**2. Theoretical foundations of economic sociology**

Today, the most important task is to bring individuals together with social structure, particularly in economic fields. My point of view is that this can be done by using a sociological approach that provides arguments about why certain social factors become important for individual actions in economic fields. In this way, explanatory relevance of social facts in the economy can be shown and explanations and analyses of economic phenomena can hence be improved. For me, the classical sociological concept of social institutions in the sense of shared social expectations is such an instrument because it claims that on the one hand individual actions need and sometimes create institutional framing in order to achieve intended structural effects; therefore the question is, under which circumstances such institutions come into being (see paragraph two). On the other hand, it can be argued that there are not only intended but also unintended economic and social effects. This means the main task for economic sociology would be to explain to which extent the particular institutions generated in the modern capitalistic economy – especially means-end rationality, markets, and large firms – come into being as a result of social processes (see paragraph three). Furthermore, economic sociology deals a lot with the question of why and how social institutions like trust, tradition, family networks, etc. affect economic life by enabling and stabilizing economic actions and relations in markets and in firms. New Institutionalism, on the other side, is concerned with focusing social expectations generally and bridging social and economic institutions by explaining how social institutions affect the economy and how the economy is changing social institutions. Using the notion of *institutions* firstly allows focusing on the relationship between society and economy by showing how social institutions matter in the economy and secondly to take the relationship between economy and society into account by analyzing how main economic institutions and processes change or stabilize social action and institutions. In doing so, economic sociology can be linked to New Institutionalism, and social factors enter the economic stage. This means that our analyses of economic and social institutions are superior to those of standard economic theory and functionalistic sociology by showing when social institutions matter in the economy and when economic factors matter in society. Concerning this, standard economic theory can be seen as only a special case analysis of a general social issue.

#### **2.1 Main challenges**

There are three main challenges for economic sociology today. Firstly, economic sociology needs to explain economic structures or processes by taking into account social factors,

integrate 'social institutions' like hierarchies, trust, social capital, etc. into the economic approach (see Williamson, 1985; North, 1990). Whereas the two 'new-comers' in sociology – New Institutionalism and New Economic Sociology – are still missing an integrating theoretical frame that would help to build up explanations that link individual actors and social structure in order to explain main economic phenomena or economically relevant phenomena like religious communities, trade unions, arts, etc. Today, there is great need for a linkage between assumptions on the micro level and on the macro level in order to explain social factors as a result of individual actions in social contexts. Hence, it is necessary to widen our models of economics and to show when and why social institutions matter in

Today, the most important task is to bring individuals together with social structure, particularly in economic fields. My point of view is that this can be done by using a sociological approach that provides arguments about why certain social factors become important for individual actions in economic fields. In this way, explanatory relevance of social facts in the economy can be shown and explanations and analyses of economic phenomena can hence be improved. For me, the classical sociological concept of social institutions in the sense of shared social expectations is such an instrument because it claims that on the one hand individual actions need and sometimes create institutional framing in order to achieve intended structural effects; therefore the question is, under which circumstances such institutions come into being (see paragraph two). On the other hand, it can be argued that there are not only intended but also unintended economic and social effects. This means the main task for economic sociology would be to explain to which extent the particular institutions generated in the modern capitalistic economy – especially means-end rationality, markets, and large firms – come into being as a result of social processes (see paragraph three). Furthermore, economic sociology deals a lot with the question of why and how social institutions like trust, tradition, family networks, etc. affect economic life by enabling and stabilizing economic actions and relations in markets and in firms. New Institutionalism, on the other side, is concerned with focusing social expectations generally and bridging social and economic institutions by explaining how social institutions affect the economy and how the economy is changing social institutions. Using the notion of *institutions* firstly allows focusing on the relationship between society and economy by showing how social institutions matter in the economy and secondly to take the relationship between economy and society into account by analyzing how main economic institutions and processes change or stabilize social action and institutions. In doing so, economic sociology can be linked to New Institutionalism, and social factors enter the economic stage. This means that our analyses of economic and social institutions are superior to those of standard economic theory and functionalistic sociology by showing when social institutions matter in the economy and when economic factors matter in society. Concerning this, standard economic

economic life and how this reproduces the social world.

**2. Theoretical foundations of economic sociology** 

theory can be seen as only a special case analysis of a general social issue.

There are three main challenges for economic sociology today. Firstly, economic sociology needs to explain economic structures or processes by taking into account social factors,

**2.1 Main challenges** 

especially social institutions. This responds in two ways to New Economic Sociology outlined in the US in the 1980s that claims in contrary to economic theory that social relations (social capital, trust, norms), hierarchy, and networks are important for economic action. Secondly, economic sociology needs to show why particular institutions come into being in modern economy, not only as a result of direct rational invention, but also as a matter of social action. Therefore, it is helpful to start with the general assumption of uncertainty; but in order to provide more precise explanations and analyses of main economic institutions, it is also important to develop and use more realistic and problemfocused models of social action in economy. Instead, economic institutions have to be explained by the individual's need for (one-sided as well as mutual) social expectations. This helps us to ask why and when individuals try to establish institutions and what problems arise in doing so. Furthermore, this provides a criterion for the extent to which particular institutions help to frame individual actions as well as social relations in the economic field by supporting exchange, defining prices or markets, legitimating organizational structures, etc. Summarizing, economic sociology on the one hand should explain why and how particular economic institutions or institutional settings like markets, large firms, money, etc. come into being and are maintained by individuals in economic fields (North, 1977; Trigilia, 2002). On the other hand, sociological (institution) theories need to show how economic actions reproduce general social institutions like rationality, time, common knowledge, patterns of legitimation, organizational forms, etc. (Carruthers & Espeland, 1991; Dimaggio, 1994; Fligstein, 2005; Nee, 2005). Analyses of social as well as economic institutions in the economic field are more relevant to economic-sociology. Whereas analyses of how economic action influences social institutions like cultural symbols and rituals are more important to New Sociological Institutionalism. But both come together within an approach that tries to link individual actions and social structures by explaining and analyzing social institutions in the sense of social expectations that support social actions in economy.

Last but not least, to prevent the failures of both neo-classical economics and classical sociology and for adopting the claim of economic sociology to focus on social factors in economic life, to me, the most important aspect is to firstly look upon social situations with regard to the individuals, so we can see why particular social factors become relevant; and then with regard to the social side-effects that are – intendedly and unintendedly – produced. Economic sociology needs a theoretical framework or foundation that gives good methodological arguments for connecting individual actions and structure. The notion of social institutions in the broader sense of shared social expectations provides such a linkage. Today, multi-level explanations that have improved and become more common since the 1980s provide an elaborate methodological framework for bridging individual actions, social institutions, and structure. The general aim is to provide a theoretical-oriented way of bridging micro and macro theories and therefore connect both levels of analyses in all social sciences (Coleman, 1986; Alexander et al., 1987). Hence, I will argue that multi-level explanations are a useful method for economic sociology as well because it needs to be founded on an action theory that provides a connection between individuals and social structure by showing why certain social aspects become relevant for individuals in their social, political, and economic actions. The common issue is that the linkage is founded on the assumption of intentional individuals that scan their social world as an action frame. That means that social institutions as well as cultural beliefs or scarce material resources are relevant for economic action in general (Maurer & Schmid, 2010).

Economic Sociology: Bringing Back Social Factors 81

rationality and an ethically framed situation in order to explain the typical actions by members of Protestant sects. Therefore, Weber explained the overcoming of traditional economy by modern rational capitalism mainly as a result of value-oriented individual

Modern economic institutions and structural elements can therefore be regarded as much as a topic for sociologists as for economists because of their social foundations in specific

However, in his work, Max Weber primarily addresses the problem of social order explored as general need for social expectations when individuals act with regard to one another and try to realize certain intentions. As is known, Max Weber claimed to start sociological explanations by focusing on individuals and their reflected and rational intentions (Swedberg, 1998; Norkus, 2001). This is where the social context comes in – both as a restriction structure as well as an opportunity structure. Following Weber, the most important aspect of the social world is the existence of socially related individuals. That is why he asked how individuals are able to build up stable social relationships in a complex social world. Because of the complexity of the world and the various motives of individuals, social actions and social relationships need to be grounded in reasonable

According to Weber, such social expectations get an objective chance only if they are framed by general rules – not only by interests or habits – that are acknowledged as legitimate by the individuals. In that case, there is a reasonable chance that everybody will orientate on

General rules or a social order become legitimate because of three ideal-type beliefs. Firstly, legitimacy can occur due to a belief in the formal correctness of an order or of the process of defining it. Secondly, it can occur due to the belief in the sanctity of tradition. Thirdly, it can occur due to the belief in the extraordinary skills of the ruler (Weber, 1985: 124 ff). What is important to see is that Weber did not explain the objective chance with direct reference to individual interests, although it is assumed that a legitimate order responds to general interests. A very important point for Weber is that a legitimate end-oriented order, especially when guaranteed by bureaucratic staff, enables groups of individuals to act in a coordinated manner, and moreover, to build up stable organizations in social, political, and

The assumption of a collective principle of legitimacy implies that the ruled ones as much as the staff "normally" follow the order without reference to concrete individual interests or social interdependencies. In fact, this only allows us to interpret formal organizations like businesses as a formal institution providing coordination in every field and offering only

The well-known thesis of Max Weber that bureaucratic organizations like the modern business firm are the most rational form of coordination and therefore unavoidable in modern life is due to the assumption of a given collective validation. Ignoring organizations' tendency of threatening individual interests, Weber also did not examine problems of functioning and maintaining hierarchical institutions either in social or economic fields.

positive results, that means they are seen free of negative or unintended by-products.

economic surroundings that allow an ongoing, rational coordination of actions.

actions in a *specific institutional setting*.

them and can normally expect others to do the same.

religious ideas.

social expectations.
