Understanding Business Systems: An Essay on the Economics and Sociology of Economic Organization

This is a discussion from an economist's perspective of the concept of business systems. This concept has recently been proposed by Richard Whitley as a means of conceptualizing the close connections between dominant social institutions and ways of coordinating economic activities as well as the interrelations between firms and market characteristics. The paper discusses to which extent economics is helpful for the understanding of business systems. Moreover, the paper uses this as a catalyst for a broader discussion of the economics and sociology connection. The main argument is that while economics is helpful for understanding certain aspects of business systems, the path-dependent, complementary and context-dependent features of business systems are hard to grasp with economic tools to the extent that these features have cognitive and normative elements. In general, economics has a problem with the cognitive and normative spects of institutions, which are merely treated as side-constraints on action. However, these aspects may be crucial for understanding processes of path-creation and dependence (for example, in business systems), and therefore ultimate allocations.