Summary Behaviour, Society and Economy (Bridging program / Master of business administration)
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Course
Behaviour, Society and Economy (HSA12A)
Institution
Katholieke Universiteit Leuven (KU Leuven)
This document encompasses the entire class of Behaviour, Society and Economy taught in the bridging program of the master of business administration of KU Leuven at the Brussels campus.
Chapter 1. Economic action and economic institutions
What is economic action?
Economy: production and distribution of resources
Economics usually performs a double reduction, by which economic activity is equated to:
1. Actions in a market economy: Transactions that happen on a market (softdrinks, financial
products, phones, …)
2. Instrumental-rational actions: Economists assume people think rationally of how they want to
achieve their goals.
Criticism: there are many other forms of action and institutions who are 'economic' too that are not
organized in a market like way. The only question is, are they important enough to care for them.
Examples of ‘other’ economic institutions:
Domestic food culture: Your wife cooking for you.
Santa Claus / Saint Nicholas
Volunteering
Donations
Invitations to parties or dinner
All these examples illustrate that distribution and production can be (partially) driven by
alternative coordination mechanisms than the market
Elaborated most consistently criticism by Karl Polanyi in his contradiction between formal and
substantive approaches of the economy
Polanyi
According to Polanyi economics generalizes too much from the 'here and now' (myopia):
assumption of utility maximization in a market economy
Reducing anything economic to market transactions Formal approach
He calls this a recent invention.
Market transactions have always existed, but alongside or even subordinate to other
economic institutions substantive approach
Ideal-typically, there are three forms of coordination: exchange, reciprocity, and
redistribution
, 1. Exchange: Transactions in a market
Example: buying a bottle of water. I satisfy my thirst and the buyer receives monetary value.
The exchange of one scarce resource for another (in our society often money).
2. Reciprocity: mutual obligations
Example: Birthday gifts. Someone buys you a birthday gift so next time when its their birthday, you
will feel like you need to reciprocate that gesture by giving a gift back.
Par excellence: the coordination mechanism of primary relationships, especially in an economic
sense. Being in a primary relationship means that most of these relationships will be based on
reciprocity.
Implies that these reciprocal institutions coordinate with market relationships. You usually buy
gifts so you interact with the market and then bring it to reciprocity by gifting it.
3. Redistribution: movement of resources to the centre and back
Example: Taxes. But does not always have to be a compulsory form of redistribution.
horizontal redistribution (insurance principle). Redistribution at the same wealth level like
with and insurance.
vertical redistribution can go both ways redistributive (more equality) and regressive (After
taxation, the inequality is higher). Vertical redistribution is redistribution of wealth between
the rich and the poor.
Enclave: geographic concentration of ethnic enterprises in an enclave.
Etnic economy: A group of people that have strong economic relations, stronger than with outsiders.
These people are grouped together because of their etnicity, relegion, etc. For example chinatown.
An enclave economy
Most visible part is retail, usually run by family companies (in our case: grocery stores, tea
houses, hairdressers, ...)
Around this core: wider network of circulation of goods and services (credit, advice,
mediation, charity, direct mutual support,…)
Characteristics
Most important distinction with the mainstream economy: strong integration of economic
activities in the community
'Favours' (reciprocal), charity (redistributive), and exchange are constantly mixed up
Distinction is not always clear for the participants
May also be part of strategic and instrumental action
For instance: being on the receiving side of a gift relationship makes you ‘owing’
,Economic action is embedded in the social
Embeddedness: It points to the idea that something is taken up in a broader set of logics and laws. It
mean it is part of a bigger whole. Comes from Polanyi’s theory.
The economy is part of other social institutions like politics, religion, etc.
Polanyi argued that the modernization of the economy has caused the economy to be more
detached from society.
Two legitimate criticisms of Polanyi's concept:
1. Pre-capitalist economies are embedded: judgment is a priori (criticism Mark
Granovetter). This was naïve to think as you don’t know this if you haven’t studied these
societies.
2. Embedding of the economy in society, reverse is also possible. What happens in
the economy also affects the rest of society. So we can also say that politics etc are also
just as embedded in the economy the same way it is reverse.
Definition of embeddedness: the intertwining between the constitution of society and the economic
system.
This definition suggests that embeddedness is multidimensional
An oft quoted classification distinguishes between four dimensions
1. Cognitive embeddedness: Systematic bias of agents (cf. experiments in behavioural economics)
and definitions of the situation. The way people make decisions, the heuristics they use to make
decisions, make economic actions, etc.
2. Normative embeddedness: Situations and interactions are expected or disapproved of. What
people think is the right and moral thing to do.
3. Structural embeddedness: Relational networks, structure of society How people are connected
with each other. Who do you know, how are you connected, trust/distrust, etc.
4. Political embeddedness: Effects of power distribution, ‘politics’ in the broad sense Differences
in power, equality in power, distribution of power, monopolys, oligopolies, etc. This all has an effect.
Economic structures as a historical product
You cannot understand a society if you do not know how this society or ecomomy became what it
is today or where it came from.
Sociology leans more on the historicising approach than the science of economics
Base model: Thomas Malthus (1766-1834)
, 1. Malthusian law: Demographic thesis: The reproductive impulse (sexual drive) of people leads to
an exponential population growth.
2. Malthusian trap:
The growth of the food supply can never keep pace with
the population growth if nothing keeps it at bay. Food
supply grows linearly
This creates a gap. Gap is sealed in time through so-
called ‘positive checks’: hunger, epidemics,…
Applicable to Palaeolithic (hunters & gatherers) societies: tendency to subsistence (welfare level at
survival level only)
Sahlins’ theory of the ‘original affluent society’ argues against this conjecture
Material needs were easily fulfilled because Palaeolithic man had:
Limited needs, and expectations. What they expected to be a rich life was way more basic
than our expectations today.
They had multiple ways of keeping their population at a survival level only. An implicit
limitation of demographic growth, due to the absolute necessity of mobility. It was a
necessity to not grow to fast since they need to move constantly and also need to be able to
take care of their children. Children restricts mobility. (1 child is still possible to carry but
more becomes harder and harder).
Sahlins does not say that Palaeolithic man led the ‘good life’
Rather: limited needs allowed for the fulfilment: “Want not, lack not”
Summarizing:
1. Low standard of living, but largely exceeding survival
2. Succeed in the realization of even surpass these goals with limited effort
3. absolute requirement of mobility limits demograp
Central lessons:
1. ‘Lack’ is the ratio of fulfilment to human needs; both are variable
2. Neolithic is a double ‘revolution’:
Technology: A change in the fulfilment of needs (from H-G to agriculture)
Individual: A change in the internalized needs of people.
Chapter 2: Capitalism as economic organization
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