Collateralized Social Relations: The Social in Economic Calculation

American Journal of Economics and Sociology, The, April, 2001 by Nicole Woolsey Biggart, Richard P. Castanias

Recruiting within a set of social relations allows the employer not only to pass on information that there is an opening in the labor market, but also to implicitly use the peer pressure of the community to guarantee the quality of the laborer and to discipline him or her once on the job. The collateralized social relations of nepotism remain central to employment relations in South Korea's large conglomerates where hiring for common alumni ties and native place origin predominates, especially among managers (Biggart 1990; Field 1995).

Obligation

Social obligations can themselves fuel economic activity. Jonathan Frenzen and Harry Davis's (1990) study of purchasing behavior in home party plan direct selling organizations shows that people can be induced to buy out of feelings of social obligation, not simply for reasons of price or product features. Women invite their friends to Tupperware parties and friendship demands that everyone make a purchase. "Social obligations can make and sustain a market as long as the product surpasses a minimal quality threshold and falls in the expenditure range compatible with prevailing norms of reciprocity.... [I]t appears that markets can be sustained by their widespread use as forums for social as well as economic exchange" (1990, p. 10). The direct selling industry uses this understanding to structure sales and recruitment strategies (Biggart 1989).

Rees (1966) has studied the role of informal information networks in job markets, and finds that information that participants have about each other, particularly informal information, is critical in most hires. In contrast, Cohen (1960) follows traditional neoclassical economics in his textbook of labor economics by comparing job search with stock or commodity markets and notes that "the buyers and sellers, blindfolded by a lack of knowledge, simply grope about until they bump into each other" (Cohen 1960, p. 351). Rees argues that such comparisons are misleading and fail to register the effectiveness of informal relationship-based sources of information such as referrals that contribute to more than half of all hires.

Monitoring

Ongoing social relations allow parties to monitor economic relations. For example, German and Japanese banks and business group firms maintain social ties with executives in firms that they do business with. Although these ties may be carried out in social arenas, as well as business settings, they clearly function to increase the possibility that economically useful information will not be hidden from the lenders and that performance can be monitored. Dore's study of modern Japanese industrial organization traces the pattern of social relations there to pre-capitalist arrangements that are "entirely traditional ... [including] the basic pattern of treating trading relations as particularistic personal relations; second the values and sentiments which sustain the obligations involved; and, third, such things as the pattern of mid-summer and year-end gift exchange which symbolizes recognition of those obligations" (1983, pp. 464-65). Entwining the social with the economic creates multiple opportunities to obse rve and tacitly supervise.