Economy and Social Norms
Introduction
An economy is a field of manufacture, trade, dispersal and consumption of services and goods by various agents. It is a social domain that emphasizes on the practices, sermons and materials terminologies concerning the production, expenditure as well as administration of resources. The agreed economy is a product of different processes that includes its values, culture, education, ecology, technological evolution, political structure, social organization, history, geography, legal system and natural resources endowment. The conditions above are responsible for setting the content, context or parameters that control how the economy functions. In addition, the economic domain is a result of the social norm in human transactions and practices. The agents of economy involve human being, legislatures, businesses and organizations. However, monetary transactions take a small share in the economic domain since the major transactions dwell in parties’ agreements on the value or expense of the goods they are transacting (Nelson, 2009). Similarly, social norms comprise of the unwritten and at times the written laws of the community but differ from one culture to the next and are regarded as acceptable or normal in the society thus, people who follow the norms are termed as respectful. Besides, the choices individuals make are determined by local customs, family traditions and peer pressure. According to psychologists and economists, the majority of human relations are controlled by social norms, and not by money or prices. Family members relate well as a result of social norms and the customs also affect the decisions community make. Besides, culture plays a key role in manipulating norms thus, the economy gets affected directly, a subject that economist ought to consider while making decisions related to economy and social norms (Young, 2014). The objective of this essay is to critically analyze and discuss social norms in relation to the economy.
Functions of Social Norms in Economy
Majorly, the presence of social norms in economy facilitates the coordination of actions among individuals in a particular setting. They encourage the behavior of shared standards and generate more power to motivate the character. Besides, they act like directions that regulate human behavior thus transforming the character into a personality element. Thus, social order comes into existence therefore confronting or reducing conflicts and tensions that might affect the economic activities in the society. when members of the community work in solidarity, the nation records great economic activities as there will be minimal disruptions in either workplace or legislation firms. Therefore, when social needs are satisfied, the economy elevates to a stable level as the needs of the community are satisfied.
Executive Summary
In economics, social norms affect how individuals influence the growth and development of a nation. There are three social norms in economics that include formal, informal and behavioral norms. The three norms either affect the economy of a state positively or negatively depending on how individuals choose to operate within the laws set. The major reasons for creating norms in a society is to bring order, peace and positive behavior thus, minimize cases of illegal activities in the region. Where the community obeys the rules set by the social norms decision-makers, the economy of the nation records great revenues that continues to increase in the long run.
Literature Review
Social Norms Involved in Economy
Formal norms
They involve the institutional norms like the law as well as customs in organizations or corporate rules. In recent years, there has been exceptional economic growth in income per capita across the globe. However, there is an economic gap in different nations which is as a result of variations in social norms and specifically the formal norms. The developed nations have a high economic excellency while third world countries are still lagging. The primary reason that creates this inequality in economic growth is the type of social norms the country operates in, their legislatures and the structure of their governance who are responsible for creating and administering the formal norms in workstations (Gradstein and Konrad, 2020). In sub Saharan, the norms that lag the nations behind relate to topics like the effects of decentralization, fiscal discipline in states, exploitation of natural resources through corrupt means, social violence as a means of settling differences and the outcome of having a sturdy state identity on redistributive legislations. Therefore, the formal norms that operate in African states lag them behind economically and, promote the gap between their economic activities and developed nations economy state.
Informal Norms
They are non-written rules that include the gift rules and types of activities that are linked to gender. The relationship between informal norms and economic activities is seen in the way economist and rulers implement the transformation of formal laws in market economies. The analysis of the relationship dwells on the changes an organization undertakes to have state control over economic activity. The changes alter with incentives thus shifting them away from negotiating with institutions like bureaucrats in the radical market towards pursuing gain or profit in economic markets. According to informal norms, networks are based on personal connections and they serve as organizers towards the economic behavior in a market-oriented setting. Therefore, it reflects the personal expectations of politicians and entrepreneurs in the business world. Besides, they act as the shadows of states to add probabilities of attaining the goal set by economists. Informal norms are seen in privatization and domestic arrangements present in China where this norm have great contributions to their excellency over the past years. However, in Russia, the informal norms that include the mafia business setup operate to destruct the government’s effort in establishing a modern market economy. Therefore, it is evident that when there is a one-sided focus in informal constraints, a state will record low economic behavior in transition economies.
In addition, informal norms influence progressive market economies through production to a higher extent than in low market economies. Group performances are also regulated by the informal norm that limits production to less equipment per working day. It is among the norms that are satisfactory in the economic setup as management find it appealing. However, the norm has several disadvantages to the economy which includes the limiting factors of an individual like fatigue. Besides, the norm might be difficult to relate with some employees who might have feelings of being neglected or restricted from conducting activities that are satisfying to them. As argued by Nee (2010), in workstations, employees who violate the informal norms are subjected to punishment while those that respect the norm enjoy higher informal rank and approval from fellow colleagues. More so, informal norms enable individuals to engage in collaborative activities that enhance their realization towards their interests and preferences in economic settings.
Behavioural Norms
Traditionally, economics accepts the fact that individuals make decisions independently based on their interests or preferences. In behavioural norms, economist believe that a lot of decisions take place in a social context inside social networks. Items like social preferences, social norms and identity affect how individuals behave thus they might influence the economy positively or negatively depending on the type of decision the community decides to embrace. However, in most cases, a great number of individuals copy the behavior of others and apply it as theirs due to personal reasons. The shared mental models or the social network also affect how individuals behave and make decisions towards a specific subject in economic (Riley, 2018).
More so, behavioural norms signal the character or the laws that are operated within a group of people. They include the normal feedback that might include how a personal car consumes energy in a day in relation to the regional allocation level. Therefore, it’s applicable in behavioural change programmers where the community sets laws that particularly affect how people relate with each other and the environment at large. As a result, the feedback generates a representation, description or something people do routinely to reflect the comparison of behavior or their purpose concerning to their behavioural norms. The economy is affected when the behavioural norms takes the route of community practicing undesirable behavior towards the rules set rather than carry activities in a desirable behavior. The negative effects present in the economy as a result of behavioural norms began as a result of the community’s theory that assume individuals are selfish as well as reactive to economic incentives.
How Social Norms Impact the Economy
Social norms have been a part of global economic development since the introduction of laws in the economy sector. Economically, social norms impact behavioural change in the government sector and areas like women empowerment and conflict resolution. Through the use of social norms, the community benefits from health facilities as they work within the limits of the economy budget to provide the society with services that are affordable. More so, the social norms of nations attract donors and promote the agenda of achieving development outcomes in sectors like education thus providing a great room for innovation and therefore initiating the progress of the nation’s economy. They are also social forces that spearhead the activities of empowerment in a collective attitude towards a positive belief (McDonald and Crandall, 2015).
In addition, social norms contribute to the decisions individuals make regarding the mode of dressing the type of food, how a community speak, their belief and attitudes as well as behaviours. Therefore, in a community that has social norms that promote accountability in political powers and accountability of resources or upholds technology, the economy has a high probability of growing. However, a community that has social norms that are irrelevant or ones that dictate towards one similar behavior that may include power dictatorship, irregularities in public offices as well as a culture that supports looting of funds and resources records a stagnant economy due to their unwilling behavior to change or adaptation to the new millennium. They also provide order and cooperation in the society as well as promote responsible behaviours as everyone has an understanding of every action one is supposed to embrace and those that are regarded as illegal. Therefore, they reduce instances of confrontations or fights and promote peace in the community.
References
Gradstein, M., & Konrad, M. A. (2020). Institutions and norms in economic development. The MIT Press. https://mitpress.mit.edu/books/institutions-and-norms-economic-development
McDonald, R. I., & Crandall, C. S. (2015). Social norms and social influence. Current Opinion in Behavioral Sciences, 3, 147-151. https://doi.org/10.1016/j.cobeha.2015.04.006
Nee, V. (2010). Norms and Networks in Economic and Organizational Performance. Norms and Networks in Economic and Organizational Performance. http://people.soc.cornell.edu/nee/pubs/normsandnetworks.pdf
Nelson, C. R. (2009). Macroeconomics: an Introduction. An Overview of Economics. http://faculty.washington.edu/cnelson/Chap01.pdf
RIley, G. R. (2018). Social norms (Behavioural economics) | Economics | tutor2u. tutor2u. https://www.tutor2u.net/economics/reference/behavioural-economics-social-norms
Young, H. P. (2014). THE EVOLUTION OF SOCIAL NORMS. THE EVOLUTION OF SOCIAL NORMS. https://www.economics.ox.ac.uk/materials/papers/13470/paper726.pdf