Karl Polanyi's Embeddedness - Philosophical Concept | Alexandria
Embeddedness, a concept central to economic sociology, describes the degree to which economic activity is constrained by non-economic institutions. It suggests that markets, far from being self-regulating spheres as neoclassical economics posits, are always interwoven with and shaped by social relations, culture, politics, and other non-market forces. This idea challenges the notion of the economy as an autonomous entity, independent of societal influences, inviting a critical reassessment of what we consider the “natural” order of economic life.
While implicit understandings existed earlier, the concept gained formal articulation in Karl Polanyi’s seminal 1944 work, The Great Transformation. Polanyi argued that pre-industrial economies were deeply embedded in social relationships. He documented how land, labor, and money – essential for market functioning – were historically treated as something other than commodities, their allocation governed by social norms and political considerations rather than purely economic calculations. This embedding, he claimed, prevented the self-regulating market from fully taking hold. The rise of market society in the 19th century, an attempt to disembed the economy, resulted in profound social dislocations, ultimately fueling political and economic crises. Polanyi's work emerged amidst the wreckage of World War II and the rise of totalitarian regimes, asking uncomfortable questions about the consequences of prioritizing economic efficiency above all else.
The impact of embeddedness has been profound. Sociologists like Mark Granovetter, building on Polanyi's insights, demonstrated how even modern economic transactions are shaped by social networks and trust, refuting the idea of atomized actors making purely rational choices. The concept continues to evolve, influencing analyses of globalization, financial markets, and institutional change itself. Does the digital realm represent a new form of disembedding, or are online interactions simply reshaping the nature of social embeddedness? Is globalization leading to a universal convergence, or are local cultures and institutions reasserting themselves, re-embedding economic activity in distinctive ways?
Embeddedness serves as a powerful lens for understanding economic phenomena, urging us to look beyond narrow economic models and consider the broader social and political context. It has become a core tenet of economic sociology – a reminder that the economy is not a separate sphere, but an integral part of society, deeply influenced by values, power, and history. What new understandings might emerge if we truly grasp the full extent of this embeddedness?