Market and society: how do they relate, and how do they contribute to welfare?

Author:Dolfsma, Wilfred

The relationship between market and society is a hotly debated issue in the social sciences. At the level of theory, this discourse dates back to considerations of social order in which Thomas Hobbes, Adam Smith, and David Hume were among the most important early contributors. The discussion has considerable ideological overtones as well, where the contribution of the market to welfare and well-being is at stake. Welfare is usually conceptualized in material terms, and we surmise that both market and society can contribute to welfare and well-being. There are spheres outside of the domain of the market that contribute to well-being, and a certain accomplishment in the market can contribute to well-being that is not captured in welfare. In this paper we do not deny that. We conceptualize the relation between market and society, focusing more specifically on periods of reform. Reforms in the health care sector are a case in point.

Expanding and Purifying Markets

Views on how market and society relate to each other may be classified according to figures 1 through 3. There are three broad ways in which to perceive the relation between the two spheres. First is to see market(s) and society as two separate realms (figure 1). Obviously, the neoclassical economic view, specifically the Walrasian approach, is an example of this. (1) Market and society remain separate at all times. Indeed, the view of the market one finds in this literature is a highly abstract one--markets are "conjured up," as Frank Hahn expresses it--and the realistic nature of it might be questioned. As the market encroaches on society, a sense of alienation in the sense of Karl Marx might start--for some at least. This may be due to the differences in what motivates people in the two spheres, how they view the world in different terms when perceiving of themselves in one sphere or the other (van Staveren 2001; Le Grand 2003). Another view captured in figure 1 is the one Talcott Parsons and Neil Smelser (1956) presented on the relation between market(s) and society. They argued that distinct markets (nota bene: plural) emerge at the boundaries between different spheres, such as polity and other subspheres in society, effectively insulating these spheres from one another (Finch 2004).


The second way in which to conceptualize the market in relation to society is probably best associated with the works of Karl Polanyi (1944) and Mark Granovetter (1985). The market is perceived as thoroughly and necessarily embedded in society at large, including in such institutions as money and the firm. Growth of the market domain may be interpreted as an increasing ellipse within the wider social boundary depicted in figure 2. A growing market interacts with society, and the two change in the process, even when, conceptually, the market has generalized traits (Rosenbaum 2000). Establishing the effects of a growing market on society is not unambiguous. Indeed, drawing the boundaries between market and society is haphazard, as social and institutional economists acknowledge (Waller 2004; Dolfsma and Dannreuther 2003). Thus, the effects of expanding markets are not so clear cut, even when usually the increase in material welfare may be obvious. Institutional and social economists would then, however, ask: at what cost? As society changes due to a growing market, comparing the situation that has arisen with the previous one will be complicated. Certainly doing so in Pareto welfare terms is impossible as his framework entails the view of the relation between market and society as separate realms, such as depicted in figure 1. (2)


The perspective underlying the Keynesian welfare state views the market as part of and regulated according to dominant social or societal values such as norms of distributive justice (O'Hara 2000; Fine 2002)--as in figure 2. The process of liberalization and privatization ("reform") boils down to an attenuated role for the state, certainly in terms of distributive justice, and there is a shift in values toward those centering on the individual and toward negative freedom. The state is viewed in such a perspective as a force of coercion, whereas the market is viewed as the domain of freedom (van Staveren 2001).

Alternatively, the market may be perceived not as a pure entity but as heterogeneous (Hodgson 1999). (3) Figure 3 clearly relaxes the Parsons-Robbins boundaries between the economic and social domains by arguing that nonmarket elements need to be present in a market context in order for the market system to function. Such "societal" elements would not emerge from within the market, nor does this mean that society is completely subordinated or eclipsed by the market. This view strongly hinges on how one defines a market and seems to entail a strict definition consistent with a "contractual" view, where market-type relations between agents are presumed to be ubiquitous (Hodgson 1999). (4) Growth of the market in this view is of a different nature from that for the previous two views. The argument is not just about how concrete markets impinge on other domains in society but on how market-like thinking expands into other domains with their associated ways of thinking and perceiving. Such an expansion, Geoffrey Hodgson and others argue, may occur but can never completely eclipse all elements of "society" within the market without jeopardizing itself. Even when...

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