Monsieur Michael Piore

Economics and Sociology

In: Revue conomique. Volume 53, n2, 2002. pp. 291-300.

Citer ce document / Cite this document : Piore Michael. Economics and Sociology. In: Revue conomique. Volume 53, n2, 2002. pp. 291-300. http://www.persee.fr/web/revues/home/prescript/article/reco_0035-2764_2002_num_53_2_410406

Abstract Economies and Sociology This paper explores the potential of sociology to fill certain gaps in economic theory. It examines in particular its capacity to explain: 1) the institutional supports required to make a competitive market work; and, 2) the limits of the assumption of rational choice behavior. The dominant sociological approach to problems of this kind is to postulate the existence of different social realms, but it does not have a strong theory of how these realms corne into existence and how their boundaries corne to be defined. Its failure to provide such a theory is particularly limiting because the salient characteristic of the period in which we are living is fluidity of boundaries, the boundaries of the firm and the family no less than the boundaries between the economie and social realms themselves. The paper concludes with suggestions for how a theory of boundary formation could be built around a notion of "interpretation" as a mode of human behavior distinct from rational choice but co-existing with it. Rsum Economie et sociologie Cet article tudie les apports potentiels de la sociologie pour combler certaines lacunes de la thorie conomique. Il examine en particulier sa capacit expliquer : 1) les supports institutionnels ncessaires au fonctionnement d'une conomie de marchs concurrentiels ; et 2) les limites de l'hypothse de rationali dans les comportements de choix. L'approche sociologique dominante de ce type de problmes consiste postuler l'existence de sphres sociales diffrentes, mais elle ne dispose pas d'une thorie solide de la faon dont ces sphres se constituent et dont se dfinissent leurs frontires. Cette absence est d'autant plus dommageable qu'une caractristique frappante de la priode actuelle est la fluidit des frontires, qu'il s'agisse des frontires entre l'entreprise et la vie prive ou entre les sphres co-nomiques et sociales elles-mmes. En conclusion, l'article indique comment on pourrait construire une thorie de la formation de ces frontires autour d'une notion d' interprtation , en tant que mode de comportement humain distinct du choix rationnel mais co-existant avec celui-ci.

Economics and Sociology

Michael Piore

This paper explores the potential of sociology to fill certain gaps in economic theory It examines in particular its capacity to explain the institutional supports required to make competitive market work and the limits of the assumption of rational choice behavior The dominant sociological approach to problems of this kind is to postulate the existence of different social realms but it does not have strong theory of how these realms come into existence and how their boundaries come to be defined Its failure to provide such theory is particularly limiting be cause the salient characteristic of the period in which we are living is fluidity of boundaries the boundaries of the firm and the family no less than the boundaries between the economic and social realms themselves The paper concludes with suggestions for how theory of boundary formation could be built around notion of interpretation as mode of human behavior distinct from rational choice but co-existing with it ECONOMIE ET SOCIOLOGIE Cet article tudie les apports potentiels de la sociologie pour combler certaines lacunes de la thorie conomique Il examine en particulier sa capacit expliquer les supports institutionnels ncessaires au fonctionnement une conomie de marchs concurrentiels et les limites de hypothse de rationali dans les com portements de choix approche sociologique dominante de ce type de problmes consiste postuler existence de sphres sociales diffrentes mais elle ne dispose pas une thorie solide de la fa on dont ces sphres se constituent et dont se dfinissent leurs frontires Cette absence est autant plus dommageable une caractristique frappante de la priode actuelle est la fluidit des frontires il agisse des frontires entre entreprise et la vie prive ou entre les sphres co nomiques et sociales elles-mmes En conclusion article indique comment on pourrait construire une thorie de la formation de ces frontires autour une notion interprtation en tant que mode de comportement humain distinct du choix rationnel mais co-existant avec celui-ci Classification JEL:M2 B20 B40

Ibis paper explores some aspects of the relationship between economics and sociology That relationship is obviously very complex focus in particular on the issues that are most important in my current research and which link to the concerns of other members of the panel brief introductory remark about where am coming from write from the perspective of an economist albeit one frequently mistaken for sociologist

Massachusetts Institute of Technology Department of Economics 50 Memorial Drive Cambridge MA G2142 297 Revue conomique vol 53 mars 2002 291-300

Revue conomique For that reason it seems important to stress that have no formal training as sociologist nor have systematically read the literature of sociology or for that matter any other social science discipline Basically am scavenger in the other social sciences scavenging for material to correct an understanding of the world that is still fundamentally sometimes think hopelessly shaped by economics did nonetheless once consider studying sociology What attracted me to economics instead was its offer of coherent theory and its policy ori entation It tries to speak to problems of society and to do so in disciplined and reasoned way None of the other social sciences appeared to offer anything like the coherence or relevance of economics For me this continues to be true And think it is fair to say that economics has become the starting point for social inquiry not only for me but also increasingly for all of us Of course it makes the stakes much higher and the errors much more costly or if you like the sins much greater)

What Is Economics Standard economics is basically built around two stories One is story about individual behavior for which we now use the short-hand term rational choice The other is story about the arms-length interaction of individuals com petitive marketplace At their best the two stories interact and sustain each other This is the case for example in the theory of the firm where rational choice is imposed by the pressures of competitive market When the stories are sepa rated they are good deal less compelling in the theory of consumer behavior rational choice is an assumption At its most elegant however conventional economics becomes story about the construction of society an elegant and sophisticated story in the sense that an economy is no mere aggregation of individuals the whole is greater than the sum of its parts

What Is Wrong with Economics Standard economics is subject of course to many criticisms My own par ticular problems with it however are twofold First the behavior of the actors which it assumes is not consistent with the way in which they actually think about the world in which they live and conceive of their own actions My sense of the gap between the two grows out of my own research which has focused on interviews with economic actors Piore 1979 The gap between the assump tions of economics and the actual behavior of the actors is of course the subject of an enormous methodological literature which argues that it is by no means necessary for them to coincide Friedman 1953 Machlup 1991 But the dif ference has always made me extremely uncomfortable especially in policy science just have no confidence in prescribing for the ills of the world from theory in which cannot recognize the actors as know them and in which the actors cannot recognize themselves My second problem with standard economics is the story about the human endeavor which find impoverishing 292 Revue conomique vol 53 mars 2002 291-300

Michael Piore and ultimately morally suspect Again this is not basically scientific argument but it is important in policy science Hirschman 1992 Etzioni 1991 Sen 1987)

How Might One Fix Economics The basic stones which define contemporary economics are open or incom plete at senes of quite specific points These are the natural points of entry for those seeking to refine or amend the discipline The story about how people interact in the market is incomplete in the sense that it does not tell us what kind of institutional supports are required to make competitive market work in the first place The identification of those supports and where they might come from is one obvious point of entry second point of entry from this perspective is the identification of alternative institutional regimes that emerge in the absence of market and the characterization of behavior under those regimes The other approach to amending conventional economic theory focuses on the model of individual behavior i.e. rational choice This model understands behavior as senes of purposive acts each of which is the outcome of deliberate calculation hi the calculation the individual makes sharp distinc tion between means or resources) goals or ends) and set of causal models which transform the former into the latter Acts of behavior are the solution of the causal models which maximize the ends given the means This formulation leaves open the questions of from where come the ends the means and the causal models These are not questions to which all economists feel called upon to make response Most of the work of the discipline proceeds within the standard frame work But in my experience virtually all economists have in the back of their minds some idea about how such response would be constructed In general the responses that economists contemplate are of two types On the one hand are answers rooted in the biological nature of man socio-biology hedonic pricing hierarchy of need and the like Behavioral economics tends to fall into this category as well The other roots the answers within social processes Economists tend to be divided almost by temperament in terms of which of the types they find attractive definitely am of the type temperament as are think most of the members of this panel When one looks for the answers in social processes one turns to sociology

What Does Sociology Have to Offer When one does so what does one find Here mink the dominant approach of sociology has been to think of social activity as divided into different realms and to develop an answer based on this notion of realms Most of these theories postulate different realms of behavior but they could as well be different sets of constraints upon rational behavior or different realms of goals or different realms of the understandings which relate means to ends 293 Revue conomique vol 53 mars 2002 291-300

Revue conomique The most forceful and convincing development of theory of this kind is that of Max Weber Weber 1958 In Ms view the emergence of modem capitalism was dependent upon the carving out of domain of business activity separate and distinct from the household and the family and governed by the principles of scientific rationality double-entry bookkeeping and adherence to long-term contracts This idea is very different it should be noted from the idea that rationality is imposed institutionally although suppose one interpretation of the shift from the Protestant Ethic in early capitalism to the Iron Cage in late capitalism is that what starts out as an ideological distinction becomes institu tionalized The notion of distinct realms of behavior appears again in Parsons Parsons 1964 and in Bell Bell 1976) and it appears again but in rather different form in Thevenot and cites Boltanski and Thevenot 1987) If one takes the admittedly less than fully scientific approach of evaluating such theories against the conceptions of the economic actors as they emerge in open-ended interviews this notion of different models of behavior has an enor mous appeal have recently been studying the impact of the opening to trade in Mexico on traditional industries and it is clear there that one of the greatest obstacles to adjustment in Mexico is the incomplete separation of the household and the business firm The notion of different moralities governing the work place is also helpful here it is easy to understand the degradation of labor standards in terms of familial morality in workplace increasingly operating in competitive environment where the familial morality cannot be sustained but where there is no other articulated alternative toward which to move Piore 2000) similar approach is involved in filling in the specific elements the means the ends and the causal relationships that are required to complete the rational choice models in any particular case But here the ethos of economics is at odds with the ethos of sociology even if the two disciplines are not in conflict at purely logical level Take identity for example concept which has become so central to modem discourse that even economists among whom include my self have been drawn into attempting to make some sense out of it and we have of course tried to do so in terms of rational choice Our models however tend either to interpret identity as affecting the goals that an individual attempts to achieve Akeriof and Kranton 2000 or the means available to achieve them Lazear 1999 In the second case it is choice variable i.e. an instrument In principle there is third possibility identity might affect the way we understand the operation of the world and hence the theories or causal models which we use to translate means into ends hi sociology it would be natural also to think of identity as encompassing all three of these dimensions of the rational choice problem of giving us at once the means the ends and the understandings that guide our behavior in the world It is as if people with different identities are drawn from different social realms Piore 1995 This view of identity is not logically inconsistent with rational choice as behavior model But the rational choice model loses all interest as way of predicting behavioral outcomes since outcomes are now completely determined by identity and the process that gen erates it

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Michael Piore What Is Wrong with the Sociological Approach The basic problem in understanding behavior in terms of distinct realms is that the sociological theories that are built around such realms are not very helpful in explaining where the realms come from and how their boundaries evolve over time When began my research career in the doing the interviews in large firms which later became the basis for my work on the internal labor market the notion of well bounded realms with different norms of behavior was fundamental principle of both organizational theory and business practice The firm was governed internally by rules very different from those that governed the external labor market each firm had its distinct culture even particular units of the firm operated as separate realm of behavior striking characteristic of the new economy some ways the most striking characteristic is the way the boundaries that separated these different realms have broken down again both organizational theory and in practice People no longer expect to live out their work lives within single organizational entity The lines of authority within organizations have been blurred by matrix management by project teams and by the reduction of in-process inventories all of which force interaction across organizational borders Similar organizational and adminis trative forms the push toward core competencies strategic alliances crosscompany teams the Kan-Ban system have blurred the boundaries between organizations Analytically we have tried to capture these changes in the idea of the network organization Boltanski and Chiapello 1999 Piore 1994 will not belabor that point since it has been stressed by Luc Boltanski who is also on this panel But would suggest that bis solution is essentially to identify new realm one in which the behavior of the actors or the parameters of the rational choice problem which they attempt to solve is distinct from that of other realms network is like firm in the sense that it is behavioral realm different from that defined by the borders of the firm and different as well from that defined by the borders of the market The jump to networks in this sense however poses two problems One is whether we actually are witnessing the emergence of new realm or simply are living through transitional period in which borders are extremely fluid The difference is critical because if we think that what is going on is the former we need dynamic theory one which tells us how new realms emerge and how their borders shift over time So to say simply that the network is space like the firm but with different set of behavioral parameters is not enough of theory to help us understand the world in which we are living Second at least in the United States the breakdown of the boundaries is not confined to the business enterprise but is much more general phenomenon so general in fact that one wonders whether the emphasis on networks in the literature is the right way to understand what is happening To suggest the magnitude of these effects the enormous increase in female labor force partici pation has broken down both the old boundary between the household and the firm and the construction in which the household was represented in the labor market by dominant usually male wage earner In that old construction conflicts between the social and the economic realm were resolved through workers salaries and negotiations about the social conditions of the workplace and we made sharp distinction between economic and social policy In the new 295 Revue conomique vol 53 mars 2002 291-300

Revue conomique construction the workplace becomes an explicit domain in the politics of social policy ranging from and minorities rights to family policy Identity groups based on race ethnicity sex and sexual orientation compete for adher ence the workplace with trade unions The way in which the categories of issues raised in the workplace has expanded is underscored by the demand of one black manager in such group want to be able to walk from my office to the room without the white women that pass clutching their pocketbooks. Even in Mexico where emphasis on the distinction between the household and the business seems so insightful the policy problem is one of how to help Mexico adjust to an environment where the prevailing boundaries and distinct moral systems whose jurisdictions they demarcated are no longer viable Sociology can at best say what the alternative domains are likely to be it does not offer much in the way of advice as to how to move between them

Overcoming the Limits of Theory of Interpretation

Theory of Social Realms Toward

The generality of this problem suggests to me that to make progress in understanding the world in which we seem to be living we need to have theory of how the realms into which sociology wants to think the world divides emerge in the first place and how their borders evolve over time Or if one wants to focus more narrowly on networks as the dominant organizational form of our times one needs theory of how the actors in the network interact with each other how that internal interaction differs from the way they interact with those outside and how the boundary between the inside and the outside emerges and shifts over time

Border Processes How does one think about this problem Again one can identify several basic approaches One that is very much in the spirit of standard economics is to extend the existing model of rational choice Much of the work on uncertainty and in game theory is of this kind different but related activity is to see the realms of the economy as emerging out of the realms of politics or society but to see those realms too as governed by rational choice decision-making in other words to assimilate all behavior into economic behavior This is the thrust of Gary work Becker 1976 It may work for organizations that are well-defined entities which emerge at moment of time It seems less suited to an understanding of organizations like networks which seem to evolve in continuous way and whose borders are fluid third approach is to modify the terms of rational choice itself see bounded rationality as an endeavor of this kind am attracted to fourth approach That approach is to preserve rational choice as one mode of behavior but to postulate second mode different from rational choice But in contrast to the behavioral differences generally postulated 296 Revue conomique vol 53 mars 2002 291-300

Michael Piore in sociology this second mode of behavior is not associated with particular realm Rather it occurs with rational choice in the same domains of human experience The same person might engage both types of behavior one along side the other even at the very same time But the two modes of behavior are fundamentally different in kind If rational choice is basically analytical problem-solving the second mode of behavior can be termed interpretation have used the term interpretation to describe the processes that contrast with rational behavior in nave way But also use it with deliberation to link that behavior process to variety of scholarly literatures some of which Boltanski also cites in the paper he prepared for this symposium These literatures are linked to sociology as Boltanski suggests more so perhaps than had hitherto recognized) but they have evolved at the fringes of the established social sci ence disciplines in philosophy among the American pragmatists ethnography linguistics and particularly important in my own thinking in hermeneutics Palmer 1969) What they suggest which is different from rational choice is that the human endeavor is first and foremost about creating meaning about making sense out of the world and that that sense-making is social activity This need not be inconsistent with the narrower individualistic calculus upon which rational choice focuses Indeed one has to have made sense out of the world in order to choose rationally But to return to one of the themes with which started out it seems to capture more of what see as great and noble in the human endeavor What all of these literatures lack and what sociology and economics provide is larger social vision systematic view of how society itself might arise and evolve out of behavior rooted in the process of interpretation Nor do these literatures attempt to speak as economics attempts to speak to issues of public policy Hence there is much to be looked for by harnessing them to these two other disciplines In economics the closest thing to the understanding which might emerge in this way is Henry notion of bounded rationality The debate about the choice between bounded rationality and interpretive theory has already been joined in computer science Winograd and Rores 1987 In economics it is debate yet to be had But that is the subject of another symposium and another paper My commitment to thinking in these terms grows out of series of case studies we conducted at MIT on the process of new product development Piore et al. 1994 The studies were motivated by the attempt to understand the emergent organizational structure to understand networks product is an or ganizational domain in economics it is around products that firms and industries are defined The emergence of new products is very much phenomenon of domain creation Where products are created by combining elements of older products as is the case for example of the cellular telephone which emerged out of the marriage of telephone and radio technologies the new products involve border crossing and domain integration as well Product development turns out to have very much the same flavor as the process through which new identities emerge and evolve over time process which have also been study ing but initially at least for very different reasons In the product development work we relied heavily on interviews with people engaged in this process both in the universities and in business It is 297 Revue conomique vol 53 mars 2002 291-300

Revue conomique these which led me to believe that we should think about it as process that is orthogonal to rationality and needs to be understood in its own terms would make the case for this approach very much in the terms in which began this essay it better reflects the sense of what the actors are doing both the own sense as it emerges in the interviews and our sense in interpreting those interviews The respondents are all clearly familiar with rational choice and much of what they are doing does fit this model relatively well But precisely because rational choice decisions are so prominent in the managerial discourse as it emerges in the interviews it is clear that something else is going on beside classic rational choice Some of the actors see product development as different and distinct from those aspects of business that lend themselves to rational choice decision-making and self-consciously operate in two modes Some busi ness organizations create separate spaces within themselves insulated from the competitive pressures that compel rational choice sufficient number of actors try to squeeze product development into the framework of rational choice so that one can actually see in practice the limits of an approach that tried to stretch the rational choice model to accommodate these other processes and imagine what it would mean to stretch rational choice in social science theory Space permits me only to give you the flavor of the difference between the two approaches In essence the difference revolves around two characteristics Frst in interpretation the distinction between ends means and causal models is blurred and constantly shifting One moves back and forth between what in rational choice one is forced to divide into these three categories and in the process the meaning of each changes Second interpretation is process that occurs in time and is dependent on history whereas rational choice involves the abstraction of problem from time and solution that is independent of time and place Interpretation is critical to product development because product development is inherently dynamic The conception of the product changes continuously over time The product that is actually produced is drawn out of this ongoing process Once drawn out the product is optimized in manner that can be characterized as rational choice But the process of development is ongoing and continuous so that if particular product were to be drawn out of it and optimized at later point it would be different product That ongoing process involves continual interchange be tween the conception of the product which in optimization is the end) con ception of the means available to produce it and an understanding of the way in which means are transformed into ends The understanding of the components of the rational choice problem thus changes or evolves over time in way that is best characterized as an evolution of meaning or to use word which seems more apt interpretation The way in which that evolution takes place is like conversation if the means the ends and the process of transforming the one into the other were each controlled by different person as might be the case in custom construction where there is client an architect and builder one could think of it as conversation among these three actors The process here seems to resemble the process through which language evolves over time and the meaning attached to particular words gradually changes It is social in the way that conversation is social and that language is the medium of human sociability It has the characteristic that is in the spirit of economic theory in that the actors remain distinct individuals and the outcome is the product of their interaction as it is in competitive marketplace But the process is sociological the sense 298 Revue conomique vol 53 mars 2002 291-300

Michael Piore that it is the outcome of the direct interaction of the individuals in social setting as opposed to the arms-length interaction through price signals The understand ing of this process thus appears to imply rather different research agenda than that of the neo-institutionalists since theirs centers around an understanding the structural preconditions for market It is however perhaps this process which creates the institutional constraints that become the framework in which the market operates when indeed it does operate

In Sum Conventional economics provides structured way of thinking about and understanding social processes There are limited but well defined set of points at which the theory itself is incomplete and open Economists divide as to where outside the discipline they look to complete the theory The basic divide is between those who look to biology and psychology and those who look to social processes and sociology The most prominent sociological solution is one that identifies different realms of activity These realms may define the territory in which the rational choice model of economics is the socially sanctioned mode of behavior and the territories in which it is not) they may provide the means ends and causal models that people use to solve the rational choice problem which economists assume determines behavior they may provide the institu tional supports required to make competitive marketplace This sociological approach to completing the economists model poses the questions of where these different realms come from in the first place how new realms might emerge and how individuals cross borders between realms when society is composed of more than one This is general problem but it appears particularly acute in understanding contemporary socio-economic processes we seem to be leaving behind world in which different realms and their frontiers were well-defined and moving into one in which the frontiers are fluid and new realms are emerging The need to understand the underlying processes thus now seems much more important than the identification and characterization of series of distinct realms which has been one of the strengths of sociological theory One way to understand that process is as an extension of rational choice My own research on identity formation and product development leads me instead to think about it as the product of completely different behavioral process That other behavioral process seems best characterized as an ongoing process of interpretation one which is like conversation or more precisely like the evolution of language Rational choice would then be viewed as something which happens by drawing out of the ongoing process of interpretation the parameters of choice the means the ends and causal models and freezing them at given moment of time The interpretative process continues in the back ground The analogy is to the way in which the dictionary and grammar book are drawn out of the ongoing evolution of language and freeze it at moment in time although the language goes on evolving in use 299 Revue conomique vol 53 mars 2002 291-300

Revue conomique REFERENCES AKERLOP George and Rachel KRANTON 2000] Economics and Identity Quarterly Journal of Economics Vol 115 3) 715-53 BECKER Gary 1976] The Economic Approach to Human Behavior Chicago University of Chicago Press BELL Daniel 1976] The Cultural Contradictions of Capitalism New York Basic Books BOLTANSKI Luc and Eve CHIARELLO 1999] Le Nouvel Esprit du Capitalisme Paris Gallimard BOLTANSKI Luc and Laurent TH VENOT 1987] Les conomies de la Grandeur Paris Presses Universitaires de France ETZIONI Amitai 199l] Responsive Society Collected Essays on Guiding Deliberate Social Change San Francisco Jossey-Bass Publishers FRIEDMAN Milton 1953] Essays Positive Economics Chicago University of Chicago Press HIRSCHMAN Albert 1992] Rival Views of Market Society and Other Recent Essays Cambridge MA Harvard University Press LAZEAR Edward 1999] Culture and Language The Journal of Political Economy Vol 107 No Part Symposium on the Economic Analysis of Social Behavior in Honor of Gary Becker S95-S126 MACHLUP Fritz 1991] Economic Semantics New Brunswick NJ Transaction Publish ers PALMER Richard 1969] Hermeneutics Interpretation Theory in Schleiermacher Dilthey Heidegger and Gadamer Evanston 111 Northwestern University Press PARSONS Talcott 1964] Essays in Sociological Theory New York Free Press of Glencoe PIORE Michael 1979] Qualitative Research Techniques in Economics Administrative Science Quarterly Vol 24 4) 560-569 PIORE Michael 1994] Corporate Reform American Manufacturing and the Chal lenge to Economic Theory in Thomas Alien and Michael Scott Morton eds. Information Technology and the Corporation of the New York Oxford 4360 PIORE Micheal 1995] Beyond Individualism Cambridge MA Harvard University Press PIORE Michael 2000] Rethinking International Labor Standards mimeo Department of Economics MIT PIORE Michael Richard LESTER Fred KOPMAN and Krnal LEK 1994] The Orga nization of Product Developments Industrial and Corporate Change Vol 2) 405-434 SEN Amartya 1987] On Ethics and Economics Oxford New York Blackwell WEBER Max 1958] The Protestant Ethic and the Spirit of Capitalism New York Scribner WINOGRAD Terry and Fernando FLORES 1987] Understanding Computers and Cogni tion New Foundation for Design Reading MA Addison-Wesley

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