Review of The Architecture of Markets: An Economic Sociology of Twenty-First-Century
Capitalist Societies by Neil Fligstein
Ruth V. Aguilera
College of Commerce and Business Administration
and
Institute of Labor and Industrial Relations
University of Illinois at Urbana-Champaign
339 Wohlers Hall
1206 South Sixth Street
Champaign, IL 61820
Tel. 217-333-6661
Fax. 217-244-7969
E-mail: ruth-agu@uiuc.edu
Aguilera, R. V. (2002) “The Architecture of Markets. An Economic Sociology of Twenty-FirstCentury Capitalist Societies” by N. Fligstein. Academy of Management Review, 27(2): 304306.
The Architecture of Markets: An Economic Sociology of Twenty-First-Century Capitalist
Societies by Neil Fligstein. Princeton, NJ: Princeton University Press, 2001.
Reviewed by Ruth V. Aguilera, Department of Business Administration and Institute of Labor
and Industrial Relations, University of Illinois at Urbana-Champaign. Champaign, IL 61820.
Recent research by economic sociologists on markets in capitalist societies is rich in both
description and use of sophisticated quantitative analysis. However, despite a number of
programmatic statements about how markets are socially constructed, and a plethora of findings
demonstrating inconsistencies in pure efficiency-based accounts, economic sociology has so far
failed to develop a strong theoretical framework that challenges the dominant economic
perspectives in this realm. In his book The Architecture of Markets, Fligstein proposes a
sociological theoretical alternative to economic accounts of markets in capitalist societies, which
he labels the “political-cultural approach.” The book reads like a theoretical battle of economic
accounts, mostly agency theory, against his sociological account, where the latter wins.
Fligstein's approach is firmly rooted in the social relations tradition of economic
sociology, with actors in society-governments, entrepreneurs, firms, managers and workersoperating not in a vacuum, but rather embedded in a dynamic social, political and cultural
environment (Granovetter, 1985). His book builds on his many contributions to
the economic sociology literature, particularly in his much cited work on corporate control
(Fligstein, 1990). While Smelser and Swedberg’s (1994) Handbook of Economic Sociology is
probably the richest antecedent of empirical economic sociology, Fligstein’s book is an
important contribution to the literature because it not only provides an exhaustive discussion of
existing economic sociological research but also frames it within his political-cultural theoretical
approach.
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Fligstein makes the case for his sociological theory in the first chapter. His main
assumption is that the driving force for firms and individuals is the search for stability but also
includes profit maximization, thereby strongly differentiating the political-cultural approach
from neoclassical economic theory. Fligstein provides convincing evidence for his claim
with reference to the historical record, and generates a number of testable predictions about
current and future market characteristics and outcomes. He maintains that firms’ desire for
stability entails a reliance on government actions such as the settlement of disputes and the
enactment of laws. Hence, corporate outcomes-and policy implications-are distinctly different
from those predicted by supply and demand forces of price theory.
The Architecture of Markets is organized in two parts. Part I, which includes Chapters 2
through 4, contains a discussion of the main components of the political-cultural framework. In
Chapter 2, Fligstein considers how markets come into being, focusing on four rules and
understandings necessary for structured exchange: property rights; governance structures; rules
of exchange; and conceptions of control. In Chapter 3, he considers the relation between state
building and market building in modern capitalist societies. From his historical account, he
develops six ideal types of domination, consisting of three actors—states, capitalists, and
workers—and three coalitions of these actors. He argues that the rules that govern relations
between actors and result in sustained growth are a function of the political resolution of stateowner-worker conflicts. This poses a number of research implications regarding the emergence,
stability and transformation of particular markets, as well the interaction between markets and
political processes. Fligstein's account indicates both how certain core issues in economics, such
as the separation of ownership and control of capitalist firms, are culturally constructed, and how
competition and technological change stem from social relations.
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In Chapter 4 Fligstein examines the dynamics of markets, focusing on their formation,
local equilibria, and transformation processes. He does so by using a number of elements of
Podolny's (1993) status-hierarchy model of market competition. With this he demonstrates the
logic of the historical approach to market dynamics. He argues that the price mechanism drives
firms to seek stable markets since supply and demand forces tend to be destabilizing. Given
their goal of survival, over a period of time dominant firms will seek to stabilize their position.
In the process of doing so, they create networks of relationships to manage complexity and
reduce uncertainty. As a result, socially structured markets will tend to be stable until exogenous
forces (e.g., war and recession) allow for transformation.
In Part Two, which includes Chapters 5 through 10, Fligstein provides relevant in-depth
examples of the application of his political-cultural approach to important phenomena in
economic life. An extensive literature review of research in economic sociology is
employed to enhance his analysis. In Chapter 5, he examines the emergence, logic and
transformation of national employment systems in Western Europe, the United States and Japan.
This comparative approach allows him to highlight the importance of historical processes of
industrialization in each society as well as nationally specific balances of power between
workers, government officials, and capitalists. In Chapters 6 and 7, Fligstein examines issues of
ownership and control of large American firms. He analyzes ownership structures and interorganizational factors as predictors of corporate outcomes. He then considers the emergence of
shareholder value in the 1980s under a financial conception of corporate control. In Chapter 8,
Fligstein provides a theoretical framework with which to understand the fundamental problem of
corporate governance, i.e., the management of interdependencies between a firm and its
environment. He does so by contrasting five economic theories of control ("new" institutional
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economics, economic cognition, transaction costs economics, agency theory and neoinstitutionalism) with four sociological theories of control (resource dependence, network
approaches, political-cultural approaches, and institutional accounts). He widens this debate to
include a comparative analysis of different national settings. In contrast to agency theory
predictions, he claims that there is little evidence of worldwide convergence in economic
organization due to "distinct institutional arrangements that outline the relations among
investment, ownership, control and economic growth" (p.189). Chapter 9, the most policy
oriented chapter, tackles globalization issues. Fligstein's primary emphasis is on accounting for
the distinct national styles of political control mediated by state intervention. He poses a puzzle
question: "if there is so much globalization, why isn't there more convergence?" (p.191). His
answer that globalization is likely to be overstated because it is not an impersonal force but a
reflection of the social and political construction of markets by firms and states. He brings to a
close his case studies by examining information technology industries in the concluding Chapter
10.
The ambitious agenda of this book, namely to generate a theoretical model that explains
the organization of markets from a sociological point of view, deserves a more systematic
operationalization of the theoretical approaches to the empirical evidence at hand. While the
author does an excellent job of describing the strengths of the political-cultural approach, maybe
more could have been done to convince readers of the incomplete explanatory power of classical
economic theories. For example, a number of agency theorists would agree that behavior is not
always solely motivated by considerations of efficiency. Many would also subscribe to the
notion that countries have different ways of organizing. Since their policy implications would
differ significantly from Fligstein's proposals, a more refined comparison and empirical analysis
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could provide a firmer basis for the political-cultural approach. In addition, since social and
economic change is at the core of sociological inquiry, a deeper integration of historical and
institutional economics such as North's (1990) theory of economic action into his sociological
model would have added to its development.
Overall, The Architecture of Markets outlines a comprehensive alternative to economic
views of markets. Fligstein's expertise is demonstrated in both the development of his politicalcultural approach and in the conceptual cases he uses to show the theory's relevance. In the
preface Fligstein notes that he had not intended to write this book. Social scientist should be
glad that he did.
References
Fligstein, N. 1990. The Transformation of Corporate Control. Cambridge: Harvard University
Press.
Granovetter, M. 1985. Economic Action and Social Structure: The Problem of Embeddedness.
American Journal of Sociology, 91(3):481-510.
North, D. 1990. Institutions, Institutional Change, and Economic Performance. Cambridge:
Cambridge University Press.
Podolny, J. 1993. A Status-Based Model of Market Competition. American Journal of
Sociology, 98: 829-72.
Smelser, N., & Swedberg, R. (Eds.). 1994. The Handbook of Economic Sociology. New York:
Russell Sage.
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