menu of options.

Granovetter gives the example of South Korea. Is Korea's industrial development due to cultural traditions? No. Half a century ago, South Korea was a poor and backward country, the very embodiment of a backward system and culture in the eyes of cultural determinists. However, in 1961, Park Chung-hee came to power and implemented a series of iron-fisted policies in the economic and political fields. For example, the government borrowed money to develop capital-intensive industries, supported an export-oriented outward-looking economy, built large industrial parks and infrastructure, as well as vigorously developed national education, and finally these measures led South Korea's economy to take off.

In South Korea, you can see a variety of shadows: there is the Soviet-style five-year plan, there is the Japanese-style export-oriented economy, and there is also the South Korean characteristics of the family zaibatsu. It is not the result of a particular national character or dictated by a particular culture. It is a seed that carries its own message and then absorbs the sun and rain to blossom and bear fruit.

Summary

To summarize, there are three crossings we talked about earlier.

The first encounter, what does a person in economic activity look like? Granovetter's answer is not just rational beings, but beings embedded in social relations.

The second encounter, how does economic activity unfold? Granovetter's answer is that economic activity does not occur in isolation, but in social networks, and that the two social relations of trust and power are particularly important.

The third encounter is, how do societies evolve? Granovetter's answer is that society evolves as a result of the interaction between three levels: the individual, the network, and society. Society provides a context for individual action, and individuals influence and change society through social networks.

If you look at these three sentences, none of them says it so crisply. It's neither concise nor pretty. But it fits the real world.

The real world is complex. Only complexity can explain complexity.

Previously, we pursued succinct explanations, not because such explanations were perfect, but because there was no way, no way for us to calculate and measure complex economic and social phenomena.

Now, we have big data and computer simulation technology, we can map out the interpersonal relationships of a city, we can dynamically track the rise and fall of an industry, and we can reduce all economic activities and social phenomena to real complex networks. Therefore, whether it is economics or sociology, we should switch to new theories and new methods.

Granovetter has a catchphrase: "It's not wrong, but it's not enough." which translates to "This explanation is right, but this explanation is incomplete." I hope you remember this phrase after listening to the interpretation of the book Society and Economy.