From ‘self-regulated’ to ‘socially regulated’ markets We introduced above Williamson’s idea of the levels of institutions in which the

From ‘self-regulated’ to ‘socially regulated’ markets We introduced above Williamson’s idea of the levels of institutions in which the

economy operates. In applying them more specifically to markets, we can recog- nize that institutions at all of these levels affect the way transactions are carried out. Hence, we can see that the purchase of a commodity, say rice, in a market depends on many institutions. It depends on how the macroeconomy is operat- ing in terms of inflation, interest rate, exchange rate, etc. The purchase of the rice is also based on the rules that regulate exchange in that particular market (rules may be about the way different varieties and qualities of rice are signalled and labelled). Underlying this, then, are the property rights which indicate that, once payment has been made, exclusive control of the rice passes to the buyer (i.e. the

existence of private property rights over the rice). 2 Finally, the exchange may be affected by who is involved in the transaction and the ability of the buyer or seller to discriminate for or against another person. Thus, we can see that a wide range of institutions affect the way in which the exchange takes place.

That the actors involved might matter in the exchange is not a point main- stream economics generally considers. This goes back to Polanyi’s idea that the economy is embedded in social institutions, and hence that relations such as gender, age, race, ethnicity, class and religion affect the way they work. These are means by which people are often discriminated against and this discrimina- tion therefore affects the way they are able to engage in markets. Even if many countries have legislation that outlaws discrimination on such grounds in all spheres of life, discrimination often remains deeply-rooted in social practices and its specific and long-term effects are often very hard to identify and reverse. One example is labour markets, where women are often paid less for a day’s work than men. This practice can persist despite the existence of equal pay legis- lation. This type of discrimination can be pervasive in markets, as in other areas of social life, because of the multiple ways it affects people’s interactions with one other, without being overt. Hence, as is well known, women’s property rights in marriage are often insecure and are often not recognized at all. This in turn affects their ability to enter financial markets as they may be prevented from using their assets as collateral for loans, for example. This can then affect their ability to develop businesses and compete in the economy.

This has led Harriss-White (2003a, 2004) to identify these forms of embeddedness in markets and to see them as sources of power derived from both social and political influences (e.g. the state). She describes the means through which these influences operate as ‘social regulation’. She argues that social institutions operate both inside the economy to regulate it while also operating outside it in other domains of social life. As she points out, institutions such as those of gender, class, religion and ethnicity are rarely those that (even) institutional economists have focused on.

Her study of the Indian economy demonstrates that social relations in the

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workforce and social class, gender, religion, caste and space interact in complex ways with each other to create a ‘socially regulated’ economy. She shows that such structures of social regulation do not end with these institutions but extend and emanate into more formal structures of regulation, that is, those imposed by the state. Her study also directs attention to the formal institutions that oper- ate to govern inputs, labour, consumption and demand, which can be found in the legal constitution of firms, labour law and banking.

Moreover, the politics of markets does not solely arise from the role of the state. Harriss-White outlines four dimensions of power in markets: first, the state has the ability to both intervene directly and regulate politically. Second, associations of market actors form to pursue collective interests. Third, economic structures also confer power, depending on the underlying endowments of different groups operating within it and which can allow for the extraction of surplus. Finally, social authority and status can be derived outside the economy through social embeddedness and this also enables the exercise of power in the market – e.g. gender relations allow the operation of patriarchy (White, 1993; Harriss-White, 2003b).

The analysis of markets as socially regulated offers a particularly important perspective on the role of markets in development because it directs our atten- tion to the underlying inequalities that arise from social identity. It also calls for

a better understanding of how such inequalities pervade markets directly and indirectly through their influence on the way formal institutions in turn influ- ence markets and therefore perpetuate their effects in the long term.