Social structure and how it affects economic growth
- Part 2 -

Rajendra Kshetri *

A segment of a social network :: Pix - Wikipedia / DarwinPeacock

( The following is the full text of two invited Lectures , combined together for purpose of continuity, delivered on 6th January 2014 at the Refresher Course in Economics ( 16th Dec. 2013 – 7th Jan 2014) conducted by the UGC-Academic Staff College, Manipur University ,Canchipur, Imphal).

Sociology of Economic Life/outcomes

The development of sociological analysis/perspectives of economic phenomena/growth/outcomes was a central concern of classical sociologists such as Marx, Weber and Durkheim.

Right from the day of Utilitarianism (the satisfaction of individual wants/needs being the utmost important) in the 19th century, economists have subscribed to individualistic models of action in which individuals maximise their own material interests in a rational manner and where society is seen largely as an aggregation of atomised individuals who are brought together by self-interest.

Marx, Weber and Durkheim reacted against this perspective and asserted the social nature of economic life, and the notion that the economy is an inalienable part of social system.

The sociological aspects/dimension/perspective of Economic growth/phenomena may be better appreciated and hence understood if we take into account the following points.

First, Sociology assumes that economic actors are social entities. Economic actors, for many sociologists, are groups and institutions. Social aspects remains dominant even when economic actors are defined as individuals. This is because individual actors inhabit networks of social relationships with other people who influence them (as I mention earlier) and also because SOCIALISATION affects how actors define themselves. This sociological position contrasts with the primacy given to individuals as economic actors in economics, and the economist's assumption that, when they act as economic agents, individuals are largely unaffected by social ties.

Second, Economic action is, no doubt, meaningful action, but its meaning is socially constructed rather than arising out of the individual. The Process of Social construction is a combination of prior socialization and ongoing social interaction. Sociologists see economic action as embodying POWER, and assume as a consequence that exchange relationships are normally unequal. (While markets may appear to be formally free, in reality market exchanges favour those with Power as Marx and Weber recognised long ago).

Third, it follows that economic action occurs within a social context. Thus economic phenomena cannot be, must not be and should not be explained in terms of the motives of individuals and scarcity of resources, divorced from social structure and culture, as is the tendency in economics.

What obviously follows from the three points stated above is that the economy is part of society and governed by social as well as economic rules.

It is within this sociological paradigm that I now want to share with you how social-structure affects economic outcomes/growth.

Social structure, especially social networks, affects economic outcomes for three (3) main reasons.

First, Social networks affect the flow and the quality of information that has a bearing on economic activities. (The information may be through the close- strong ties and the weak ties, as discussed earlier).

Second, Social networks are an important source of reward and punishment.

Third, 'Trust' (by which I mean the confidence that others will do the 'right' thing) emerges in the context of a social network.

These three reasons are clearly manifested in the fact that much of our social life revolves around non-economic focus. Therefore, when economic and non-economic activities are intermixed, non-economic activity affects the costs and the available techniques for economic activity. A classic example of this, of which we all are too familiar to elaborate, doing the round in our own state Manipur will drive home the point here.

I am referring to the difficulties and the problems faced by the Power Department in its drive to collect revenues from the consumers. The revenue drive is marked by a process of "blame game" between the service providers and the consumers (the service provider blame the consumer for non-payment and the consumer blame the service provider for non supply/irregular supply of power). There is a tremendous amount of "trust-deficit" between the two stake holders which, in turn, results into low economic outcomes.

In one of my papers/articles published elsewhere ("Power crisis in Manipur: Is Social Capital the answer") I have argued that the main reason for this low economic outcome is due to the non-utilization of " Social Capital" that already exists in our social structure. By "Social Capital" I mean those social networks of information, trust, sincerity, shared norms and values and relationships that constitute the core of our social structure. This, in fact, is what I have been addressing this morning, all along, in one way or the other, in one form or another.

My discourse this morning, at this time, place and space is not to criticise or undermine classical, neo-classical and post- modern theories of economic growth (I am hardly qualified to do so – perhaps the select crowd of economists sitting right in front of me are more qualified and better placed to do so) but to reiterate a long-recognised fact, however overlooked by economists, that the sociological aspects of economic growth/outcomes cannot, must not and should not be neglected.

To do so is to miss the wood for the trees.

Thank you

Concluded..