The economic processes in an embedded economy are not driven by money. In this structure, there are no means of exchange. Instead any trade that takes place is between households and does not involve the market place, which is the spoke of the wheel in a disembedded economy. Therefore the embedded economy is driven by non-economic institutions such as religious institutions or cultural institutions. In this context, any transactions that are taking place are not given economic recognition. In other words, these transactions are conducted not out of any need to generate economic value, but to maintain a particular socio-cultural framework. The process of distribution takes place accordingly. This forms the core of trade in an embedded economy. Households exchange goods and services in accordance with mutual needs. There are no distribution intermediaries involved. Accordingly, the participants in the trade have to measure the value of the goods and services being exchanged and ensure that they are equal. However this is not recognized as trade because the primary motive is to maintain goods relations between the two households.
By contrast, in a disembedded economy, economic transactions take place with the primary motive of generating profits. The most important aspect of this economic structure is currency as the means of exchange. In other words, money is used as the means of exchange in the disembedded economy. In this economic structure, organizations specialize in production and distribution and sell their products and services in the market which is the meeting place for buyers and sellers to interact with each other. The transactions that take place are between parties who are unknown to each other. The advantage of this economic structure is that the buying and selling process can be facilitated by means of a common currency. Therefore the participants in the exchange process have a common measurement tool by which to measure the value of their products and services. This ensures that both parties receive value of equal measure. The disembedded economy is driven by the institutionalization process.
The Arapesh society is an example of the embedded economy. In this society, the processes of production and distribution are driven by the need to maintain the existing socio-cultural framework. The society certainly engages in economic processes such as hunting for food production, and also house building. However these processes are undertaken not to generate any economic value but to maintain good relations with neighbors. For example, nobody will eat the food that he has killed himself. Instead the food is distributed to other households in the form of gifts. The gifts are returned. This is the basis of the Arapesh society and any transactions that might be interpreted as having economic value are undertaken with the only motive of maintaining this structure. The Arapesh view it as attending to social responsibilities when engaging in economic processes. No profit motive exists. Therefore there are no economic institutions in the Arapesh society. Such institutions are not needed as the process of maintaining the existing social order leads by itself to an economic situation where everyone is provided for.
In the disembedded economy, the concept of competition is one of the primary determinants of whether an exchange will take place. As a result, organizations participating in the buying and selling process reengineer their internal business processes in order to create efficient and effective resource allocation processes. These strategies are undertaken in order to maximize shareholder wealth. This is in contrast to the Arapesh society where there are no economic institutions dedicated to the production and distribution of particular goods and services. Instead any economic processes are undertaken individually or in groups which however are not structured based on economic fundamentals. Therefore, these activities might generate economic value by producing food and other necessities but the focus of these activities is communal. In other words, the community and the family are the central units of the economic processes characterizing the Arapesh society. As a result, there are no economic institutions. The only institutions are the households in the community.
The living arrangements in the Arapesh society are determined by household members other than those who are living in a particular house. As a result the house does not belong to them but it belongs to other families. This arrangement is reciprocated and creates the structural basis of economic processes in the society. As a result, when a particular family is constructing a house, the building materials will not be taken from the house that they own because that house belongs to another family according to the socio-cultural framework of the society. This is essentially a process of exchange which has no economic significance for the Arapesh. The only purpose that these exchanges serve is to maintain the existing social order. All economic processes are driven by the need to maintain the communal lifestyle of the society.
The Arapesh society is an example of the embedded economy because although the society conducts economic transactions, it does not have the word ‘economy’ in its vocabulary. That is the definition of the embedded economy according to Polanyi. In the Arapesh society, any relevance for economic transactions comes from political and sociological forces. Therefore it fits the definition of the embedded economy being driven by non-economic institutions. The Arapesh society has exchange but it is different from that in modern economies in the sense that the exchange is not considered to be trade based on economic gains. Rather the exchange takes place in order to maintain a particular political and social structure. The political and social structure is the basis of the Arapesh society and there is no economic structure as defined in the disembedded economy.
Mankiw, N. Gregory. (2005). Macroeconomics. Prentice Hall.