Social Exchange Theory

This yields a genuinely useful account of power, and one that suggests how it can be resisted. A person who cannot get elsewhere what they need has little bargaining strength; a person with alternatives has more. It explains why a worker in a labour market with many employers is in a different position from one in a single-industry town, and why exclusivity, whether of an employer, a moneylender or a landlord, converts into power.

Blau: from exchange to structure

Homans stayed at the level of face-to-face behaviour. Peter Blau tried to build outwards, arguing that repeated unequal exchanges harden into stable structures: a person who consistently gives more than they receive, and cannot reciprocate, ends by giving compliance instead. Unreturnable obligation is thus one origin of authority, and if those subject to it come to regard the arrangement as legitimate, it becomes an institution.

Blau also distinguished social from economic exchange, and the distinction is examinable. In an economic exchange the obligations are specified, the terms are stated and the transaction closes. In a social exchange the obligations are unspecified, the timing and form of the return are left to the giver, nothing is bargained for, and the exchange therefore requires and generates trust.

Distributive justice

Homans added that people expect the rewards of an exchange to be proportionate to what they have invested. When they are not, the party who feels short-changed responds with anger, and the party who is over-rewarded with guilt. The theory thus predicts not only withdrawal from unprofitable relationships but resentment within unfair ones.

A worked example

Meera rents a flat in Andheri from Mr Shah, through a broker, Farid.

The economic exchange is easy to read: rent for possession, brokerage for introduction, terms specified in an agreement, obligations closed on performance.

The social exchange running alongside it is the interesting part. Farid gives Meera advice she has not paid for. She refers two colleagues to him. Neither transaction is bargained; each relies on the norm of reciprocity, and each builds trust that makes the next one cheaper.

The power in the relationship follows dependence. In a market with many vacant flats, Mr Shah's power is low: Meera's alternatives are good. In a locality where flats are scarce and landlords prefer particular kinds of tenant, her alternatives shrink and his power rises, without a word of the agreement changing. This is Emerson's proposition doing real work, and it explains why the same lease means different things in different markets.

Distributive justice appears when Meera learns that a neighbour in an identical flat pays less. Nothing in her own bargain has changed and her profit is what it was, but her sense of the fairness of the exchange collapses, and the theory predicts precisely the anger that follows.

The perspective applied to law

• Contract is the legal recognition of exchange, and consideration is the doctrine that most closely tracks the reciprocity norm.
• Bargaining power is a legal concept that exchange theory explains: unequal bargaining power is unequal dependence, and doctrines about unconscionable terms and standard form contracts are attempts to correct for it.
• Settlement and negotiation, where most disputes actually end, are exchanges under the shadow of the law, and the parties' alternatives, which is to say what each gets if no agreement is reached, decide the outcome.
• Corruption can be read as social exchange displacing economic and legal norms: a favour given, an unspecified obligation created, a return expected later, and trust rather than a contract holding it together.

Criticism

1. It assumes a calculating individual, which fits some cultures and settings better than others, and fits market societies best of all. Critics say it universalises the assumptions of the society that produced it.
2. It is close to tautology. If whatever a person does is called rewarding because they did it, the theory explains nothing. Avoiding this requires that rewards be identified independently of the behaviour they explain, which is difficult.
3. It cannot easily explain genuine altruism, self-sacrifice, or acts done for people who can never return them, except by stretching reward to cover the satisfaction of having acted well.
4. It is weak on large structures. Blau's attempt to build institutions from exchanges is impressive but few think it fully succeeds; caste and class are not readily reduced to accumulated bargains.
5. It neglects meaning. The same act, a gift, an invitation, means different things in different cultures, and what counts as a reward is itself socially defined. That is the objection symbolic interactionism presses, and it is taken up in the next chapter.

Quick revision

1. Interaction is an exchange of rewards and costs; relationships persist where they are profitable.
2. Rewards are mostly non-material: approval, respect, information, company.
3. Homans: behavioural propositions, and distributive justice, reward proportionate to investment.
4. Gouldner: the norm of reciprocity, found in all societies; the social basis of consideration in contract.
5. Emerson: the power of A over B equals the dependence of B on A; dependence falls as alternatives rise.
6. Blau: unreturnable obligation becomes compliance, then authority, then institution; social exchange has unspecified obligations and requires trust, unlike economic exchange.
7. Criticism: assumes a calculator, risks tautology, cannot explain altruism, weak on macro structure, neglects meaning.

Test yourself

1. State the basic proposition of social exchange theory. That social interaction is an exchange in which each party gives what the other values and receives something in return; that people seek to maximise reward and minimise cost; and that a relationship continues so long as both parties find the exchange profitable and broadly fair.

2. State Emerson's proposition about power and apply it. The power of A over B equals the dependence of B on A, and that dependence rises with the value B places on what A supplies and falls with the availability of the same resource elsewhere. Applied to a tenancy: where vacant flats are plentiful the landlord's power is small, and where they are scarce his power grows, though the lease is unchanged.

3. Distinguish social exchange from economic exchange. In economic exchange the obligations are specified in advance, the terms are bargained, and performance closes the transaction. In social exchange the obligation to return is real but unspecified in kind, amount and timing, nothing is bargained, and the exchange therefore depends on trust and generates it.

4. What is the norm of reciprocity and why does it matter to a lawyer? Gouldner's proposition that every society has a rule obliging people to return benefits received. It matters because it is the informal counterpart of consideration: the legal doctrine formalises, for a limited class of promises, an expectation of return that operates without any contract across the whole of social life.

5. Give two criticisms of the theory. That it verges on tautology, since anything a person does can be relabelled a reward and the explanation then explains nothing unless rewards are identified independently; and that it neglects meaning, because what counts as a reward is itself culturally defined, so the calculation the theory describes cannot be specified without the interpretation it leaves out.