Author: Duygu Dunbay

Modernization theory is based on the idea that development is a linear process in which a society evolves from ‘traditional’ to ‘modern.’

Though the theory was originated by German sociologist Max Weber more than a century ago, it remains a controversial explanation of the economic system we live in today.

As mentioned above, the theory divides humans into two distinctive categories. ‘Traditional’ humans, who live in more stable societies, have limited capabilities in terms of knowledge and mobility. They cannot change, as they do not have the means, and outgrow their cultural traits and religious beliefs that lie at the core of their lives. ‘Modern’ humans, on the other hand, are products of a so-called social evolution; they can control their natural and social environment. This merit they have is an inevitable outcome of steady economic growth, which provides modern humans with higher living standards. As an outcome of this wealth, science and technology advance, and knowledge becomes more accessible; making the modern human more powerful than its counterpart.

Thus, power is not only economical but also political in a modern polity, as the accumulation of knowledge through mass communication will eventually pave the way for active social involvement. More aware of their raison d’etat, modern humans demonstrate meaningful political participation. In this sense, modernization theory does not see state, market, and society as separate entities, but rather as intertwined. Many modernization theorists believe that with industrialization triggering socio-economic development, modernization becomes a propellant of liberal democracies.

“All the various aspects of economic development — industrialization, urbanization, wealth, and education — are so closely interrelated as to form one major factor which has the political correlate of democracy.”
Lipset, Seymour Martin (1963)

Where did it all go wrong?

What modernization eventually did, however, was to give the market its own laws of supply and demand. Rostow, a renowned modernization theorist, breaks down the complex, gradual process of modernization into five predictable stages and believes that every society can be placed into one, looking at their stages of economic growth. He emphasizes ‘capital accumulation, savings, investment, and trade’ as driving forces of development in all spheres of societies. This way of thinking makes the Western-model market a promoter of development everywhere in the world. Here, it is implied that if underdeveloped societies mimic the traits of those modern, developed societies, they will inevitably become developed as well.

Now, 50 years later, thinking with the 21st-century mindset that we have, some racing thoughts have piled in our heads about some unanswered questions:

Why aren’t we living in a world where the underdeveloped has already caught up with the developed? Why is it that there are still people who are deprived of their basic needs while others live in total abundance? If mimicking is what it takes, why hasn’t the globalized economy we have today made it possible for all societies to thrive?

Polanyi’s ‘disembedded’ economy

Polanyi comes very close to answering these questions by explaining that what capitalism did was to separate the market from society altogether. The creation of a ‘market utopia’ has turned the environment into ‘land’ and humans into ‘labor,’ which have become commodities that can be bought and sold in the market. This depersonalization brought by individualist traits of the modern human has broken the moral bonds that used to tie people together.

Societies we live in became a subject of the market that has to follow the rules and laws of it.

Though the story sounds overwhelmingly grim when told this way, Polanyi believes that disembedding the market from social relations is not compatible with human nature. Even though it was not theoretically planned; separation of the market from society was an outcome of modernization, capitalism, and the laissez-faire movement, which is sooner or later bound to collapse and fail to provide development.

“The outstanding discovery of recent historical and anthropological research is that man’s economy, as a rule, is submerged in his social relationships. He does not act so as to safeguard his individual interest in the possession of material goods; he acts so as to safeguard his social standing, his social claims, his social assets. He values material goods only insofar as they serve this end… These interests will be very different in a small hunting or fishing community from those in a vast despotic society, but in either case, the economic system will be run on noneconomic motives.”
Polanyi, Karl (2000)

What does this mean for organizations?

Looking from Polanyi’s perspective, we can safely say that organizations are bound to change if they want to survive. The economic system we are taught to be a part of today is outdated. Today’s organizations were established in a world where black and white existed, where humans were easily separated into two as traditional and modern. It was a world where economic growth was the gold standard of development; thus, making profit was the end goal for companies.

Today, however, there are more grey areas than there are black and white. Modern and traditional exist together; divisions and labels are not tolerated. Though modernization has made economic growth a zero-sum game, in which there are absolute winners and losers, we as humans deny seeing markets as profit-making entities in which organizations are only means of monetary gains.

Take Nike, for example; why do you think it does not sell itself as the ‘best sneaker-maker’ in the world? Why is it important for Nike to stand for social issues like the BLM movement, to be the brand that is supporting accomplished athletes from all over the world? Then ask yourself this question: Why are you buying Nike’s shoes? Is it just because you want to be the owner of expensive quality shoes, or you want to demonstrate your social stance by wearing them?

As Polanyi said, every purchase we make feeds our social interests. We do not separate ‘economic’ from ‘social’ in our heads. We care about our social status, but most importantly, we care about others’ social status. Hence, organizations now know that they cannot put their monetary value, the ‘profit’ they are making, at the front of their policies. Big companies are now aware that they cannot separate their ‘social’ value from their ‘economic’ value. If they want to thrive economically, they have to have a ‘purpose’ that would satisfy the social needs of their target audience.

Therefore, like Polanyi, we believe that the market cannot be separated from societies, as without societies, economies would not exist. Without humans, organizations would not exist. Thus, we say that it is time for organizations to set their priorities straight, and align with the changing world by making room for nonmaterial concerns.

It is time to embed the economy back in our societies.

How? Let’s find that out together.