Institutional Economics Needs Interdisciplinary Studies of Social Studies

By Sugiura, Katsumi | Journal of Economic Issues, June 1999 | Go to article overview
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Institutional Economics Needs Interdisciplinary Studies of Social Studies

Sugiura, Katsumi, Journal of Economic Issues

If we interpret the present age from the viewpoint of the opposing ideologies of socialism and capitalism, we reach the conclusions that the Russian type of socialism should be rejected and that relying on capitalism is now impossible. However, we could observe modern history from a somewhat different viewpoint - t e evolution of institutions. Karl Polanyi termed the present economy a "market society" [Polanyi 1957]. Here, social structure embraces strained and sometimes contradictory relations between market and non-market elements. We are now facing a society that is characterized by a mixed market and non-market structure.

Modern economics treats the market economy, which is part of society as a whole, as a self-adjusting system created by homo economicus. This concept of the human being is based upon the modern individual who aims to fulfill his or her own interests by rational means.

Recently, an extreme emphasis on market panaceas has expanded the notion of homo economicus into legal, governmental, and social worlds. Proponents of law and economics, constitutional economics, and the economics of marriage and family regard homo economicus as playing a role in the composition of law, power, and social relations. This means that legal, political, and social relations are interpreted as rational interactions of autonomous individuals.

These branches of economics treat individuals, created by the modern European market economy, as universal. These ideas do not facilitate the accurate understanding of historical developments. We need to make it clear that modern human beings and modern societies have been formed through historical and social processes. This means that homo economicus should be regarded as a historically specific phenomenon.

Karl Marx treated capitalism as a historically specific mode of production and its transformation to communism as a process of both negating and creating social systems. In a Marxian view, the mixed economy is seen as the transitional stage from capitalism to communism. The mixed structure of market and society is not a purely self-sustaining system. However, after the fall of the Union of Soviet Socialist Republics, the mixed structure must be viewed from a different perspective. Polanyi's market society, which involves double movements between market and society, presents a better vision for society. Market society is not a transitional stage, but a system in its own right.(1)

If we think only of the confrontation between market and society in considering the double movements, our view of market society will be imperfect because antagonism between the two has led to new institutions that regulate the confrontation itself. This institutionalization results in market relations being controlled by social institutions for human needs. For instance, consider a case of negotiation concerning a labor contract. Workers usually consult with others about their wages and labor conditions because these are central to their families' lives. The process of negotiation is a natural expression of the workers' way of life, even though the workers' future may be at risk. Workers may naturally unite and cooperate with each other. Trade unions may become a necessary social institution.

Oliver Williamson refers to the difficulty that lies in the process of executing labor contracts [Williamson 1975]. Opposing interests make it difficult to define contracts for markets as they are executed in the labor process. This engenders new workplace institutions such as trade unions, collective bargaining mechanisms, or work rules. These institutions enable both parties to form a labor contract easily and enable markets to permeate into traditional society, possibly resulting in its destruction. However, not all institutions are market institutions. Non-market institutions are created for non-market social needs and regulate the relations between market and society.

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