Review: Power and Culture in Organizations: Two Contrasting Views

Author(s): William G. Roy

Review by: William G. Roy
Source: Sociological Forum, Vol. 19, No. 1 (Mar., 2004), pp. 163-171
Published by: Springer
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Sociological Forum, Vol. 19, No. 1, March 2004 (? 2004)

Power and Culture in Organizations:

Two Contrasting Views
William G. Roy1

The Architecture of Markets: An Economic Sociology of the Twenty-First

Century Capitalist Societies. Neil Fligstein. Princeton, NJ: Princeton
University Press, 2001.

Organizing America: Wealth, Power, and the Origins of Corporate

Capitalism. Charles Perrow. Princeton, NJ: Princeton University Press,
2002.

A generation ago, sociologists studied organizations because they were

seen as the most efficient way to conduct large-scale human affairs. Although
the ambivalent Max Weber had shown that organizations also had a dark
side, an iron cage of domination, by the mid-twentieth century in America,
sociologists studied organizations because they embodied rational methods
and efficiency. Most of the organizations that appeared in sociological stud-
ies were business corporations, yet scholars rarely theorized about how eco-
nomic organizations were distinctive. Economists paid scarcely any attention
to organizations at all, lumping together all enterprises as unitary actors in
the market. Economic sociology was virtually nonexistent in the division of
labor that left sociology the residual terrain of "society" in the social sciences.
The Architecture of Markets by Neil Fligstein and Organizing America
by Charles Perrow demonstrate how much the field has changed. Much of
what used to be described as organizational sociology is now conducted un-
der the rubric of economic sociology, as the walls between disciplines have
crumbled. As a consequence of a sustained assault on economistic think-
ing, efficiency is now a fundamentally discredited notion on this side of the

1Department of Sociology, UCLA, Los Angeles, California 90095-1361. e-mail:

billroy@soc.ucla.edu.

163

0884-8971/04/0300-0163/0 ? 2004 Plenum Publishing Corporation

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 164 Roy

disciplinary wall, a bete noir for economic sociology to rally against, an orga-
nizing principle against which a burgeoning specialization finds its identity.
Economic sociologists debate many topics, but they generally agree that
organizations are not explained by efficiency. What distinguishes economic
sociologists from each other is the manner in which they attack efficiency
theory (the notion that the growth of large-scale business organizations is
explained by efficiency or that efficiency helps explain variation among or-
ganizational forms). The types of organizations most often explained by ev-
erything but efficiency are economic organizations, more commonly known
as business corporations. While economists and management professors still
base their studies on the notion of efficiency, sociologists continue to search
for a substitute concept, a fundamental assumption that can match the ana-
lytical power of efficiency.
Fligstein and Perrow offer starkly contrasting candidates to substitute
for efficiency, and both offer formidable analyses to bolster their contentions.
Fligstein would like to replace profit maximization with reduction of uncer-
tainty as the basic postulate of action, accepting economists' deductive mode
of reasoning but with a different starting point. Firms, he argues, place higher
priority on reduction of uncertainty than maximization of profit. That alter-
native starting point of theory then leads to a very different picture of how
the economy operates that Fligstein labels the political-cultural approach.
Because one of his stated goals is to open dialogue with economists, he
soft-pedals the exploitative or oppressive aspects of large corporations. In
contrast to Fligstein's Durkheimian focus on social order, Perrow evokes We-
ber's theme of domination, though with little of Weber's ambivalence. Our
society, he asserts, has become totally dominated by large-scale business cor-
porations, fostering gross inequality, widespread waste, and an oppressive
concentration of power. While he and Fligstein agree that the conventional,
efficiency-based models are fatally flawed, Perrow has nearly as sharp a cri-
tique for the institutional/culturalist perspective that Fligstein represents as
he does for conventional economists.
Perrow seeks to explain an uncontestable feature of American society-
that in the last century and a half, it has become dominated by a handful
of extremely large business corporations. The largest corporations are now
richer than all but a handful of nations and have concentrated power beyond
anything imaginable in the premodern world. While only 20% of Americans
worked for someone else in 1800, today 90% do, and many of them for
entities that employ more than a thousand people. In contrast to popular
discourse, the issue is not why giants like Enron or Worldcom are corrupt or
collapse, but why the system creates entities that are so large and powerful.
While many sociologists have addressed how the system of power works, few
have considered how that system emerged. Perrow tackles the issue head-on,

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Power and Culture in Organizations 165

with a historically rich, empirically grounded account of how corporations

became dominant. His account begins in the early nineteenth century, when
large organizations were nonexistent, when even the American state could
be housed in a few office buildings, and ends in 1910, when the organizational
mold was set. Although the large corporation of today is quite different from
that of 1910, the fundamental form and the institutional structure are the
same. America had passed from a society of communities to a society of
organizations.
Perrow has a stronger sense than Fligstein of what organizations do.
Beyond providing goods and services, organizations

* generate wage dependence;

* centralize surplus wealth;
* use and shape ethnic, racial, gender, and other divisions;
* act in their own interests;
* shape the external environment, creating negative externalities;
* concentrate wealth and power;
* spark system accidents; and
* absorb the functions of smaller, autonomous units.

This list includes activities that are central to actual functioning, effects be-
yond the organization itself, and analytical assumptions about how to con-
ceptualize organizations.
Moreover, he is clear about the theories against which he offers his
"society of organizations" theory, including

* technological factors;
* Alfred D. Chandler's strategy and structure theory and contingency
theory;
* political/administrative factors that focus on the role of government
and politics;
* political power factors that emphasize how organizations are instru-
ments in the service of some more basic goal or interest;
* stratification and class-based theories;
* labor process theories that focus on the subordination of labor; and
* cultural/neoinstitutional theory that emphasizes imitation, culture,
and normative practices.

Drawing on several of these theories in part, he acknowledges that

several of these factors played a role, but emphasizes that organizations were
actors in themselves, fashioned by particular elites: "My argument is that
while culture, politics, technology, efficiency concerns, and entrepreneurship
all played a role, the most neglected and the most significant role was played
by formal organizations" (20).

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 166 Roy

The body of the book is a historical analysis of the two decisive moments
in the shaping of the organizational society-the development of the textile
industry in the early nineteenth century, and the railroad corporations of the
second half. It was through these two industries that the modern corporation
was shaped and from which all others descended.
For Perrow, organizations are both the cause and the effect. They are
actors that have their own interests (and interests are very important in
his scheme) and act upon their environment and each other. Many of the
laws, institutional features, and features of the social context are intentionally
shaped by organizations. In fact, most of the agency in his account is of organi-
zations. In general, this is a strength of the analysis. Organizations have hired
lobbyists, bribed legislators, influenced politicians, plundered economies, ex-
ploited workers, preyed upon competitors, and influenced the public. But the
ability of organizations to act as singular agents is variable and something
to be explained, not taken as a postulate, as Perrow tends to do. Law, cus-
tom, and interorganizational interaction have all contributed to the ability of
some people to make decisions that obligate other people under the rubric
of a fictive entity we call organization. The size, power, and concentrated
wealth that Perrow seeks to explain depend on the achievement of organi-
zational "entity-ness" that he takes for granted, but which arose along with
the events he is describing. Organizations do now act as if they had a life of
their own, as though they had their own interests apart from the humans who
run them and benefit from them. But that is an achievement. Moreover, it
is never absolute and remains a matter of continuing contention. The extent
to which some people can claim to act "for the organization" against other
partisans is a source of power and an object of contestation.
One of the distinctive features of Perrow's analysis is that he cha-
racterizes the entities of domination as large bureaucratic organizations
rather than corporations, even though virtually all the empirical referents are
corporations. He is certainly correct that America now operates in large or-
ganizations. Not only business, but education, religion, health care, and phi-
lanthropy are administered in large-scale bureaucracies. Yet, in his account,
"organizations" seek profit, bash competition, concentrate wealth, and ex-
ploit labor. His organizational explanation is consistently economic; when he
challenges the explanations of others with an "organizational" explanation,
he typically introduces factors that are specific to business corporations. The
issue is important because it begs the question of the relationship between
the rise of large business organizations and large organizations in general.
The explanations in this book are specific to businesses. The development
of large organizations has permeated society, but their rise in other sectors
is related to, but different from that of business. The explanations of the
rise of large corporations do not necessarily apply to other institutions. I

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Power and Culture in Organizations 167

hope that Perrow's next book will address the rest of the organizational
society, how large organizations have taken over all the spheres that once
operated on a small scale: how giant school boards, mega-versities, huge
churches, multimillion-dollar charities, and big government have replaced
the red brick school house, liberal arts college, country chapel, webs of reci-
procity, and town councils. Large corporations have been an organizational
template, a causal force, and a beneficiary. The relationship of large corpora-
tions and other large organizations has been interactional, not just parallel,
and Perrow is one of the best equipped sociologists to tackle the nature of
the relationship.
While Perrow describes how large-scale organizations created mod-
ern capitalism, Fligstein shows how firms are shaped by the organizational
fields within which they operate. Both, as good sociologists, problematize the
relationship between organizations and their larger environment, but the di-
rections of their emphases diverge. Perrow's actors are organizations them-
selves, and the system is an aggregation of what firms achieve by pursuing
their own interests. Fligstein's actors are managers reading the environment
and positioning their firms relative to other firms. In stark contrast to Per-
row, he sees culture playing a much larger role in connecting organizations
to their environment.
Fligstein's ambitious book offers to contribute to a coherent intellectual
structure that can help "create an alternative sociological view of markets
in a capitalist society" (xiii), asking such questions as What, from a sociolog-
ical perspective, is a market? What are actors doing in markets that differ
from what economists say they are doing? What social relations underlie
the noncontractual basis of contract? How do state-building and market-
building interconnect? How do political and economic elites help construct
markets?
His answers are set within what he calls a political-cultural approach.
"The key insight of the approach is to consider that social action takes place
in arenas, what may be called fields, domains, sectors, or organized social
spaces.... Fields contain collective actors who try to produce a system of
domination in that space. To do so requires the production of a local culture
that defines local social relations between actors" (15). This approach is
theoretically attractive because it completes the fundamental triangle of
social science as we know it: economics, politics, and society. But that breadth
and scope also dulls its analytical acuity. If one aspires to a political-cultural
theory of the economy, what is left out? Another strength is that it synthesizes
what are often seen as diametric tendencies, the hard, hierarchical relations
of power, and the soft, consensual relations of culture. And while much of
the book carefully negotiates between these binary concepts, many readers
will wish for stronger commitments on such issues.

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 168 Roy

One of the more provocative features of this book is Fligstein's attempt

to reach out and engage economists. Economists, he notes, have moved far
beyond the caricatures that sociologists often portray about rational choice
and perfect information, and now speak to many issues that noneconomists
think are beyond their purview, including networks, status systems, the struc-
turing of ownership, and the role of financial markets in firm structure and
strategy. To open this dialogue, Fligstein proposes an agenda for a sociology
of markets, posing five core theoretical questions:

1. What social rules must exist for markets to function, and what types
of social structures are necessary to produce stable markets?
2. What is the relation between states and firms in the production of
markets?
3. What is a "social" view of what actors seek to do in markets, as
opposed to an "economic" one?
4. What are the dynamics by which markets are created, attain stabil-
ity, and are transformed, and how can we characterize the relations
among markets?
5. What are the implications of market dynamics for the internal struc-
turing of firms and labor markets more generally?

These are questions that many of us care deeply about, and there is little
doubt that The Architecture of Markets moves the field forward in addressing
each of them. It is a testimonial that the book not only sets the agenda for
economic sociology but concretely advances the field with solid empirical
analysis.
After presenting a coherent, theoretically provocative, and substan-
tively rich model on how markets operate as institutions and how the insti-
tutional operation of markets affects the internal dynamics of firms, Fligstein
applies his model to several empirical cases. For example, he shows how the
relative power of capitalists, workers, and government in the United States,
France, and Japan helps explain variation in the rules that govern the em-
ployment relationship, how the growth of industry and the product strategy,
along with the background of the CEO, explain the performance of large
American firms in the 1970s, or how the rise of the shareholder value concep-
tion of the firm helps explain the merger movement of the 1980s. Perhaps
the most important of his empirical chapters challenges the globalization
literature by showing the continued vitality of nation-states in governing
economic life.
The most controversial contention in the book is the assertion that
the primary motivating force for firms is not so much profit-maximization
as survival of the firm, which is sought primarily by reducing uncertainty:
"The theory of fields implies that the search for stable interaction with

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Power and Culture in Organizations 169

competitors, suppliers, and workers is the main cause of social structures in

markets" (18).
One of the core insights is that if firms behaved as economists assume by
competing through pricing, markets would be very unstable, so firms must
find ways to overcome this inherently destabilizing tendency. He emphasizes
two problems that firms must resolve: stabilizing relationships among each
other, especially in light of the existence of dominant firms in each market,
and stabilizing internal power struggles through the adoption of a conception
of control. This second goal elevates a concept that Fligstein has fruitfully
elaborated in his earlier work as a core feature of firms and markets. There
is no doubt that firms individually and collectively seek stability and that
stability is a high priority of decision-making. But I think it is a mistake to
put stability at the center of a theory of markets as he does.
The focus on stability and general rules means that other factors and
processes that affect operation are relegated to caveat and elaboration. He
admits that states often make rules that benefit some capitalists more than
others and that rules sometimes have unintended consequences, but his guid-
ing principle is that the purpose of "policymaking is to make rules and gov-
ernance mechanisms to produce stable patterns of interaction in nonstate
fields" (39). He contrasts the self-serving politicking of individual capitalists
with the stabilizing rule-making of the collectivity and notes that rules can
benefit powerful groups the most. But his analysis seems poorly equipped
to address one of the most historically significant trends in the operation of
markets over the last few decades-large-scale, pervasive, and destabilizing
deregulation.
What is missing is a sense of what firms do. Firms exist to make a profit.
Profit does not explain everything about firms, far from it, but if they don't
make a profit they cease to exist. So the bottom line-in this case literally
the bottom line-trumps other considerations, including stability. Even when
firms are seeking stability, they are seeking stable profits, not stagnation.
While there are some very promising insights about the relationship of
stability to the structure of markets, their complexity, the role of dominant
firms, and conceptions of control, there is relatively little in Fligstein's ac-
count about how stability is concretely achieved. What do leading firms do?
What is the role of trade associations, the trade press, managerial ideologies,
certification agencies, and most especially the law? The book consistently
emphasizes the role of government, but there is virtually nothing about fi-
nance law, contract law, tort law, antitrust law, or labor law, and only vague
references to property law.
The issue of stability needs empirical examination rather than theo-
retical assumption because it directly contradicts one of the fundamental
features of capitalism that classical thinkers from Adam Smith to Karl Marx

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 170 Roy

to Karl Polanyi emphasized: the dynamic, disruptive, destabilizing nature of

markets. As Marx and Engels rhapsodized in the Communist Manifesto, "All
fixed, fast-frozen relations, with their train of ancient and venerable preju-
dices and opinions, are swept away, all new-formed ones become antiquated
before they ossify. All that is solid melts into air." If there are structural
imperatives in capitalist markets, the need for innovation, new trading part-
ners, expansion, and invention is at least as great as the need for stability.
And as Weber and Schumpeter have taught us, the impetus to innovation
and creativity can be driven as much by agency as structure. How different
market systems organize and manage the dialectic between stability and dy-
namism is an important issue to theorize and investigate, but an analytical
framework built on either of them rings of the sound of one hand clapping.
Fligstein acknowledges that markets are inherently unstable, especially from
the seller's point of view. But this acknowledgment is more of a caveat than
a serious consideration of the relationship between stability and dynamism.
Both books emphasize power, though for Perrow the power is rawer and
harsher. Both distance themselves from institutionalism in sociology. Flig-
stein wants to reform it, while Perrow would jettison it. Both are historical,
though Perrow is seeking to explain a specific configuration of organizational
power in modern America, while Fligstein addresses a more general pattern
of developed capitalism. Both challenge economic theories, though Fligstein
more than Perrow seeks dialogue and seeks to speak on terms that invite
dialogue.
Yet, the differences between them are more visible than the similari-
ties. The starkest contrast is moral intensity. Perrow is unabashedly critical,
pounding the human costs of corporate dominance, the venality of corrup-
tion, the excesses of rapacious expansion, and the waste of unchecked greed.
Fligstein's tone is more detached and less judgmental about economic or-
ganizations. Second, Perrow's book seeks to explain the rise of corporate
power, an unbridled surge of powerful leviathans; Fligstein seeks to explain
stability in markets. This is the deepest and most unresolvable difference
between them, manifest in both their basic assumptions and the stories they
tell. Perrow assumes that the people in charge of organizations seek expan-
sion and that the system is built to select the most dynamic competitors.
Fligstein advocates replacing the profit motive as the basis of economic ac-
tion with a quest to reduce uncertainty and posits that the system selects
those firms that most effectively manage instability. While profit and the re-
duction of uncertainty are on the minds of managers, and while expansion
and stability both affect organizational survival, neither author offers the
raw material for a synthesis. Third, the two authors have diametrically op-
posed views of culture. Cultural explanations are one of Perrow's primary
targets. He repeatedly challenges cultural explanations of economic change,

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Power and Culture in Organizations 171

showing in example after example that what other authors have framed as
cultural influence is really the work of self-interested agents acting through
large organizations. Fligstein's political-cultural approach would certainly
draw Perrow's fire. Fourth, they have different takes on the role of govern-
ment. Government is a very important part of both their stories, but they
differ in emphasis. For Perrow, the government has supported the rise of
large organizations and failed to constrain their dominance. Fligstein sees
government as playing a more constitutive role, setting the context in which
markets and firms operate. Both would like to see the government regulate
economic excess, but Perrow is more skeptical about its ability to do so.
Both books are likely to be influential. They are major statements by
two of the most prominent economic sociologists in the country. Fligstein's is
more in step with the main stream of economic sociology with its emphasis
on markets, networks, culture, and total fields. His book has already won
awards in the field. Perrow's more incisively reminds us of what is at stake,
the concrete effect on personal lives and the distribution of social resources.
The discipline and the society are enriched by both.

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