I think it was Karl Polanyi who coined the term embedded. In The Great Transformation, the philosopher mulls over the notion that not all worthwhile interactions are adequately represented in a transparent market setting. he drew people’s attention to the influences of family relations, obligations to a tribe, and so on. He did not deny that the allocation of resources through a market process was beneficial. He claimed that all activity is embedded in the social circumstance of the actors and in that way influenced the outcome no matter how remotely
The definition of embedded is:
- (of an object) fixed firmly and deeply in a surrounding mass; implanted: “a gold ring with nine embedded stones”
It’s like society and its institutions form a big glob of clay and the market trading apparatus is a shiny gold nugget glittering against the thick, slow, clay substance. The muddy substance can shift and nudge the glittery mass but embeddedness promotes the idea that each substance is separate. You’re either a part of the bling or the mud. Each exists in a realm that cannot be interconnect. Society can influence, rock, tug and tip but not breach the market.
Fast forward four score or so and people are talking differently about interactions between private market transactions and duties to the public. There are many personal stories in the newly released book Speed & Scale by John Doerr. They provide specific examples. Tensie Whelan is a journalist who was covering sustainable development issues when she made a discovery.
One big flashpoint at the time was McDonald’s practice of sourcing beef from Costa Rica. It kept U.S. hamburger prices down, but the added grazing also led to deforestation. Environmental boycotts led McDonald’s and others to stop sourcing beef from there, but that did not stop the deforestation. People turned to slash-and-burn agriculture to put food on the table. That got me interested in how we could help people pursue sustainableTensie Whelan- Speed & Scale
livelihoods. The Rainforest Alliance was founded by Daniel Katz. He was moved
to act after reading that fifty acres of rainforests are destroyed every minute, and two dozen species become extinct each day.
The environmentalist had successfully dissuaded McDonald’s from importing beef from Costa Rica, which, it is implied led to higher prices of US Beef. The expense of the attempt at stopping deforestation was realized in the market. Yet deforestation still occurred because the owners of the forest still needed to eat and thus put the land to that use. As a group, their action, rightly or not, created a negative externality to the world as they internalized the benefit of a harvest. Tensie Whelan’s firsthand accounting of the tradeoffs helped her understand the situation as she pursued other strategies of collaboration with the local people.
The 1990s saw considerable progress on deforestation, but it wasn’t fast enough for Tensie. It was a long, hard slog to go through the developing world farm by farm to collaborate with local growers and Indigenous peoples. Tense promised money for people to protect the rainforests instead of destroying them. She won farmers’ trust, and sign-ups rose each year. By mandating safe working conditions and fair pay, the program also caught on among farmworkers.
This time instead of forcing a corporate player to pull out of a market, the strategy was to buy out the benefit of farming the deforested areas. In effect, the rain forest is being maintained as a world club good through a buyout. The locals are made whole by internalizing the cash.
The next story comes from Laurene Powell Jobs. In this case the movement between the nugget of gold and the clay is between Silicon Valley’s semiconductor market and the health and environment of a neighboring town. The glitter of tech commerce doesn’t sit nicely atop an institutional environment, it penetrates the lives of East Palo citizens and throws cost on them in the form of their health expenses.
Thirty years ago, when I was getting my MBA at Stanford Business School, I found out that just a few miles away the city of East Palo Alto was a disposal center for Silicon Valley. A lot of semiconductor debris was dumped there, along with biomedical waste. TheLaurene Powell Jobs- Speed & Scale
city was paid for this disposal, but it was not done properly. This happens across low-income areas all over the world. There were all sorts of toxicity in the water table, with high levels of arsenic and radon. It gets transmitted into the food that’s grown there, it’s in the gardens, it’s in the drinking water. Since we fund local education through property taxes, the schools in East Palo Alto were far inferior to the ones in West Palo Alto. They don’t have a robust tax base. They couldn’t afford good roads and sewage systems. They didn’t have a grocery store. They didn’t have a bank. They didn’t have the kind of infrastructure that would yield a healthy community. In 2004, I started the Emerson Collective on the belief that all the issues we work on, all the systems that touch our lives on the planet, are interlocking.
Embedding implies a lot of nudging and cradling and massaging. But the spheres of economic activity between the private sector and public groups (or clubs) is very porous. As Whelan points out, the impulse for action is not taken away when the large corporate entity withdraws. The action is running on its own group incentives. When pollution is externalized onto a neighborhood the medical expenses can be accounted for. When companies improve standards to reduce or eliminate the pollution, they internalize the cost to cease the externality. The price of their product now includes the reduction of pollution to the nearby community.
These are dynamic interactions between two spheres of economic activity. They can be identified, accounted for and evaluated. There’s nothing embedded here.