According to Polanyi, the economic process in an embedded economy is rooted in noneconomic institutions (Polanyi, n.d). Embeddeness in this concept is the extent that an economic activity is controlled by institutions outside the economic world. Polanyi means that not all economies are develop on pure economic foundations and that in the non-economic founded economies; the non-market societies control the operations in such an economy. These non-market societies include, religious setups, kinships and political institutions. From Polanyi’s point on the forces of economics; the non-capitalist and pre-industrial economies are perfectly suited for survival (Polanyi, n.d). This is because such an economy does not rely of the so called market forces of demand and supply but rather rely on reciprocity and redistribution of resources. Unlike in the pure market exchange kind of economy, an embedded economy works under the principle of reciprocity and redistribution.
Reciprocity refers to the joint altercation of products and services as an important facet of the long term relationships developed in the quest to meet certain demands within a society (Polanyi, n.d). Redistribution on the other hand refers to the centrally place political, kinship or religious body entrusted with the responsibilities of offering the leadership role in this economy. The centrally placed authority therefore collects and distributes the available resources following specific and strategic cultural principles. Economic planning and decision making processes in the embedded economic environment will not rely on the individual knowledge or collectively bargain of economists and the market control variables. It is a unique environment in which the control of the market environment is exclusively under the leadership of specific cultural principles, social relations, moral apprehensions, religious affiliations, political dogmas or the fear instilled by the authoritarian style of administration in the embedded society.
In this type of an economy, the primary and the most important role of production is to meet the survival needs of the populace. It is more of a peasant economic structure where production is purely sanctioned by the need to meet the immediate demand for such goods and services in the society. Unlike in product exchange economic structure where production is motivated by profit maximization. Provisioning is therefore for key difference between the embedded economy structure and the product exchange or profit- oriented market environment.
People in an embedded economy will always operate on the basis of meeting their basic need through production of the services and products that meets the local demand to perfection. They lack the proactive ability to project on the economic gains that can be accrued via maximization of the available resources. They lack the robust economic zeal that is key in maximizing the use of resources provided that their basic need are adequately advocated for. The authoritarian leadership in embedded economies seek define guidance from the religious value, socio-cultural morals and kinship hierarchies as the prime source of economic motivation. They lack the visionary aspect of product market economists who would rather dismantle an incumbent political or social structure and disregard a religious set up they deem as a negative factor towards economic growth and development. The embedded economy basically focuses on animal survival because they lack the ambitious approach to identity new opportunities with an objective of exploiting such opportunities to earn favorable economic positions.
The economic process in the disembedded economy is purely market based. The rules of supply and demand are in full operation hence there are no exemptions when it comes to profit maximization. In a disembedded economy, all available resources are viewed as profit worth investments and that the only best way to gain from such is exploitation of the same to the last bit. Perfect competition is the order of the day in the market environment of a disembedded economy. Produces seek to control the largest market share and hence have to employ competitive marketing strategies. The clientele populace on the other hand has variety of products as services to choose from depending on their tastes and preferences.
Unlike in an embedded economy where a centrally placed authoritarian power controls the production and general market variable; the role of the control body in disembedded economy is to ensure that the operations in the market environment are up to the required standards of authenticity and that there is fair competition. In other words, the disembedded economic environment is free for anyone to enter and exit upon achieving their preferred goals. Political influence in disembedded economy does not necessarily entail the setting of daily operation standards. It is a rather vast and complex field that covers the influence of different political regimes on the economic environment.
The contemporary world operates in a disembedded economy structure and hence any investor can seek to accomplish his or her profit maximization goals at any place across the globe provided that their business is legit and that they adhere to the specific set of standards as per the market region they operate from. Polanyi will certainly remain one of the most important economists and historian of the substantivist era; his assumptions might however not be applicable in the modern day world.
Polanyi, K. (n.d). Aristotle Discovers the Economy.