Embedded Files
Helpful prior knowledge and learning objectives
Helpful prior knowledge and learning objectives
Helpful prior learning:
Section 1.1.1 The economy and you, which explains what an economy is and how it is relevant to students’ lives
Section 1.1.2 The embedded economy, which explains the relationship between the economy and society and Earth’s systems
Section 1.3.2 Values in the economy, which explains how values affect human behaviour, judgements, and the economic tools we choose to use in the economy
Section S.1 What are systems?, which explains what a system is, the importance of systems boundaries, the difference between open and closed systems and the importance of systems thinking
Section S.2 Systems thinking patterns, which outlines the core components of systems thinking: distinctions (thing/other), systems (part/whole), relationships (action/reaction), and perspectives (point/view)
Section S.5 Causal loops, feedback and tipping points, which explains the feedback loops that can stabilise or destabilise systems.
Learning objectives:
explain how markets are embedded in social systems with attention to culture, social movements, and state policies
During the 1900s, Dutch society was divided, or pillarised (Verzuiling) into three social groups: Protestants, Catholics, and Social Democrats. Each group had its own schools, shops, media, banks, and hospitals, and other support networks. People’s economic exchanges were limited to their own social group. There was a high degree of trust between group members, making economic activities easier within groups.
This separation between groups broke down in the last half century, but there are still visible traces of them in political parties and other institutions. The short video below explains Dutch pillarisation. You can adjust the settings to view subtitles in English or another language.
The Dutch pillarisation was a highly visible example of how social systems impact business/market activities, but there are many other less visible influences. This section describes how culture, social movements, state policies and regulations are interconnected with businesses in markets. Section 3.2.3 in the next subtopic will explore the role of law.
How are culture and businesses in markets interconnected?
How are culture and businesses in markets interconnected?
Culture includes the beliefs, values, attitudes, behaviours, and traditions shared by a group of people and passed down through generations. Culture and business activity in markets are closely interconnected, each influencing the other.
Culture shapes what people value and desire. These values guide businesses in deciding what to produce and how to market their products. For example, in cultures that value sustainability, businesses may create eco-friendly products and highlight their environmental commitment in promotions to attract like-minded consumers. This shows how culture can influence markets to meet society's expectations.
On the other hand, markets also influence culture. Through advertising and media, businesses shape people’s preferences and social norms. The fashion industry, for example, has a huge role in defining what is considered stylish, often paying influencers to promote their products to increase demand. Fast fashion works hard to get people to believe that they need to constantly update their wardrobe with new clothes. These practices are used in many industries to convince people to buy things they do not need.
Businesses also create demand for new products that can lead to changes in cultural practices. For instance, smartphones have transformed how we communicate, socialise, work, and even think (Figure 1). This shows how businesses in markets can drive rapid cultural shifts.
Figure 1. New products can impact culture, like the smartphone has changed our interactions with other people
(Credit: fauxels, Pexels licence)
How are social movements and businesses in markets interconnected?
How are social movements and businesses in markets interconnected?
Social movements can drive changes in business practices. Recently, movements for justice, equity, and sustainability have influenced how businesses behave. However, these movements need to reach a certain level of strength—a social tipping point—before they widely affect business and consumer behaviour or push states to take action.
For example, the Black Lives Matter movement raised awareness and protest about racial discrimination so successfully that it became a tipping point leading many companies to rethink their diversity and inclusion efforts, with many promising to diversify leadership and support social justice causes. These changes are part of a growing business trend toward social responsibility.
Figure 2. The Black Lives Matter protests were a social tipping point that lead to increased business action on diversity, equity and inclusion (DEI).
(Credit: Annette Bernhardt, CC BY-SA 2.0)
However, not all market responses to social movements are positive. Recently, there has been a backlash against Environmental, Social, and Governance (ESG) and Diversity, Equity, and Inclusion (DEI) initiatives. Some businesses argue that focusing on these areas hurts their profits. This backlash has influenced politics. For example, some U.S. states have passed laws restricting ESG criteria in public investments, and certain companies have scaled back their DEI initiatives due to political and business pressures.
The relationship between social movements and business activities is complex. While social movements can drive positive change, businesses may resist, highlighting the tension between social values and profit motives. Progress towards meeting human needs within planetary boundaries isn’t guaranteed. Lasting change often requires state legislation and regulation to ensure system-wide impact.
How are state policies and regulations and businesses in markets interconnected?
How are state policies and regulations and businesses in markets interconnected?
States use policies and regulations to shape business activities and market conditions. Tax policies, for instance, can encourage investment in certain industries. States might reduce taxes for businesses that invest in strengthening social or ecological systems, while carbon taxes make high carbon dioxide (CO2) emission business activities more expensive. States can offer payment to businesses, called subsidies, to help them grow by lowering production costs or creating new markets. For example, many states have used subsidies to promote renewable energy, making it less expensive to produce and purchase. Without government intervention, the renewable energy market might develop more slowly.
Businesses can also influence state regulations and policies. This influence can take various forms, from providing reports and recommendations to sway policymakers, to funding nonprofit organisations or lobbying firms, or even making direct financial contributions to politicians. Although many states ban direct funding of politicians to prevent corruption, large companies still spend disproportionately more on political lobbying and other influence tactics than any other stakeholder group worldwide, affecting political decisions in their favour.
Figure 3 outlines the money spent by different industries on lobbying the national government in the United States in 2023.
Are there similar data for the country where you live?
Figure 3. Money spent on national government lobbying in the United States, 2023
(Credit: OpenSecrets)
Recognising that businesses/markets are embedded in broader, interconnected social relationships helps us understand how they can be shaped to better serve society and the environment. You will learn more about the role of law in markets in Subtopic 3.2, and about strategies for shaping regenerative businesses in markets in Subtopic 3.3 and Subtopic 3.4.
Activity 3.1.6
Activity 3.1.6
Concept: Systems
Skills: Reflection
Time: varies, depending on option
Type: Individual, pairs, and/or group
Option 1: The role of individualism and collectivism
Time: 30-40 minutes
There are many cultural characteristics that can impact how people behave in society, including how they engage with markets or how they think markets should be shaped by society. One such characteristic is the extent of individualism or collectivism in society (Figure 4).
In individualistic cultures, people are expected to look after themselves and their immediate family. Personal achievement, individual rights and individual freedoms are highly valued. On the other hand, collectivist cultures emphasise group goals, community, and cooperation.
Figure 4. One important characteristic of culture is the extent of collectivism and individualism. But remember that cultures lie on a continuum.
(Credit: Lucky Day, Noun Project)
Consider two hypothetical societies, one that is considered more collectivist and one that is considered more individualistic. What might we see in these two societies in terms of:
the types of businesses that form (purpose, who owns them?)
how much state regulation of business is accepted?
advertising messages?
taxes on businesses?
how business profits are spent?
It’s important to remember that cultures do not fall neatly into individualistic or collectivistic categories. Most cultures will lie somewhere on the continuum between the two, within countries there will be diverse cultures and over time cultures change.
Figure 5 shows the research on where many countries fall along this continuum. Where is yours? Do you agree?
Figure 5. Collectivism- Individualism world map
(Credit: Hofstede)
Option 2: Reflecting on human-nature dualism and exploitation of nature for profit
Time: 10-20 minutes, longer if students (re)watch the video linked in the text
You may have learned in Section 1.2.1, many human beings consider themselves separate from the rest of the living world. This worldview is called human-nature dualism. Humans did not always think this way, and many indigenous communities around the world still (rightly) consider themselves part of nature.
Historians point out that the human-nature dualism worldview came to dominate European cultures around the same time as European exploration and colonisation occurred. In other words, right as Europeans began to extract material and human resources from other parts of the world, they adopted a worldview that treated ‘nature’ and non-Europeans as separate, not like them.
How does this example illustrate the interdependence between culture and businesses/market activities?
Section 3.2.1 on Capitalism discusses this issue further, but if you are interested in learning even more about this time in history and the relationship between the culture shift of human-nature dualism and the rise of capitalism, the podcast episode below explains this very well.
Scene on Radio Season 7: Capitalism, episode 4
Ideas for longer activities and projects are listed in Subtopic 3.5 Taking action
Checking for understanding
Checking for understanding
Further exploration
Further exploration
The Social Dilemma - a documentary on Netflix that explores the way social media firms manipulate their users. The website for the programme also has tips on doing a social media reboot to reset your relationship with digital devices and social media. Difficulty level: easy
6-D model of national culture - information on the research of Dutch social psychologist Geert Hofstede on various dimensions of national culture, one of which is individualism vs. collectivism. Difficulty level: medium
Close to nine in 10 in favour of global rules banning plastics - summary of global survey research showing widespread support for restrictions and bans on plastic. Are we reaching a social tipping point where governments and businesses can no longer refuse to act? Difficulty level: easy
Umuganda: Rwanda’s audacity of hope to end plastic pollution - a United Nations Development Program article about Rwanda’s formal and informal efforts to end plastic waste pollution in the country. Difficulty level: medium
Industry acts to head off regulation of PFAS pollution from semiconductors - an article describing efforts by the semiconductor industry to prevent the U.S. government from regulating PFAS pollution in the industry. PFAS are considered ‘forever pollutants’ because they never break down in the environment. These pollutants have been largely unregulated in recent decades and recent research shows PFAS pollution at alarming levels in land, water and living organisms around the world. Difficulty level: medium
Sources
Sources
Granovetter, M. (2017). Society and Economy. Cambridge: The Belknap Press of Harvard University Press.
Hofstede, G. (n.d.). Culture. https://geerthofstede.com/culture-geert-hofstede-gert-jan-hofstede/6d-model-of-national-culture/.
Pistor, K. (2019). Code of Capital: How the Law Creates Wealth and Inequality. Princeton: Princeton University Press.
Swedberg, R. (2003). Principles of Economic Sociology. Princeton: Princeton University Press.
Terminology
Terminology
economy: all the human-made systems that transfer and transform energy and matter to meet human needs and wants
system: a set of interdependent parts that organise to create a functional whole
market: a system where people buy and sell goods and services for a price.
culture: the beliefs, values, attitudes, behaviours and traditions shared by a group of people and transmitted from one generation to the next
value: ideas about what is important or good
sustainability: meeting people’s needs within the means of the planet
preference: a greater liking for one alternative over another or others
norm: a social rule for accepted and expected behaviour, can be stated or unstated
fast fashion: inexpensive clothing produced rapidly by mass market retailers
social tipping point: a point in time when a group rapidly changes its behavior by widely adopting a previously rare practice
Environmental, Social, and Governance (ESG): a framework used to assess an organization's business practices and performance on various sustainability and ethical issues
Diversity, Equity, and Inclusion (DEI): a framework promoting the fair treatment and full participation of all people, particularly underrepresented or disadvantaged groups
profit: total revenue minus total cost
planetary boundaries: the limits of Earth systems to absorb the impact of human activity and continue to function
state: a system that provides essential public services, and also governs and regulates other economic institutions
tax: payment from individuals or organisations to the government, used to provide public infrastructure and services
investment: money spent for the enhancement of human or physical capabilities
carbon tax: a tax on fossil fuels or high CO2 emitting practices
carbon dioxide (CO2): gas produced by burning carbon or organic compounds and through respiration, naturally present in the atmosphere and absorbed by plants in photosynthesis
subsidy: a payment made by the state to a business or individual to encourage certain behaviour
renewable energy: energy from sources that are continuously available or regenerate quickly
regulation: a rule that guides individual or group behaviour and enforced by an authority
policy: a course or principle of action adopted or proposed by an organization or individual
non-profit organisation: an organisation operated for a collective, public or social benefit where surpluses must be used to increase impact
lobby: seeking to influence a politician on an issue
stakeholder: a person who has an interest in or is impacted by some activity
worldview: an all-inclusive outlook on the world held by an individual or group, and through which they make sense of reality and gain knowledge
human-nature dualism: the worldview that human society is fundamentally separate from and superior to the rest of the living world
indigenous community: the original settlers of an area (pre-invasion/colonialism) who have retained their culture apart from colonisers
colonisation: a process of establishing foreign control over a land area and/or peoples for the purpose of resource use and extraction
capitalism: an economic system where capital is privately owned, markets dominate, there is competition between businesses and the function is to earn maximum profits for owners of capital
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