(ECS2) Economic Sociology Open Session

This session focuses on both theoretical and empirical topics in economic sociology and political economy. The themes for presentations include recent shifts in economic inequalities and class relations; the dynamics of global capitalism; economic policies in the age of neoliberalism; sociology of finance; and broader themes in institutional studies. Tags: Economics, Equality and Inequality, Policy

Organizers: Zhen Wang, University of Toronto, Dean Curran, University of Calgary; Chair: Zhen Wang, University of Toronto

Presentations

Yang-Yang Cheng, University of Toronto

Hierarchy, Equality, or Democracy: Examining the Tradeoffs in the Governance of Economic Organizations

This paper returns to a classical issue in sociological theory – the potentials, constraints, and tradeoffs in organizations that value both democracy and equality, on one hand, as well as complexity and efficiency on the other. The paper investigates what we might call the Standard Hierarchical View (SHV) – the view that the only way to satisfactorily organize business entities in the modern world is through a hierarchical governance structure. Although this view is dominant, it is in need of serious revision. In contrast to the SHV, we advance two main arguments. First, although the SHV assumes that there are only two fundamental possibilities for organizing economic enterprises – firms can be efficient-and-hierarchical or inefficient-and-egalitarian – we argue that the universe of possibilities for organizing economic firms should actually be understood as a spectrum involving three ideal-types. Firms can be organized hierarchically (such as in conventional capitalist businesses) or they can be organized in a strictly egalitarian manner (such as in egalitarian collectives) – in which case there are indeed stark tradeoffs in terms of complexity versus equality. However, there is also a third option which is that firms can be organized via representative democracy (such as in democratic worker cooperatives), which allows for complexity, efficiency, and a high degree of equality (though by no means complete equality of power or pay). Second, the heart of the paper consists of a careful and detailed empirical and normative evaluation of the three organizational types on the basis of widely desired criteria: efficiency, ability to grow, ability to minimize domination, respect and dignity, distributive equality, job security, community impact, and satisfaction. Overall, a careful weighing of the evidence suggests that the Standard Hierarchical View is wrong: democratic cooperatives, though far from perfect, generally perform better than the other two possibilities in terms of avoiding their major pathologies. All things considered they appear to be superior forms of social organization (for much, though perhaps not for every sector of the economy). Democracy, not hierarchy, should be the default form of economic organization.

---

Non-presenting author: Tom Malleson, King's University College at Western University

Zhen Wang, University of Toronto

Financial Regulation and Small Banks in the U.S.: Learning from the Canadian Case

After the 2008 financial crisis, the U.S. legislated new banking regulations such as the Dodd-Frank Act to reshape the financial system to be safer for consumers and taxpayers. However, these legislations were not without criticism, and the fiercest among them is the argument that tighter regulations erode the competitiveness of smaller banks and force them to merge with larger institutions, diminishing the diversity of the banking industry. Years later came the rollback of Dodd-Frank with several clauses loosening restrictions for smaller actors in the financial sector. To investigate these claims about the antagonistic relationship between financial regulation and smaller financial institutions, I turn to the case of the Canadian banking sector. Canada has the type of financial system that many on the American right oppose – it is highly concentrated with more than ninety percent of the financial assets controlled by the five biggest banks, and there are fewer than forty domestic banks currently operating in Canada. At the same time, Canada levies much more stringent federal regulations on the banking industry compared to the U.S., which many argue shielded Canada from the worst outcomes of 2008. A combination of big players dominating the market and a high level of federal oversight should create a hostile environment for smaller banks, as opponents of Dodd-Frank often assert. By examining the 2019 financial data of domestic banks in Canada from OSFI, my paper finds more nuance in the claim that financial regulations hurt smaller banks and reduce the diversity of the banking industry. A concentrated market indeed resulted in several bank mergers since the 1990s, reducing the total number of financial institutions in Canada. Nevertheless, most existing smaller banks remain highly profitable and safe, and medium and small banks are much less leveraged than the Big Five banks. Smaller banks also employ very different strategies than larger players. They engage in more traditional banking activities such as loans and deposits, specifically in mortgage loans. Smaller banks also have minimum to no exposure to risky financial innovations like derivatives and security products whereas large banks routinely engage in these activities. The results of my study indicate that a concentrated financial sector inevitably brings on certain difficulties for smaller actors, but tight financial regulations do not necessarily equal doomsday for smaller banks. As we see in the Canadian case, even within a challenging ecosystem, existing small and regional banks can still carve out a competitive business profile to counter larger institutions and remain profitable thanks to the stable banking environment that comprehensive financial regulations have engendered. With its much more vibrant and robust regional bank network, I argue that the relationship between regulations and the diversity of the financial sector in the U.S. can also be a net positive one. My study contributes to the discourse on financialization and regulation, as well as organizational studies, specifically population ecology theory on how smaller players react to macroeconomic shifts and create organizational niches to survive in an unfriendly environment.

Karen Foster, Dalhousie University

(Why) Does Small Business Succession Matter, Sociologically?

Small business succession has emerged as a policy problem nationally, with the majority of small business owners in Canada approaching retirement without a written succession plan. The problem is even worse in traditionally rural sectors like agriculture, where the fate of food production writ large appears to hang on what happens to farms when they close without a successor. One of the more common framings of the succession problem focuses on the proprietors’ average age, their lack of formal succession plans, and the fact that no specific successor is lined up to step in when they retire; attention has focused on the ‘next generation’ and figuring out why they might not ‘want’ to take over extant businesses. With the succession problem narrowly framed around individual businesses’ succession plans, and with succession understood as a discrete transaction—the hand-off between old and new—the most sensible solutions, almost inevitably, target succession planning and matchmaking between young entrepreneurs and sunsetting businesses. But what if succession is an economic behaviour embedded in something more sociological? And what if it tells us something about contemporary capitalism? This presentation draws on interviews with 40 people representing 27 small businesses in rural Atlantic Canada who were either planning for, approaching, or reflecting on their experience with succession. The SSHRC Insight-funded Seeing a Future project, which began as a fairly ‘applied’ study concerned with identifying and addressing barriers to family business succession, has arrived at more fundamental questions about why succession emerges as a social and policy problem in the first place. I will show how interviewees’ stories shed light on the features of contemporary capitalism -- such as productivism and growth-centrism -- that make the ‘unbroken chain’ of succession far more important than it might otherwise be. Moreover, I will argue that the economist or policymaker’s narrow focus on succession as a discrete transaction between two parties, while potentially captivating for the human drama involved, leaves rich sociological material on the cutting room floor. Putting succession in its wider context, as Economic Sociology can do, reveals the moral dilemmas faced by small businesspeople, particularly those who see their embeddedness in their communities as essential to their business’s success and value.

Angelina Grigoryeva, University of Toronto

The Shift to Stock-Based Compensation and Gender Inequality in Wealth in the United States

Wealth inequality in the United States is now higher than in any other rich democracy (Pfeffer and Waitkus 2021), and disparities by gender are particularly stark (Killewald et al. 2017). Existing literature argues that gender differences in earned income (i.e., the flow of money) play a key role in explaining gender gaps in wealth (i.e., the stock of money) (ibid.). Reflecting classical sociological theories (Simmel [1900]1978; Weber [1946]1971), this view assumes that only the amount of earnings matter. However, the financialization of the U.S. economy (Krippner 2011) saw an emergence of novel types of compensation beyond regular wages. As Zelizer (1997) put it, “not all dollars are the same,” and not only differences in how much men and women earn, but also what kind of compensation they earn may contribute to gender disparities in wealth. This study is among the first to examine stock-based compensation and its implications for gender inequality in wealth. Stock-based compensation became increasingly prominent in recent decades, and that 23 percent of U.S. workers, or 29 million Americans, now receive some of their compensation in employer stock (Kruse, Freeman, and Blasi 2010). Thus, in the course of the financialization of the U.S. economy, American firms increasingly turned to the stock market not only for profit generation (Lin and Tomaskovic-Devey 2015), but also for employee compensation. Correspondingly, Americans became increasingly invested in the stock market not only directly (Fligstein and Goldstein 2015) and through defined-contribution pensions (Hacker 2006), but also through stock-based compensation. I argue that stock-based compensation promotes greater wealth accumulation than regular wages, but its wealth benefits are higher among men than women. Because stock-based compensation by definition is directly linked to the stock market, employees can benefit from its value appreciation over time, while cash wages are subject to inflation (Hayes and O’Brien 2020). Also, workers with stock-based compensation can enjoy capital income from dividend payments and share buybacks in addition to their labor income (Nau 2013). Furthermore, the U.S. tax system treats stock-based compensation more favorably than wage earnings (Spilerman 2000). Thus, one might expect that employees who receive stock-based compensation will accumulate greater wealth than employees without stock-based compensation, at the same level of total income. However, as I argue, stock-based compensation is not a gender-neutral, but inherently gendered labor market mechanism that benefits male workers more than their female counterparts. Specifically, women are more likely to lose on stock-based compensation because it usually requires a vesting period and women are more likely to leave the labor force before they get vested due to competing family responsibilities (Blair-Loy 2001). Also, for some types of stock-based compensation, employees have to take deliberate steps to enjoy financial gains, and male employees might be more likely to do so, reflecting differences in stock market participation between men and women. Finally, I examine the gender gap in stock-based compensation. I argue that despite well-documented gender gaps in wages (McCall and Percheski 2010), nonwage components of compensation (Kristal, Cohen, and Navot 2020), and nonpecuniary job characteristics (Kalleberg 2011), there will be no gender differences in stock-based compensation because many companies provide it on a broad basis or at the group level (e.g., based on a job title) rather than individually determined. Using the Survey of Consumer Finances, the only nationally-representative data with detailed information on both stock-based compensation and wealth, and supplementing it with the NBER survey of employees with stock-based compensation, I report three main findings. First, employees with stock-based compensation accumulate greater wealth than employees without stock-based compensation, but its wealth benefits are concentrated primarily among male employees than female employees, particularly at the top of the wealth distribution. Second, I find no gender gap in the probability of receiving stock-based compensation or its amount, after accounting for job characteristics and sociodemographic attributes. Finally, as a possible mechanism underlying the gender differences in the wealth benefits of stock-based compensation, I show that men are more likely to utilize its wealth-building potential than women, thus contributing to gender inequality in wealth. In short, men and women are equally likely to receive stock-based compensation, but men are more likely to enjoy the associated wealth gains than women.

Paul Brienza, York University

The Great Gap: Economic Rights in a Global Economy

This paper makes the broad claim that ‘economic rights’ are insufficiently enforced within the context of international human rights law. Economic rights, exemplified globally through such documents as the Covenant of Economic, Social, and Cultural rights include access to education, health care, and an adequate standard of living. However, these rights are often given scant attention by politicians, NGO’s, and the media. The focus is generally placed on the political rights of freedom of expression, participation, and the right to life threatened by genocidal state actors. This study argues that this lacuna of attention is interwoven within the global context of both the international human rights regime and the logic of the global economy. I begin with an examination of classical political economy and its excision of the idea of ‘rights within an economy’ from the very project of modern economics. To some extent, this excision begins with Adam Smith and the notion of a spontaneous order that allows for the question of a self-conscious moral stance as an economic actor to be effectively bracketed. Actors are conceived as essentially amoral, through the pursuit of immediate self-interest, while teleologically contributing to a wider social and communal good. By arguing that economic actors contribute to a wider social good through their self-interest, economic rights are effectively excised from economic thought. Further, the development of utilitarianism, exemplified by Bentham’s felicity calculus, defers the question of economic rights by arguing that self-interest is algorithmically calculable as a wider social good. I then turn to an analysis of the application of this principle to the context of the global economy. Corporate and state actors, in order to justify a continued sidelining of the issue of economic rights, apply the same argument by claiming that economic growth, fostered by self-interest, ultimately makes these rights either irrelevant or counterproductive to the amelioration of economic lives. It is argued, in other words, that economic rights must be submitted to the larger goal of growth. This strategy results in a never-ending postponement and deferral of economic rights to a time not yet here. Rights will come, they argue, when wealth is widely dispersed. Ultimately, this submerges the call for the implementation and enforcement of these rights to the logic of capitalist formation and a never-ending process of primitive accumulation. Finally, I turn to an examination of what I call the expediency factor. This is a process whereby the economic logic of capitalism practically marginalizes any call for economic justice in favor of an amoral justification of efficiency. This allows for corporations and state actors to ignore economic rights and to bracket any moral question of a just economy.