Louis Augustin-Jean

THE SOCIAL CONSTRUCTION OF MARKETS IN A TRANSITIONAL ECONOMY: THE EXAMPLE OF THE SUGAR INDUSTRY IN CHINA

If the entry of China into the WTO, in 2001, has generated numerous researches, the organization of China's economy remains quite unknown. Current changes provide a unique chance to understand the role and the interaction of different agents in the (re)construction of a market. For this purpose, a specific industry has been selected. The analysis of the sugar industry allows us to grasp its organization from the basic producer (the farmer) up to the final consumer (the food industry). It also allows us to take into account the changes that are currently underway in the international market of sugar, which exert considerable pressure on an industry that is undergoing complete restructuring in China. The paper shows that, while China's central government seems committed to further liberalize its economy, the diverging interests of the stakeholders (farmers, mills, local authorities…) have reinforced the role of the various levels of government agencies. It also shows that all the measures taken to protect the most vulnerable agents have led to increased instabilities and uncertainties in a market which, nonetheless, has been continuously expanding for the last 25 years.

Résumé

Bien que l'entrée de la Chine dans l'OMC, en 2001, ait généré de nombreuses recherches, l'organisation de l'économie chinoise demeure relativement mal perçue. Les changements actuels procurent une occasion unique de comprendre le rôle et l'interaction des différents acteurs dans la (re)construction du marché. A cette fin, une industrie spécifique a été sélectionnée. L'analyse de l'industrie sucrière nous permet de saisir son organisation interne, du producteur (le paysan) jusqu'au consommateur (les industries agroalimentaires). Elle nous permet aussi de prendre en compte les changements actuellement en cours sur le marché international du sucre, et qui exercent une pression considérable sur une industrie en cours de restructuration. L'article montre que, alors que le gouvernement central semble décidé à poursuivre les réformes de libéralisation économique, les intérêts divergents entre les principaux acteurs (paysans, sucreries, autorités locales…) ont renforcé le rôle des différents niveaux d'agences gouvernementales. Le papier montre également que les mesures pour protéger les agents les plus vulnérables ont accru les instabilités et les incertitudes dans un marché qui s'est néanmoins fortement développé durant les 25 dernières années.

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Louis Augustin-Jean ** One of the culminations of China's economic reforms -which started in 1978 -occurred in 2001 when she gained admission into the WTO after more than 13 years of intense negotiations. 2 This membership was perceived by the international community as a signal that China will continue her smooth transition towards a market economy. Nevertheless, while China's commitment to the international agreements she signed within the framework of the WTO cannot be questioned, the conclusion that she is leaning towards a (western style) market economy requires closer scrutiny.

China remains a socialist country, and her socialist institutional framework still shapes the decision making of individuals (one need only think of the role of the Communist Party, the one child policy, etc.). Market reforms were no more written on a "white page" than communism was, despite the wishes of Mao Zedong and perhaps the proponents of the Washington consensus. Therefore, it would be naïve to expect China to simply transform into a "market economy" -an expression that still has to be explained -, especially since even Western economies show considerable discrepancies in terms of economic organization (between an Anglo-American and a German or a French "model," for example). Therefore, the focus is no longer on if the Chinese economy is transforming into a market economy, but on its structure, which is embedded in a social context (Granovetter, 1985) and is under the pressure of globalization.

Beyond the specific case of China, this question has very general and theoretical implications.

In China, as in some other transitional economies, if market reforms did not replace the previous institutional framework, they significantly distorted it, reshaping former social groups and bringing about uncertainties. The behavior of individual actors in relation to their systemic positions somehow shaped the economic structure. As noted by Philippe Hugon (1995), in an environment characterized by risks and uncertainties, the decision making process is a first spot for the coordination. Institutional changes bring opportunities or threaten actors who react not only according to the predictions of the rational choice, but also to the blurred perception they have of these changes. The result is an alteration of the institutional framework beyond the original reforms that the Central Government engaged in to fulfill its international commitments -but in a way that is difficult to predict ex ante.

Thus, China offers an interesting case study, as it allows researchers to trace its changes as they occurred and give justification to the actors themselves (Bruno Latour, 1997; 2005, Boltanski and Thévenot, 1991). But then, what kinds of actors are pertinent to, and what constitutes the right level of analysis? Beyond the matter of size (the "Chinese economy" as a whole being inappropriate), the answer is not obvious, since "groups" are in reconstitution in China.

For this reason, the proper "size" cannot be defined ex ante, but is deducted from the density of interconnections linking different (kinds of) agents (Rallet and Torre, 2004) -or even "agencies" in the terminology of Latour (2005). The analysis of these interconnections should account for a description as faithful as possible of the economic structure and of the "laws of the market" (Callon, 2001). This market is no longer the ideal and undefined market of the Washington consensus; its perception arises directly from descriptions, linking institutional changes with networks and actors' behaviors.

The industry level, with its blurred borders and intense interconnections between diversified agencies, provides a starting point for a contextual analysis. In order to join the WTO, China had to alter the institutional context of most of her industrial sectors, and due to these ongoing changes, the traces left by various agencies have been made more visible. The thorny question of the reasons for institutional changes has then to be replaced into a broader perspective: with growing international pressure, what are the actions of the agents, and how do they account for the evolution of the institutional framework? In other words, the modification of the institutional context can be better understood by describing the actions of the agents at all levels, rather than linking it, as Douglass North did, to changes in relative prices or personal tastes (North, 1990; 1992). Thus, changes in the "rules of the game" are not only a governmental decision making process, but are determined by how agents play with these rules in a dynamic and interactive process. It is then possible to focus theoretically and empirically on the organization of the market, which is shaped by the actions of individuals in the context defined by the state and the international environment, and depends not only on these individuals' interests, but even more so on their perceived interest. The results of these interactions will likely define a new mode of organization, possibly distant from a market economy, but also equally distant from the initial context.

While any industry may be suitable for this analysis, two further conditions influenced the choice. First, the industry should be relatively spatially concentrated, as dispersion would raise practical difficulties for an effective analysis due to the size of China and its economic fragmentation. Second, an agricultural industry includes a greater variety of actors -farmers, bureaucrats, businessmen, etc. It is then possible to see how their conflicting or cooperative strategies interact to provoke the evolution of the institutional framework.

With all these constraints in mind, the sugar industry has been selected. China is currently the world's third largest producer of sugar -a key industry for most agro-food sectors. Under the pressure of the international community, the PRC is committed to liberalizing this industry, even though sugar remains one of the most protected industries in the world. In this context and in order to prepare for WTO membership, China started to bring about progressive reforms at the end of the 1990s. These changes exerted pressure on some actors who believe their position to be threatened, while they brought new opportunities to others. In recent years, the production of sugar in China has been increasingly concentrated, with more than 60% of it occurring in the southwestern province of Guangxi.

Thus, the question raised in this article can be reformulated as such: how is the sugar industry in Guangxi Province constructed in relation to the institutional framework introduced by the state, the international context, and individual behaviors? To answer this question, the paper is divided into two parts. In the first one, the theoretical background is defined. Some elements of methodology are also introduced, as well as some fieldwork perspectives. The second part is devoted to analysing the main findings of this fieldwork. Due to space constraints, the findings below are largely restricted to the district level and will only occasionally introduce elements at the provincial or national levels. 3 1. From Market Economy to Network Analysis: a theoretical assessment.

The assumption that China's reforms propelled her to a market economy has led to a simple conclusion: there will be a convergence, in the unspecified "long run," between the Chinese and world economies. The adjustment of the socialist economic regime to globalization forces is then "automatic," and the questions of the organization of the market and the role of the actors within this organization are simply ignored. Nevertheless, the transformation of China's economy is more complex than one would think if we suppose that the actors have a role in shaping the market (Callon, 2001). This shaping process is important for explaining the performance of this market. This section presents the growth of the sugar market in China, and shows why this element of complexity has to be introduced.

1.1. The growth of the sugar market in China: an economic perspective and its limitations At the end of the 1970s, China started to liberalize her economy by introducing internal and external measures. 4 In the countryside, the major one was the implementation of the "responsibility system". The land was contracted to farmers (although the State retained final ownership) who were free to cultivate whatever they wanted after they delivered their rice quota to the State. A decentralization program was also introduced, which gave leverage to the districts to design their own economic policies. These two measures combined to allow each district to make use of its comparative advantage instead of focusing only on grain production. Finally, China initiated the "open door policy," which aimed to attract foreign investment and promote export-oriented manufacturing in the coastal areas, especially in the southern province of Guangdong.

The consequences of these policies led to the establishment of a strong sugarcane production base in Guangxi. The province has a favorable climate for sugarcane growing, a weak industrial base (Guangxi is the 4 th poorest province in China and has a cheap and available labor force) and a mountainous landscape poorly adapted to rice cultivation. 5 On the other hand, neighboring Guangdong (the traditional sugarcane growing province in China) lost its comparative advantage for producing this commodity: located at the Hong Kong border, it benefited from huge foreign investment in light industries (garments, toys, plastics, electronics, etc.). The combined effects of these factors prompted the displacement of the sugar industry to Guangxi.

The effects of the comparative advantages are obvious: in 1978, China produced 2.27 million tons of sugar, including 251,000 tons in Guangxi (11%). In 2004, the PRC was the third largest sugar producer in the world, with a production of over 10 million tons. In the meantime, production in Guangxi has multiplied by more than 40-fold, to reach 6.1 million tons (China Statistical Yearbook, 2005: 514). Guangxi is now one of the largest sugarcane producing zones in the world in the context of increased demand, due to improving incomes in China (Engel's Law).

Nevertheless, after a decade of smooth progress, difficulties appeared during the mid-1990s in the form of fluctuations in prices and production. This was interpreted as a short term growth crisis (with production increasing more quickly than consumption), and was linked to market deficiencies that could be restored with additional market reforms (He, 1999).

Nevertheless, the crisis became deeper. The imbalance in demand and supply could not hide the fact that, despite low salaries, production costs were high, and that Chinese sugar could not compete with overseas production. 6 The lack of mechanization, the small size of the fields, high transportation costs, a backward technology for the mills, the lack of economies of scales were (and still are) some of the most salient features of an industry that grew up too quickly. These problems were not mere economic or even organizational problems, but also social.

Thus, a systemic approach was necessary to account for these interconnections, as one minor change could have huge repercussions for the whole industry. For example, it may seem easy for the mills -or at least possible -to employ more advanced technologies to achieve economies of scale. But then, these mills could end up with excess production capacity, and there could be increased competition with potential negative side effects. 7 In other words, simply resorting to the "market" would not provide a suitable solution. "Full" liberalization would also push down the price of sugarcane, at least in the short term, and create disturbances that could threaten social order and the survival of the sugar industry -Guangxi's main industry.

During the mid-1990s, it was clear that the Central Government had to tackle these issues and undertake important reforms. These reforms were eased by the long trend of production growth and became urgent due to price declines, international pressure, and WTO negotiations. But before examining Chinese reforms and the reaction of the main actors, a theoretical assessment is necessary. This is the object of the next section.

From markets to networks, or the social construction of the markets

The previous section sketched some elements related to sugar production and to bottlenecks existing within the industry.8 While the marketing of the commodity itself is even more complex, the problems that have been highlighted have led to the conclusion that the market is much more than a simple convergence between supply and demand. On the contrary, the production mechanism proves the complexity of the social organization of the market: a change in a single element could affect the overall stability of the system, as well as market performance -and, in the end, the price mechanism. This is a typical case of embeddedness (Granovetter, 1985), which provides an impetus for people to take action at a time when reforms are still being tested and implemented. The question has to then be examined theoretically, starting with the definition of the market itself.

Economists and other social scientists perceive the market differently. For the former, the market is just another "black box" like a household or enterprise. For sociologists or anthropologists, the market is the "location" of numerous interactions and networks that influence its performance, and is hence another type of organization (Callon, 1998).

In addition, these two perceptions also differ by their degree of abstraction. For economists, the market does not have a precise existence. Seldom defined in economic textbooks, it is simply the point of convergence between supply and demand, and its existence is materialized by a price. Indeed, the price of oranges is determined in many places other than in a wet or wholesale market, most of which are intangible. On the contrary, sociologists and anthropologists have been concerned with the analysis of the physical market, and they have shown that its organization influences its functioning and, beyond, the market price. 9 These differences make it difficult to bridge the gap between the two parties. 10 Thus, while embeddedness and networks are a necessary condition, as will be seen below, they are far from sufficient for conciliating the two approaches. "Intangible locations" have also left a trace that needs to be studied.

More precisely, in the case of the sugar market, where is this market to be found? In the futures of New York, London, or Zhengzhou (in northern China), or at the factory gates or within trading companies, etc.? Also, is it necessary to analyze the whole production process, including the growing and sale of sugarcane? The question is rather complicated; even in the case of the flower market described by McMillan, it is not enough to say that flowers arrive fresh at a "spot" in Holland from everywhere before being dispatched within a matter of hours to other parts of the world (2002: 4). For the author, this is proof of the natural existence of markets, and explains the buildup of technological equipment, institutions, and organizations.

But this seems to forget that without these very same technologies, institutions, etc., the market would be unable to work, and thus, the universality of the market as a concept remains debatable. In other words, like the bazaar described by Geertz (1979) and other "spot markets," the flower market is made up of links between agencies -links that do not stop at the physical borders of the "spot markets". 11 This is a major issue that is related to the notion of embeddedness and the difficulty of analyzing networks. Granovetter, in his seminal article (1985), pointed out that the differences between the under-socialized Homo economicus and the over-socialized man of the sociological tradition were superficial, as both remain insulated, whether by the absence of a social structure or the "abundance" of it. He reminded us that the "social structure" is made of networks and relationships that are specific to each individual. In other terms, networks allow people to escape from deterministic patterns (in which their behavior is dictated by the social 9 For a classic example of this second approach, cf. Geertz and his analysis of the suq in Morocco (1979). For a more challenging and recent approach related to the New York Stock Exchange, cf. Abolafia, in Callon (1998). 10 As demonstrated by McMillan, an economist who (unsuccessfully) tried to find concrete examples of markets to show the validity of the theoretical concept (2002).

11 For an analysis of such "spot" markets in China, cf. the special issue of Etudes Rurales edited by Isabelle Thireau (2002). context, like in Bourdieu). Nevertheless, if the author provides examples in the economic field, 12 showing how networks matter, he still would not address the fundamental question of how to analyze them.

Since this seminal article, other authors have tackled the issue. The tendency, among economists, is to search for a compromise between the transaction cost paradigm (Williamson, 1985) and the theories of local development. 13 The types of links analyzed by these scholars are mostly inter-enterprises networks, and many crucial links with other associations, such as trade unions, professional associations, etc., were discarded. 14 Clusters and industrial district specialists have been more inclusive due to the systemic nature of their analyses. 15 The work of Crévoisier is especially interesting, as it aimed to linking different kinds of organizations (enterprises, but also banks, professional organizations, trade unions, local governments, etc.) in order to understand local dynamics. Theoretically, the research has the advantage of deducting territories from the existing networks rather than from an already defined geographical space. 16 In addition, the emphasis of the author on specific industries (clock, microelectronics, etc.) provides a missing key for understanding market construction. Indeed, if markets reflect the convergence between supply and demand and are symbolized by prices, then their analyses should encompass the whole organization, as they are much more than abstract "spot markets" of economists or a physical market (also a "spot market," but of a different kind) of anthropologists.

With this definition, networks can be more concretely analysed. They are not uniquely interenterprise networks, but they are tasked with encompassing the whole diversity of social relations. In a risky or uncertain environment, 17 these networks form a landmark for people who are integrated into them, and constitute a way to stabilize their environment by means of the creation of norms or conventions. In other words, what makes the environment more secure is the sense of familiarity based more on networks, norms, and conventions than on pure individual relationships. Within this pattern, cheating is no longer an analytical problem, as cheaters are restricted by a punishment that may exclude them from networks, 18 while the organization of the market remains. 19 Then, how is it possible to conciliate this network analysis, which encompasses a great variety of networks, with a market organisation that is larger than the physical space of a wet market (i.e., with what can be termed the social construction of markets)? As networks cannot all be taken into account, the solution has to be selecting pertinent networks. It is worth noting that some critical economists have developed a tool that aims to insulate the various links that exist within a given industry: the value chain or a commodity chain analysis. 20 "The value chain describes the full range of activities which are required to bring a product or service from its conception, through the different phases of production (involving a combination of physical transformation and the input of various producer services), delivery to final consumer, and final disposal after use" (Tallec, 2005, p. 3). 21 In other words, the value chain is a powerful tool for insulating and analysing the different categories of agents that enter the organization of the market. The value chain also gives an important place to their relationships, and aims to understand the power relations that exist 18 There are many examples of this attitude. Cf., for example, the self regulation of Chinese tontines (Pairault, 1990; and for the case of Chinese restaurants in Paris, Augustin-Jean, 1995). 19 The question of opportunistic behaviour was tackled by Granovetter: "the embeddedness argument stresses instead the role of concrete personal relations or structures (or "networks") of such relations in generating trust and discouraging malfeasance…. The second [point] is to insist that while social relations may indeed often be a necessary condition for trust and trustworthy behaviour, they are not sufficient to guarantee these and may even provide occasion and means for malfeasance and conflicts on a scale larger than in their absence". The author went on to describe the transactions for diamonds: "like other densely knit networks of actors, they generate clearly defined standards of behaviour easily policed by the quick spread of information about instances of malfeasances. But the temptations posed by this level of trust are considerable…." (Granovetter, 1991 [1985], p. 60-63). In short, the argument of Granovetter is closed to the theoretical point addressed here. The problem -not addressed in this article -is the way norms and conventions arise, as Nee and Ingram have rightly observed. Nevertheless, the authors did not really focus on the creation of networks and the conventions that accompany them, but on group behaviours, which are a different matter: the "socialization" of human beings is at stake, and cannot be fully understood by means of the game theory. As useful as it is, game theory cannot supersede a direct observation of networks (cf. Nee and Ingram, in Swedberg (eds.), 2005, vol. 1, p. 86-112). This is why Latour, recalling Simmel, rightly remarked that individuals can calculate only if they are at least three (unlike in the basic prisoner's dilemma game): with fewer people, the social dimension is simply absent, as coalitions are impossible (Callon, 1998, p. 9-10). Similarly, the multiplicity of networks that agents integrate multiplies their calculative capacity and the possibility of malfeasance. Since the major subject addressed in my article is the analysis of the networks, which are encompassed in market organizations, the origin of the production of norms was left aside. 20 Or the "étude de filière" developed by the French scholars at INRA. To see the distinction between the two approaches, cf. Raikes et al. (2000). 21 The differences between value chains, commodity chains, and études de filière will not be dealt with in this article.

within a given industry. 22 As such, it provides an indispensable complement to the network theory, as it can determine important networks and establish a hierarchy between them. Therefore, not only enterprises are related to each other (by means of contractual arrangements, as with the new institutional economics), but they are related to a whole set of organizations. In other words, the value chain encompasses the whole variety of agencies and networks that enter into the composition of the industry. The market is not anymore conceptual, like in the economic theory, or localized, like in anthropology, but is defined by this density of networks. It becomes then possible to understand the role of each category of agents in framing or, in the case of the Chinese sugar, reframing the industry according to their respective position and their power relationships. This is the object the second part of this article.

Elements for a Social Construction of the Sugar Industry in Guangxi

While the population of Guangxi totals 48 million, more than 20 million deal with cane or sugar production (i.e., over 40%). If farmers represent the highest proportion, a great diversity of agents is currently involved in the business: workers and managers in nearly 100 sugar mills, management teams at the sugar groups' headquarters, local and provincial authorities, consultants, wholesalers and retailers, and middlemen of all kinds. Some of these categories are new, or have been transformed by institutional changes: the end of the 1990s was a period of privatization, bringing new opportunities, as well as challenges, to an industry undergoing restructuring. The approach in this section is systemic and concentrated at the local level.

The Direction of the Reforms

The social and economic changes experienced by the Chinese countryside since the start of the reforms in 1978 have been astounding, bringing about a new type of relationship between farmers and the local authorities. The increased demand for sugar has pushed up the production of sugarcane and prompted the creation of numerous small state-owned sugar mills (which numbered over 110 at the end of the 1990s). 23 Therefore, there was an interrelation between the local authorities and the state-owned enterprises (SOEs) on the one hand and farmers on the other hand. The interest of the first group was to maximize the profits for the mills:24 in the context of decentralization, the local authorities, which were made responsible for their own budgets and could not rely on financial transfer from the Central Government, depended heavily on the profits of the sugar mills. Therefore, both sides had an interest to stimulate production, while at the same time keeping the price of sugarcane at its lowest possible level.

This system was sustainable as long as farmers could make limited profits. Social control mechanisms were implanted to ensure that farmers would continue to produce growing quantities of sugarcane and would not shift production to other crops. The state was the underwriter of the stability, controlling the prices of the sugarcane and sugar. During the mid-1990s, a crisis and international pressure prompted the Central Government to implement reforms, and changes in the relationships between farmers and the SOE/local authorities occurred.

At that time, most mills were operating at a loss. Production had grown faster than consumption, and this imbalance was aggravated by low international prices. The liberalization of sugar prices in 1991 (while the price of sugarcane remained fixed) put even more pressure on the mills, which were mostly using backward technology, even compared to other developing countries such as Thailand and Mexico (Ma, 2001). The result was to create huge tensions in the relationship between farmers and the local authorities/SOES. As the mills were loosing money, they could not pay the farmers and issued "white tickets" (i.e., IOUs) to be paid at a later stage. This tension created the conditions for social strife, and the risk of this was especially high, since the problems of the industry were systemic and not short term. Therefore, reforms were necessary. While the development of the sugar industry has been recent, adapting to the changes has been difficult in this poor province, as there are not many economic alternatives, and sunk costs have prevented a major change of the province's industrial structure. Reforms also brought about new agents and changed the power relationship in this fundamental activity. The focus, then, has been on the consequence(s) of the actions of these agents. The parallel with North (1992) is clear -changes in relative prices provoked institutional changes25 -but the parallel stops here, as these institutional changes have provoked an evolution of the agent's behavior and, in turn, new institutional changes. 26 In dealing with the situation, the Central Government had many conflicts of interest to take into account. First, there was a need to protect the interests of farmers, and to find a solution to absorb the "white tickets". Second, the government had to find the right policy to restore the profitability of the industry in general and the mills in particular. This was not only a necessary condition to fulfill the first objective, but also a solution to guarantee enough revenue to local governments. Last, China also had to take into account the pressure from the international community. She was negotiating with her international partners for entry into the WTO, and the sugar industry was only a small slice of her international trade. In short, Beijing felt it necessary to fulfill her partners' wishes and liberalize the sugar industry.

These constraints were included in the decision making process of the central leadership.

From the beginning, it was understood that a full liberalization of the industry was not a practical solution. International prices were low, partly due to dumping and subsidies,27 and China was not in a position to compete efficiently. At best, full liberalization would lead to a short term deterioration of the economic and social situation, and perhaps to unrest. Even though consumers would eventually benefit from cheaper prices, there was a danger for the very survival of the industry, which is so fundamental to the provincial economy. In short, the neoclassical argument that emphasizes overall gains arising from liberalization collapses as soon as the situation is described in its full complexity, including in its social and political aspects.

On the other hand, a certain dose of liberalization was necessary. Enterprises were badly in need of capital, which could not be injected by the Central or provincial governments. Major technological improvements were also needed. Partial privatization was thus seen as a necessary evil, and the creation of groups was encouraged. Groups were seen as a way to save on costs, to create economies of scale, to ease the way for the introduction of new technologies, and, in the end, to restore profitability. In the short term, they were tasked with absorbing all the remaining "white tickets" and restoring the balance of the local budgets. In a few years, 15 major groups were constituted with the encouragement of the provincial government, including private groups from Guangxi and elsewhere in China, state groups (some listed on the stock exchange), and foreign groups (namely: British Sugar and the Guangxi Nanning East Asia Sugar Co., Ltd., part of the Mitr Phol Group in Thailand). 28 At the same time, there was the need, well understood by the government, to maintain social stability and protect farmers.

Control and Power: a tentative explanation of the direction of the reforms

The reforms described in the previous section had the effect of increasing the organizational complexity of the sugar industry, as well as multiplying the number of categories of agents who interact at the local and provincial levels. This evolution was not the product of a smooth transition towards increased efficiency, but was also due to competition and the conflicting interests of all parties, depending on their position within the system. It is worth noting that if some these categories of agents are new, they are generally composed of former bureaucrats or agents from the state system who previously worked in the industry. After the reforms, they maintained contact with their former employers.

Consequently, in this context of rapid changes and institutional reforms, there has been increasing confusion concerning the inclusion of individuals into predetermined categories or groups, which are becoming blurred and difficult to trace. In other words, agents are belonging to an increasing (and sometimes conflicting) number of groups, which they can manipulate according to their interests. As such, the modification of the institutional context was also due to a deal struck between agents, and there is no guarantee that this context would improve, as the embeddedness and networks of Granovetter are as competitive as they are collaborative. As indicated earlier, the multiplicity of groups that agents have integrated into has introduced greater uncertainty in relation to their actions, and in turn, has increased the 28 Cf.

the website of British Sugar http://www.britishsugar.co.uk/RVE2f631f8c15f044089c0a2739ba5c814f,,.aspx and of the Mitr Phol, http://www.mitrphol.com/index_eng.htm. potential instability of the industry. Decisions made by individuals to protect themselves from risks may paradoxically lead to an increase in these risks later on.

Therefore, the liberalization program did not lead to a simplification of the market, as predicted by neoclassical economists. At the same time, the provincial authorities wanted to keep control over the industry for two main reasons. First, the disengagement of the provincial authorities would probably cause great strain to the industry. During the WTO negotiations, sugar was seen by local agents as having been abandoned by the Central Government in order to grant greater advantages to other sectors. 29 Second, since sugar is one of the most important industries in Guangxi, it is a powerful tool for the provincial government to control its economy, as well as for the agents involved in its management. 30 Any change in Guangxi's sugar market is thus a sensitive and political issue and subject to all kinds of manipulation. With these constraints in mind, the remainder of the article deals with changes at the local level.

One of the most urgent tasks for the governments was to restore the confidence of the farmers. This was partly achieved in two ways. First, the price system remained unchanged, with sugarcane prices fixed by the provincial authorities. This measure aimed to guarantee and index farmers' profits to the prosperity of the industry. 31 When the market price of sugar increases, the minimum price of sugarcane automatically follows. The result of this system has been to integrate farmers more deeply into the organization of the production (which was seen as indispensable to stimulate their zeal for growing sugarcane), but also, in an industry in which the cost of the raw material (the sugarcane) exceeds 60% of the production cost, it has the disadvantage of suppressing an element of flexibility for the mills, which cannot easily adapt to changes in the economic situation.

The second means was a partial privatization. Some factories were sold to private groups, which were able to repay the IOUs to the farmers. Further mechanisms were implemented in order to guarantee swift and regular payments to the farmers for their sugarcane (payments had to be made no later than two weeks after the sugarcane was delivered to the mills).

Nevertheless, these measures only displaced the problem: the long term survival of the industry also goes hand-in-hand with a certain level of profitability for the whole industry.

Private or not, groups cannot inject money continuously to cover the losses of the sugar mills. This is a difficult matter because of the high fluctuations of sugar prices nationally and internationally, and because the mills cannot adjust according to the prices of their inputs (sugarcane, labor, energy, etc.).

Extra mechanisms were therefore added. For example, one of the functions of the state reserve was to create a buffer to partly insulate mills from fluctuations in the market. This reserve is a tool for managing sugar imports and stabilizing prices. 32 Yet, the reserve has merely been an element of macroeconomic control, as it cannot by itself guarantee the profitability of the industry. It has to be complemented by measures at the micro level of the firms.

Therefore, it was rational for firms to rely on economies of scale in order to lower their fixed costs and expand their production bases, and this decision was supported by the provincial government. This was partly accompanied by a technological upgrade, and indeed, average pressing capacity increased from 2,400 tons at the end of the 1990s (Ma, 2001) to over 4,000 tons by 2004. 33 Even before their perverse effects were known, these measures seemed necessary, but far from sufficient, to boost the productivity of the industry to allow it to compete at an international level. As Kaplinsky noted:

[I]n the context of the value chain, "when threatened by competition, there are four directions in which economic actors can move; these paths are not mutually exclusive: 32 In abiding by her WTO agreements, China lowered her tax on sugar imports. In the past few years, the low international price of sugar has meant tough competition for China's sugar industry, resulting in the underproduction of about one million tonnes (covered by imports). In the context of low prices, the reserve ensured a swift sale of domestic production. Nevertheless, high prices during the 2005/2006 pressing season prompted the state to sell the stocks to cap prices. The results of this policy have been limited. 33 This is still low compare to international practices, but the number of mills with a daily pressing capacity of over 10,000 tons is increasing.

-increasing the efficiency of internal operations such that these are better than those of rivals -Inter-firms linkages can be enhanced to a greater degree than that achieved by competitors -Introducing new products or improving old products faster than rivals -Changing the mix of activities conducted within the firm or moving the locus of activities to different links in the chain (…)" (Kaplinsky, 2000: 31).

The third item is difficult to fulfill in the current situation, while the last one is under consideration and its results are far from guaranteed. 34 Therefore, changes have been mainly concentrated in first and second categories, which are "unlikely to realize a greater share of value chain returns" (ibid.). The second item (the constitution of groups) has already been scrutinized.

Concerning the first item, economies of scale and technological improvements have consequences that are far beyond the abilities of simple technological change to encompass the overall local economic and social organization. With economies of scale, an increased supply of sugarcane for the mills is necessary, which can only be obtained by increasing the production of sugarcane and/or by buying them from more distant locations. Both methods come with potential problems.

Under current cultivation methods, peasants find it difficult to increase their production enough to feed the mills, whose daily pressing capacity had sometimes been multiplied fourfold. 35 In order to stimulate their enthusiasm, and to prevent possible unrest, mill managers and local cadres are dispatched to the countryside. Some farmers have also been recruited by both parties during the year to organize the production (from seed distribution to harvesting and transportation to the mills) and to report on the general situation. This practice is facilitated by the fact that the brigades and teams of the Maoist period, which were formally dismantled in the 1980s, still informally exist, at least in some areas. 36 34 Alcohol, paper and fertilizer are by-products of the cane sugar industry. Their production is extremely polluting, and subject to an intense competition. In the current situation of high international oil prices, the provincial government is pushing for the production of alcohol, copying the Brazilian experience (interviews with the provincial agricultural bureau, March 2006). 35 From 2,500 or 3,000 tons per day to over 10,000 tons. 36 The role of the "former" team leaders remains important (Wei, 2006). It is remarkable that the system and the solutions adopted are similar than during the collectivization era. The main changes are that farmers are not forced anymore to produce certain goods, only "strongly encouraged" to do so, and they produce economic crops instead of rice. They also get more financial rewards from their work, which is an important element for stability (Wei, 2006).

Despite these mechanisms, the production of sugarcane is still far from enough to fill the requirements of the mills. The other solution is to buy sugarcane from more distant locations, but this is curbed by competition and institutional constraints. More precisely, mills are administratively forced to buy their sugarcane from specified zones so that each one can secure a minimum amount of sugarcane for its operations. This policy is in direct contradiction with the economies of scale that should go with a reduction of the number of mills. The provincial authorities push for this rationalization, but with limited success. At the local level, the loss of a sugar mill entails lower revenues for the local government, and hence a greater difficulty for it to meet its expenses and a greater risk of social instability.

Consequently a genuine "sugarcane war" between mills has developed. The provincial regulation that specifies that peasants are only authorized to sell their sugarcane to a specified mill from which they receive inputs (seeds, fertilizer, etc.) has to be enforced by the police.

Mills also have mechanisms by which they control each field under their supervision by computer (which is especially useful for organizing the harvesting and the collection of the sugarcane). Despite these measures, which are hardly in line with the principle of a liberal economy, the problem intensified during the 2005/2006 pressing season due to the high price of sugar and the related expected profits. Local governments implemented a coordinated cell, which included representatives from all bodies directly and indirectly concerned with the management of the pressing season (i.e., the sugar bureau, the tax office, the agricultural bureau, the police, etc.). Nevertheless, all these measures (among others) did not deter mills and farmers from "smuggling" sugarcane from one district to another.

Therefore, the pattern showed how these relaxation measures, like privatization and the determination of the price of sugar in the market, did not lead to a full liberalization of the industry, but rather to a reinforcement of governmental control. Many interests worked to jeopardize this supposed liberalization -which could eventually lead to the death of the industry. The interaction of these different interests explains the current shape of this industry -which will go through further modifications in the next few years.

For example, the traditional alliance between local authorities and mill managers is still strong, but has been eroded by partial privatization and the relationship of the mills with their headquarters. On the other hand, local authorities remain at the centre of the system, as they control rare resources and the population to a certain extent. Nevertheless, this population is still better off than before, as it has seen some of the profits generated by the industry and because it can resort to Hirschman's paradigm, "voice" or "exit," two options that are feared by the mills and local authorities. In this situation, the social order remains precarious. Even in the context of growth, the future remains subject to uncertainties and risks.

Most interestingly, this evolution shows how a liberal system inspired by a neoclassical paradigm could not be fully implemented. The existing conditions at the local level prevailed and forced a compromise that led to increased uncertainty. In other words, the measures taken by the agents in order to protect against this uncertainty ended up increasing it. This situation can be understood only by focusing on the networks between the agents in a descriptive and systemic way. The multiplication of agents' categories, such as the local authorities, farmers, team leaders, the police, truck drivers, the private sector (or mill managers, to be more precise),37 etc. inflates the networks and helps us understand the shape of the markets.

Conclusion

In this article, it has been seen how the Chinese Government has been pushed by the international community, as well as by local conditions, to liberalize the sugar industry. This liberalization included the introduction of foreign capital, a certain level of privatization, the lowering of import taxes and duties, and resorting to the stock market. Nevertheless, the analysis demonstrated that these measures fell short of fulfilling their claimed objectives, due to existing social and economic constraints.

For example, the lowering of tax added to the competition. This seems a positive outcome of liberalization, but when nearly half of the population makes a living from cane sugar or sugar cane, the temporary pressure within the industry is likely to lead to social unrests. Similarly, the privatization was a way for the government to inject capital in the industry, but at the same time, there was a vital need for various authorities to control the industry. The price liberalization could not be complete, and some mechanisms were introduced in order to link the profits of farmers to those of the sugar mills. As it has been shown, the consequences have been increased social tension and the development of a "sugarcane war".

In this context, the question of price is increasingly complex. At this moment, it is only possible to indicate clearly that many complex phenomena are at work to influence the evolution of the price, and further research is necessary to analyze this evolution more precisely. Extra elements, such as the behavior of food companies and the situation of the commodity and futures in China, also need to be added. 38 In any case, it is clear that, despite their fundamental importance, supply and demand are only one element in the puzzle.

Finally, this article showed how it is possible to integrate networks into the description of the markets. These markets were not theoretically or geographically located, but they constituted networks and interrelations. As such, they encompassed the whole value chain, from the manufacture of inputs (the sugarcane) to the sale of the sugar. Many agents, therefore, had to be included -farmers, local authorities, managers, as well as agents who did not appear in the context of this paper, such as shareholders, wholesalers, etc. They often have good, but sometimes conflicting, relationships with each other. The second type of relationship has often been neglected by scholars, but both are equally important and allow researchers to understand the shape of the market. This is of special importance in a transitional economy such as China's, in that its institutional context is always evolving, but is still influenced by its socialist roots.

(University of Tsukuba et Economix) Assistant Professor, Graduate School of Public Policies and Modern culture, Department of Public Policies, University of Tsukuba, 1-1-1 Tennodai, Tsukuba-shi, Ibaraki 305-8571 Japon. auyeung_ly@yahoo.fr

In this paper, only the general insights of these measures will be introduced. For more details, cf.[START_REF]The Entrepreneurial Dynamic in Rural China: the Non-Agricultural Enterprises in Zhangpu District and Yong'an Municipality (Fujian Province)[END_REF][START_REF] Mcmillan | Reinventing the Bazaar. A Natural History of Markets[END_REF] and[START_REF] Lin | The China Miracle. Development Strategy and Economic Reform[END_REF].

 5 In 2004, the GDP per head of Guangxi was only 7,196 yuan (or just over 700 euros).Cf. China Statistical Yearbook, 2005,

p. 61.

The dumping and export subsidies of the European Union and other developed countries helped contribute to this situation. Nevertheless, this phenomenon cannot account for the fact that production prices are lower in countries such as Thailand due to economies of scale and better technology.

The crisis and subsequent reforms will be presented in detail in Section 2.

The main product of the sugar mills in Guangxi is "white granulated sugar," which is generally packaged into 50-kg bags. This sugar is usually produced for industrial use, such as confectionary and soft drinks (Coca-Cola, for example). Sugar for final consumption (in households and restaurants) needs further processing, which is often done outside the province (in Guangdong or Shanghai), as Guangxi does not have a huge refinery capacity.

These include the interlocking directorate, subcontracting, the reputation of workers inside and outside their enterprises, etc.

Williamson himself noted the possibility for this compromise. Cf. for example the interview he gave to Richard Swedberg, in Swedberg (ed.), 1990.

Inter-enterprise links were introduced to protect against transaction and organization costs.

Cf., for example, the work undertaken by[START_REF] Becattini | Industrial Districts. A New Approach to Industrial Change[END_REF] and Crévoisier in economics[START_REF] Crévoisier | Les spatialités des économies de la grandeur : une application au secteur agro-alimentaire suisse[END_REF][START_REF] Kébir | Ressources culturelles et développement régional : le cas du patrimoine culturel horloger[END_REF] Crévoisier, 2004), or Benko in economic geography (1992).

On this point, cf. also[START_REF] Rallet | Proximité et localisation[END_REF][START_REF] Rallet | Proximité et localisation[END_REF] Louis Augustin-Jean, 2005.

The difference between risk and uncertainty adopted in this paper follows Frank Knight's classic definition: a probability can be attached to a risky event, but not to an uncertain one.

As it focuses on the notion of added value, it is also a powerful tool for determining the category (or categories) of agents who are making the largest profits. The proponents of this theory aim to propose a better sharing of profits, especially between agents located in developing and developed countries. On this approach, cf.Kaplinsky, 2000 and[START_REF] Daviron | The Coffee Paradox. Global Markets, Commodity Trade and the Elusive Promise of Development[END_REF] Ponte, 2006, with respect to the coffee industry.

It is worth noting that the concept of profit was relatively new at that time, and was related to a change in the accounting system (this change at the enterprise level was later followed by a change in the national accounting system and the introduction of the notion of the GDP). This is the subject of a separate work. The modification of the firms' accounting system was described byChiappello and Ding, 1998.

Despite these comments and nearly 15 years after Douglass North wrote his famous essay, it appears that changes in relative prices and in individual tastes are insufficient to explain institutional evolution. For a contradictory example in China, cf.[START_REF]The Entrepreneurial Dynamic in Rural China: the Non-Agricultural Enterprises in Zhangpu District and Yong'an Municipality (Fujian Province)[END_REF][START_REF] Mcmillan | Reinventing the Bazaar. A Natural History of Markets[END_REF]

This is far from a tautology; it is simply a sign that changes are ongoing: networks and relationships create a situation in which an equilibrium is impossible to sustain.

For example, the export subsidies of the European Union were considered dumping by a panel of the WTO in 2005. Subsequently, as well as for other reasons that are beyond the scope of this article, the EU has recently started to implement a deep reform of its sugar industry (Le Monde, 24 th November 2005).

This complaint was raised by nearly all agents (scholars to civil servant, consultants, factory managers, etc.) I met during my fieldwork from 2004 to 2006.

The Central Government has not abandoned Guangxi province. Based on the comparative advantage theory, it decided that Guangxi has a location advantage as a China's door to Southeast Asia. In the past two years, the ASEAN-China exhibition was organized in Nanning (the capital of Guangxi) in order to attract investors. While this policy may have benefited Nanning and other cities, its effect on local and agricultural development remains to be seen.

The success of this measure is partial, and sporadic social troubles are still in force. Many reasons are put forwards: expropriations by the local authorities, corruption, constraints linked to the business practices, etc. Nevertheless, farmers seem now regularly paid, which removes an important source of protest (interviews at the local level with farmers, local cadres and factories' managers, February and August 2005 and March 2006). Other reasons for protest will be detailed below.

Many managers are former cadres from local governments. The links that exist between these two pillars of authority explain their coordination of action, and provide a stabilizing element to the system. The place lacks to develop this argument further.


Convention and Exemplars: an alternative conceptual framework

Introduction

A focus on convention in social theory has increased markedly in recent years and it has taken on a central role in a number of social scientific theories. In economics, convention is the central category of the économie des conventions [EC from now on] (e.g. [START_REF] Dupuy | Introduction[END_REF]) and a significant concept within game theory (Cubbitt & Sugden, 2003;[START_REF] Young | The Economics of Convention[END_REF]. Convention has also been discussed in some detail within sociology by Margaret [START_REF] Gilbert | On Social Facts[END_REF]Gilbert ( , 1996) ) and in law by Andrei [START_REF] Marmor | philosophy and phenom research[END_REF].

Almost all of the contributors to the modern debate recognise a debt to the pioneering work of the analytical philosopher David [START_REF] Lewis | Convention[END_REF], whose co-ordination game approach to convention is a central reference for the majority of modern contributions.

The turn to convention represents an attempt to address a fundamental concern of the social sciences. Coming from diverse disciplines, the aforementioned authors share a desire to understand the normativity of human practices: how they are shaped and conditioned by judgments of correctness that are both contingent (on a particular history) and arbitrary (in the sense that there are other conceivable and workable standards of correctness). In the case of the EC and game theory, this can be seen as a challenge to the abstract optimising behaviour favoured by neoclassical theorists in economics. In sociology and law, convention is often invoked in contrast to the more entrenched traditional notions such as social rules and norms. This paper proposes an alternative reading of what conventions are and how they might be used by social scientists in theoretical and empirical work. I do not propose a theory, but rather a meta-theoretical perspective that could be used to inform and compliment existing theories. In the first section of the paper, I trace the modern conception of convention to two characterisations offered by David Hume in The Treatise on Human Nature (1739). I claim that Hume's two notions of convention provide the basic intuition behind the majority of modern approaches. The second section highlights an important and often implicit characteristic that most theories of convention share: the desire to explain the normativity of conventional practices has led commentators to characterise convention as a sub-category of social rules. I go on to argue that the Wittgensteinian literature on rule-following undermines this strategy and that rules cannot provide the normative guidance required of them by social theorists. The third section describes a promising alternative. I argue that the notion of exemplar, first proposed by Thomas Kuhn in the history and philosophy of science, can be used to clarify and advance the study of convention. The paper concludes with a illustration of how this alternative framework can be used by social scientists.

I. Limit cases

The earliest and arguably still the most influential discussion of convention is due to David Hume.

According to Hume, conventions are a response to the more general problem of social order described by contemporary social contract theorists. Following the contract theorists, Hume accepted that the natural condition of man was essentially asocial and conflictual, social order was an achievement. In the Treatise, he proposed a novel solution to the problem of social order as presented by his contemporaries: convention. For Hume conventions were essential in order to establish the rules and regulations of a stable society. Moreover, they were 'artificial' (the product of human judgment) implying that they were neither natural nor inevitable. He contrasted conventions with natural law, a distinction that has survived in modern analyses and fits common usage of the term. Thus, according to Hume, conventions express the contingency1 of social relations but they also express their arbitrariness2 . This can be demonstrated by taking the example of eating habits. The etiquette surrounding eating behaviour is usually recognised to be conventional, but what types of organic materials we eat do not appear to be a matter of convention. I could eat only marbles, or arsenic tablets, but my participation in eating rituals would certainly be cut short by an untimely death. The range of materials that I can consume is both a function of availability in my environment and the limitations of my body and digestive system. The external and internal conditions that prescribe and limit my eating habits are said to be governed by laws of biology. These laws of nature are in turn assumed to be beyond my direct control or manipulation. In contrast, according to Hume and other students of conventions, they are phenomena that are capricious and potentially subject to manipulation or change.

Hume went further than simply stating that conventions were contingent and arbitrary. He This can be done after no other manner, than by a convention enter'd into by all the members of the society to bestow stability on the possession of those external goods, and leave every one in the peaceable enjoyment of what he may acquire by his fortune and industry. By this means, every one knows what he may safely possess; and the passions are restrain'd in their partial and contradictory motions. (Hume, 1739: 489) This first type of convention is the focus of sustained elaboration in Margaret Gilbert's 'agreement-theory'.

Convention 2

On the next page, he suggested a different interpretation. Conventions can also exist without agreement, through the unthinking co-ordination of behaviour. In this case a social practice is adopted by a group through the gradual mimetic adjustments of its members and the formation of expectations of conformity. All this occurs without linguistic signalling or common principles. This type of convention is illustrated by Hume's example of the rowers who adjust their behaviour in order to harmonise their actions and stabilise their boat, here a convention: ... arises gradually, and acquires force by a slow progression, and by our repeated experience of the inconveniences of transgressing it. (Hume,ibid: 490) The second type of convention was resurrected by David Lewis and is the inspiration for modern game theoretic theories of convention. This Humean distinction goes some way towards reflecting the vagueness of application of the term 'convention' outside social theory as well. In our common speech. We speak of international banking conventions (SWIFT) as well as conventions of etiquette (shaking hands). This duality makes the task of building a satisfactory account particularly difficult: a theoretical model is likely to restrict the wide natural usage of the term and thus could fail to satisfy our linguistic intuitions. It is perhaps for this reason that several recent analyses of conventions have come close to replicating Hume's distinction often without being conscious of its origins. In an earlier paper I argued for a re-interpretation of two popular analyses of convention in what I called 'neo-Humean' terms (Latsis, 2005: 710-718). Others have proposed similar binary distinctions between types of conventions without reference to Hume [START_REF] Favereau | La formalisation du rôle des conventions dans l'allocation des resources[END_REF][START_REF] Batifoulier | Théorie des conventions[END_REF][START_REF] Marmor | philosophy and phenom research[END_REF]. However the precise distinction is formulated, there appears to be an emerging consensus that there are different kinds of conventions and that these are best divided along similar lines to those suggested by Hume and described above.

II. The received view: conventions as arbitrary rules

Unlike Hume, most neo-Humean commentators see conventions as a specific type of social rule.

These theorists take it for granted that conventional practices can be re-described as rules, and that this makes conventions and rules the same sort of thing. Quick examples inevitably support this intuition. In this way, the telephone example cited by Lewis can be reformulated as the rule: whenever the phone is cut off, the original caller must re-dial the number he initially called. Marmor, for example, is explicit in his definition of 'conventional rules':

There are two main features intuitively associated with conventional rules. First, conventional rules are, in a specific sense arbitrary. If a rule is a convention we should be able to point to an alternative rule that we could have followed instead, achieving basically the same purpose, as it were. Second, conventional rules normally lose their point if they are not actually followed. (Marmor, 2006: 2) The appeal to social rules is a traditional way to account for co-ordination in the social sciences.

In its simplest form, the received view would claim that social order is explained by the existence of a set of rules or norms (explicit or implicit, tacit or conscious) that individuals know and follow. We find such rules in the minds of optimising neoclassical economic agents as well as the hyper-socialised actors of sociology. Philosophically informed social theories, notably those of Anthony [START_REF] Giddens | Central Problems in Social Theory: Action, structure and contradiction in social analysis[END_REF][START_REF]The Constitution of Society: Outline of the Theory of Structuration[END_REF][START_REF]The New Rules of Sociological Method: A Positive Critique of Interpretative Sociologies[END_REF] and John [START_REF] Searle | The Construction of Social Reality[END_REF] 3 have attempted to provide a more sophisticated analysis. They have attempted to explain how social rules structure individual action. According to these theorists, the ubiquity of social rules can only be maintained if they operate at a sub-conscious, unconscious, or tacit level -behind the backs of those who 'follow' them. Both on the naïve picture and the more sophisticated versions provided by Giddens and Searle, rules act like the rails on a train track, they are normative guidelines for individual agents to follow and they determine correct behaviour over an infinite range of future applications (Bernasconi, 2006).

It is not my intention to completely deconstruct this approach here, however it is worthwhile to note that the idea of rules as rails has been severely undermined from within the philosophical tradition of Ludwig Wittgenstein [START_REF] Kripke | Wittgenstein on Rules and Private Language[END_REF][START_REF] Kusch | A Sceptical Guide to Meaning and Rules: Defending Kripke's Wittgenstein[END_REF]. According to these authors, the rulefollowing picture described above is the central target of Wittgenstein's later writings. Wittgenstein's comments on social life highlight the fact that almost any action can be described as being 'in accordance with' a social rule4 , but this does not imply that these actions are rule-governed. For the latter to be the case, rules would have to determine correct behaviour over an infinite range of possible applications -something they simply cannot do. In a minority of cases such as games, mathematics problems, or highly ritualised behaviour, it might be argued that agents actually follow explicit rules. In these cases, agents might be aware of the rules and consciously apply them to the situations they face5 . In most cases however, rules are mobilised ex-post as justifications for actions and decisions taken in the past.

As with Giddens and Searle, social scientists are often aware of the potential of this critique.

As a result, in many of the scenarios they describe the conscious application of rules is denied from the offset. Empirical studies rarely provide evidence of widespread conscious rule following. To take a simple example, though the theory of the firm treats it as a foundational assumption, few economists would claim that entrepreneurs actually follow an explicit profit-maximising rule when running their businesses. They know that such an assumption is empirically untenable. In a classic methodological piece Milton [START_REF] Friedman | The Methodology of Positive Economics[END_REF] resisted this fatal conjecture by appeal to selection mechanisms in the market that allowed economists to treat entrepreneurs 'as if' they were profit maximisers. Is this evidence that social scientists have followed Wittgenstein and admitted that the social rules are nothing but ex post rationalisations of behaviour that categorise it as consistent with explicit rule-like formulae?

The dominant answer to this question has been no and the most commonly used escape strategy has been to locate rules in the tacit realm. According to this tacit knowledge hypothesis, the empirical invisibility of rules governing social behaviour is unsurprising because rules are tacit, located in the sub or unconscious. Order is still generated by rules even though agents are rarely aware of it:

Most of the rules implicated in the production and reproduction of social practices are only tacitly grasped by actors: they know how to 'go on'. The discursive formulation of a rule is already an interpretation of it, and as I have noted, may in and of itself alter the form of its application. (Giddens, 1984: 22-23) But this notion of a 'tacit rule following' by social actors, is highly problematic in itself. Rules normally understood are linguistic constructions of a particular type. One might summarise it as follows: 'in There is, however, a meta-theoretical reason why social scientists might be expected to fall back on tacit rules instead of abandoning the concept altogether. As mentioned before, rules play a central role in social theory because they provide a normative foundation for collective behaviour. Just like Hume's conventions they 'solve' the problem of social order from the perspective of the individual.

context C then if X do Y'.
Once the sources of co-ordination must be sought uniquely at the level of the actor, the notion of tacit rule-following is a natural fall back. Devoid of conscious knowledge to move agents, theorists must rely on unconscious but nevertheless mental states that do the same job. In this way the role of tacit rules is intimately tied to the individualistic premises implicitly accepted by many social theorists. I have previously argued that several leading theories of convention have implicitly or explicitly reflected this individualism [START_REF] Latsis | Is there redemption for conventions?[END_REF]2006). It is therefore not surprising that the interpretation of conventions as arbitrary rules is widespread. Nevertheless, as I shall show below, the individualist perspective is not a prerequisite for thinking about convention. In the rest of this paper I present an alternative view of convention that draws its inspiration from the history and philosophy of science.

This view abandons the individualistic focus that has been characteristic of theories of convention since Hume in favour of an emergent social ontology. As a result it presents a viable alternative way of describing conventional practices without recourse to rule-following.

III. Exemplars and Conventional Matrices

In order to break with the neo-Humean tradition let us suppose that our focus of study is the systemic and generalised features of social interactions, rather than the characteristics of individuals or the contents of individual minds. This is the strategy adopted by Thomas Kuhn in his analysis of scientific revolutions. Though he did not emphasise it often, Kuhn broke with the established practice of focussing on the individual scientist in his laboratory. Consider one of his remarks on the nature of science as a social activity:

The scientific enterprise as a whole does from time to time prove useful, open up new territory, display order, and test long-accepted belief. Nevertheless, the individual engaged on a normal research problem is almost never doing any one of these things. (Kuhn, 1970: 38) He also explicitly rejected a rule-based account of scientific change, Normal science is a highly determined activity, but it need not be entirely determined by rules. That is why, at the start of this essay, I introduced shared paradigms rather than shared rules, assumptions and points of view as the source of coherence for normal research traditions. Rules, I suggest, derive from paradigms, but paradigms can guide research even in the absence of rules. (Ibid: 42)

Thus in studying scientific change, Kuhn was presented with a puzzle: the community as a whole displayed qualities that none or very few of its individual members displayed. Scientists did not appear to be following an explicitly formulated set of rules that guided their research and yet their shared identity is notorious -one cannot simply decide to become a nuclear physicist overnight.

In order to account for this order without rules, Kuhn introduced the idea of paradigms-asexemplars. He described it as one of the revolutionary insights of his work, 'the most novel and least understood aspect of this book' (Kuhn, 1970: 187). In his analysis an exemplar is an exemplary puzzle solution:

… a set of recurrent and quasi-standard illustrations of various theories in their conceptual, observational, and instrumental applications. These are the community's paradigms, revealed in its textbooks, lectures and laboratory exercises. (Ibid: 43)

An exemplar, understood in this way, facilitates a specific manner of approaching and tackling some circumscribed series of scientific problems. But to refer to an exemplary puzzle solution does not designate a specific object or range of objects (physical or abstract). What counts as an exemplar is a matter of existing scientific practices and their wider social context: it is a status. For Kuhn, an exemplar is the source of similarity judgments that allow a period of 'normal science' to proceed. The apprenticeship of new entrants into a scientific community familiarises them with the exemplar. It helps them to form habits and dispositions that are often automatic and allow them to make judgments of similarity when faced with new problems 6 . Familiarity with the exemplar also allows them to select which problems are relevant to, or important within, the paradigm.

6 It is interesting to note that Kuhn did not see the functioning of exemplars and their influence on similarity judgments as mysterious or un-analysable, rather he did not feel the reductionist need to define them in terms of their functioning. In fact, his discussion of exemplars led him into the study of psychology and ultimately neurophysiology. It seems that after the publication of The Structure of Scientific Revolutions, he became convinced that patterns of similarity judgments were the result of the appropriate conditioning of neurophysiological networks. For more see Kuhn (1977).

Kuhn restricted his own discussions to the history of physics and was cautious about overextending them (Kuhn, 1970: 208-209). Yet the idea of the exemplar can easily be extended outside its original domain of application, as his explication of it shows:

In a science on the other hand, a paradigm is rarely an object for replication. Instead, like an accepted judicial decision in the common law, it is an object for further articulation and specification under new or more stringent conditions (Kuhn, 1970: 23).

Indeed, the concept of 'exemplar' has already been taken up in other contexts. John [START_REF] Forrester | If p, then what? Thinking in cases[END_REF] 6-9) refers to Kuhn's exemplars in developing a model of a widespread 'style of reasoning' which he calls 'thinking in cases'. Like Kuhn, Forrester is interested in the way exemplars can pattern similarity judgments and result in an appearance of cohesion in scientific and professional communities. He draws on a number of examples from fields ranging from psychiatry, clinical medicine, law and the management sciences to show that this type of reasoning is widespread.

But the notion of an exemplar is not restricted to theoretical activities such as the ones described by Kuhn and Forrester. Social psychologists have suggested that our everyday attributions of social identity -those that allow us to define who we are in society in terms of in and out groupsare regularly made by reference to prototypicality. Prototypicality is a form of meta-contrast made by group members that licences judgments of similarity and difference within a perceived social group. It is based on an exemplar of the typical group member. In this way, we compare ourselves to exemplars in order to establish our social identities; judgments of similarity lead to a sense of group membership whilst judgments of difference lead to a sense of exclusion (Turner, 1987: 46-48). This example shows the potential of the idea of exemplars outside of the narrow field of history science.

Most conventions do not involve theoretical reflection, nor are the practices they relate to as strictly circumscribed as scientific activities usually are. Nevertheless they display the normative qualities of Kuhn's paradigms. Even though it does not imply following a rule, participating in a convention has evident normative implications. The idea that exemplars pattern social practices rather than conscious or tacit rules is a key insight that can be taken from Kuhn's work and transposed to the study of convention.

Now I have already claimed that an exemplar is entirely contextually determined: it does not have an essence. Instead it has a specific functional relationship to other relevant social entities and bears a special social status. Thus it is plausible that an alternative view of convention needs more than just exemplars to supplant the received view of conventions as arbitrary rules. In an earlier article (Latsis, 2005:13-18), I suggested that the remaining elements could be summarised using two further concepts: the moral and metaphysical neighbourhood (MMN) and the architecture of relations.

In order to escape from the rigid determination of rules, the idea of conventional behaviour as rule-following should be abandoned. Nevertheless it is apparent that individual participants in a convention act appropriately, they display skill and co-ordinate successfully. These abilities are the product of socialisation and familiarity with the exemplar; skilled individuals are the product of training and apprenticeship. But if the exemplar does not provide a determinate formula for making judgments of right and wrong, how can this training take place? In order to resolve this problem I suggested the idea of the MMN. At any given moment in time, a population sustaining a given convention has a finite knowledge set that includes both assumptions about the world and assumptions about what is right and wrong / correct and incorrect. As mentioned before, these assumptions are not universally shared. The population is heterogeneous: it does not share a unique set of representations.

Nevertheless training or apprenticeship will be heavily constrained by the range of (heterogeneous) beliefs in the community. It is through these that the reactions of approval or disapproval of the community will be made. In turn, these normative reactions of the community are the foundation of the process of training. They set the limits of the acceptable for new members. The MMN thus allows us to understand both conventional inertia and change. Unlike in the case of rule-following, the content of the MMN is not fixed nor a matter of agreement, gradual changes in attitudes can be accommodated just as easily as staunch conservatism.

The MMN presupposes a final element of the analysis that I believe we cannot do without.

Training and apprenticeship cannot occur without distinctions of power and authority. How a community might adopt an exemplar is matter of historical chance. Whether an exemplar generates the stable set of practices that we call a convention depends on some continuity in the social relations of the community. This is what I have previously called an 'architecture of relations'. The normativity of conventions -that is their ability to condition behaviour and shape practices -presupposes that some relations of authority exist. In other words it presupposes that there are people or groups for the new members to be trained by and learn from. This element (the architecture of relations) recognises something that is apparent to any observer of social interaction: individuals are routinely assigned to social roles and positions. These roles and positions are often internally related to each other and have a profound structuring effect on human interactions. The type of acculturation process that equips us with the skills to participate in conventional practices is dependent on pre-existing roles and positions of this sort. However whilst admitting that an architecture of relations seems crucial to the very idea of convention, it is important to recognise that the details of any given architecture of relations are not a matter of abstract theorising, rather their structure is an empirical matter to be investigated on a case by case basis. The exemplar based approach to convention could be represented by the following formula:

Exemplar + Architecture of Relations + MMN Convention

IV. An illustration inspired by Hume My argument began with the central importance of Hume to the modern analysis of convention. It went further in clarifying the Humean distinction between convention 1 and convention 2 , a distinction that has survived in modern debates. In the second section I problematised the conception of conventions as arbitrary rules that underpins most modern approaches and went on to suggest that Kuhn provided the hints to a richer more complex alternative. In this final section I provide an illustration of how the exemplar-based alternative might work in practice. My illustration is chosen particularly with Hume's convention 1 in mind7 . The existing literature on convention supports the intuition that (however common conventions of the second type might be) the complex cases of social co-ordination that have most interested social scientists are more likely to conform to the idea of convention 1 . My illustration is drawn from the field of finance where complex valuation practices have arisen over the last 20 to 30 years that have a considerable impact on wider society and therefore merit deeper study.

Financial Valuation

Financial valuation refers to the process of estimating the market value of a financial asset or liability at a particular point in time. An established valuation practice is an essential part of any mercantile activity, it is the basis for distinctions of quality and hence plays a crucial role in the determination of prices. In finance, valuations are used for investment analysis, financial reporting, budgeting, as well as the determination of price and tax liability.

Modern valuation practices in finance provide a good current example of the intuition underlying Hume's convention 1 . Several valuation methods co-exist, each corresponding to a different conception of what constitutes the real value of a firm. Nevertheless, in developed capital markets there is a tendency to adopt a specific set of practices that dominate precisely because they are widely used. At the moment, the principal tool of the financial industry is the discounted cash flow (DCF) valuation, though other methods of establishing the value of a company exist (multiples and comparables for instance). Once adopted, a valuation practice such as DCF can enjoy the status of an industry standard even in the face criticism and the existence of viable, and indeed sometimes popular, competitors. Thus, the adoption of one method of valuation over others is a matter both of historical contingency and is arbitrary in the sense that it admits of alternatives.

In what way does valuation relate to Hume's convention 1 ? Financial valuation is a highly professionalised activity. It relies on the evaluation of assets by indirect means. A process of consensus formation is therefore crucial to price determination. This is done by a community of specialists who engage exclusively in financial valuation, using increasingly complex analytical models to do so. The communal acceptance and use of these models is one of the cornerstones of the financial industry. Teams of analysts are employed by banks to produce reports that mobilise the accepted analytical tools in support of a particular price projection for a company's stock. This overtly linguistic and seemingly conscious manipulation of occasionally complex mathematical formulae is consistent with Hume's emphasis on co-ordination through shared principles. Without what appears to be a shared commitment to the principles (models) of financial valuation and its communication through the production of analyst's reports this convention would not persist.

How do modern financial valuation practices fit with the model of convention proposed above? [START_REF] Watson | Heroics Sustainability and Commonsense: Valuation Practices for the Future[END_REF] proposes a conventionalist interpretation of valuation practices that incorporates the categories outlined above. I develop his account below.

The exemplar

The capital asset pricing model or CAPM is a mathematical model developed by a group of financial economists in the early 1960s as tool to determine the 'correct' prices of financial assets consistent with the rational expectations hypothesis [START_REF] Sharpe | Capital asset prices: A theory of market equilibrium under conditions of risk[END_REF]. If applied to the analysis of a particular stock, it provides a method of discounting the future cash flows of the asset to their present value and thus establishing an 'accurate' valuation of the current price. The CAPM model has had enormous influence on the previously rather informal and intuitive process of financial valuation. Central to the exemplar is the idea that the future income of an asset is subject to risk. As a consequence, the promise of cash in the future should (according to CAPM) be discounted with respect to cash today to reflect this risk. Thus financial valuations involve the calculation of a discount rate, which the CAPM model duly provides:

Expected Security Return = Risk Free Return + Beta x Equity Risk Premium 8

When the observed price of the stock is at the value determined by the CAPM discount rate, then it is at its 'correct' or intrinsic value. If the price exceeds the CAPM value it is overvalued, whilst it if it drops beneath the CAPM value it is undervalued. Calculations using this formula as a basic template enable portfolio managers and corporate financiers to make recommendations to purchase or sell the stock of companies and are also crucial in negotiations that lead up to corporate mergers and acquisitions.

CAPM has a number of other features that make it particularly appropriate for the status of exemplar for financial valuation:

• The model is extremely vague. It has not established a set of precise (exclusive) rules to be followed by practitioners. It co-exists with and is often combined with other less formal techniques of valuation such as multiples, comparisons with other similar firms in the same industry and qualitative analyses.

• Its principal role is in framing the calculation of the discount rate as described above. Further knowledge of the assumptions of the model, as well as mathematical developments of the equation and debates about the validity of the model do not usually arise in the process of valuation.

• The weaknesses of the assumptions on which CAPM depends are widely known. Many practitioners do not regard it as a realistic description of market functioning.

• However all financial analysts are trained in how to identify, understand and produce discounted cash flow valuations. It is part of their normal training and apprenticeship and is subject to rigorous testing.

• Subsequent use does not always or necessarily follow this rigid discipline once analysts have finished their training and attained the status of valuation 'experts'.

Moral and Metaphysical Neighbourhood

As will be clear from the description above, the MMN of a convention is not a static list of normative statements or prescriptions. Indeed, the lack of such a determinate list is precisely the reason why an MMN was invoked contra the idea of social rules. The community of financial practitioners who perpetuate the current valuation convention is heterogeneous and conflictual. Many individuals have never considered the normative limits of the convention, others might explicitly disagree on what those are. Thus the web of similarity judgments that forms such a central part in the process of apprenticeship is in a real sense indeterminate -it can only be seen when it is violated or challenged.

This makes the case of delineating a MMN purely theoretically impossible. Empirical research can, however, reveal the limits of the acceptable at any moment in time and thus give an idea of the limits of the MMN.

In the case of financial valuation the MMN cannot simply be read off the CAPM model itself.

Financial analysts do not, for instance, assume that there is a fixed quantity of assets, nor that the financial and productive sectors are completely separate, nor do they assume that there is no inflation nor changes in the rate of interest. All these are assumptions of the original theoretical model.

Nevertheless, reference to the exemplar does impose a strong normative framework on the valuation industry. Analysts go through an intense process of apprenticeship in which they learn to use and eventually construct the tools of the trade. These tools presuppose a particular social ontology that includes the existence of capital markets, a judicial framework for resolving property disputes, and a pre-existing regulatory framework. Valuation of any financial asset is not conceivable without some such institutional arrangements. On a more abstract level, the process of financial valuation could not get of the ground without the existence of money and a legal system that guarantees property rights.

Though they lack specificity, these conditions set limits to the metaphysics of financial valuation.

Valuation is similarly impossible without some set of normative presuppositions that Watson describes as the model's 'practical purpose ' (2006: 17). He judges the latter to include (at the moment) the assumption that the role of valuation is to guide investors to make better (more profitable) decisions when buying and selling assets; to guide companies to make better (more profitable) decisions in the interests of their shareholders; and to gain influence in the market for valuations in order to encourage the backing of more complex investment decisions. But this short description is not intended to delineate the MMN precisely. It is merely intended to show that financial valuation, just like any other conventional practice cannot survive without some form of normative compulsion at its core. The limits of the MMN will be best discovered by an in-depth study of actual valuation practices: one which examines cases where individual reports, models and tools are rejected and investigates the justifications provided by those in positions of authority. This might be called a 'sociology of error' where the normative limits of a set of practices are investigated by observation.

The idea here is not that once the convention 'hardens' it determines a correct path of action to be discovered through observation. Rather the intention is to show how the MMN forms and transforms itself, justified by collective and individual judgments of similarity that consistently refer to the exemplar.

Clearly such work has not yet been done and the proposed methodology has yet to be put into practice. What I am suggesting however, is that unlike the conception of social rules outlined above, the MMN can be studied in action. The result of empirical investigation would only provide a key to the MMN during a specific period; it would not yield determinate predictions. Further assumptions about the stability of the MMN would have to be postulated on independent grounds in order to make any forecasts about its future development.

The architecture of relations

The relatively recent appearance of CAPM means that the observation of the formation and transformation of the architecture of relations is possible. These can be tracked through a social history of financial valuation. Watson provides a succinct summary of the establishment of the architecture of relations in the following diagram. (Watson, 2006: 16) It should be clear from this example that the current valuation convention only came into existence around twenty years after the initial development of the economic model -probably some time between stages 3 and 4 on Watson's chart. It is at this point that a community of practitioners who use the model for valuation finally formed. It is also in this period that the stability of social relations required for apprenticeship and training began to emerge. This nicely illustrates a further point about the interaction between the architecture of relations and the exemplar itself. Plenty of potential exemplars come into existence every day; very few of them serve as exemplars for a particular convention. For every model such as CAPM that reaches this status there are many other potential exemplars that do not. Furthermore, those exemplars that are adopted should not be seen automatically as the best or most successful tools for co-ordination. Their dominance is usually hardwon: it is the contingent result of intense lobbying and competition with other equally acceptable alternatives.

Conclusion

My exemplar-based picture of conventions represents a sustained attempt to redress an imbalance in social theory. Modern social theory has tended, until recently, to view conventions as an unproblematic sub-category of social rules. By introducing the concepts of exemplar, MMN and architecture of relations I am moving away from this view. In effect I am proposing a different ontology of convention. The case of financial valuation provides an illustration of how this alternative ontological framework might be put into practice. Further empirical and historical elaboration is needed in order to firm up the example and add depth to my analysis. Nevertheless, the discussion of financial valuation demonstrates that the exemplar-based picture has theoretical and empirical consequences. It also suggests methods and modes of reasoning that are appropriate to the new ontology of convention.

  proposed two distinct conceptions of convention, providing examples to illustrate his point. The two types of convention proposed by Hume can be summarised as follows:Convention 1A reciprocal agreement to instantiate and perpetuate a social practice within a group of individuals who each stand to gain from it. Each individual adopts a principle that regulates his behaviour towards his companions. Their mutual interdependence is expressed linguistically by all parties. This is Hume's classic example of how the stability of property rights could have arisen without a social contract:

  To follow a rule of this sort would require conscious knowledge of the above formula, the list of appropriate contexts and actions covered by the C and Y variables, and the ability

to exercise this knowledge through appropriate action. This is exactly what is denied by the concept of tacit rule following. What is left looks indistinguishable from acting in accordance with a rule as described by Wittgenstein. The tacit rule follower has neither the knowledge nor the motives to justify his classification as a rule follower. This has led some observers to claim that rule-following accounts that stray from empirically observed instances of conscious and / or linguistic activity are at best in need of justification and at worst superfluous

(Dreyfus, 1992: 256-271)

.

The presence of a convention in a society is both the product and the reminder of the specific series of contingent events that led to its establishment.

This is because any contingent series of events may unfold in perfect consistency with a set of universal laws, but it would not qualify as 'artificial' in Hume's sense. In this stronger sense, conventions imply the idea of a range of possible outcomes, none of which is privileged by an implicit teleology and none of which is the outcome of the operation of a law.

Searle's position is actually considerably more complex than Giddens'. Instead of directly claiming that rules as such are tacitly held, Searle relies on what he calls 'the background' to generate them. In grouping Giddens and Searle together I am implicitly denying that this strategy is successful in its attempt to avoid the pitfalls of tacit rules though I cannot argue it fully here.

That is to say, can be described as conforming to a specific rule.

There are even problems with these seemingly straightforward cases of rule following that need not concern us here but have engendered furious debate in the philosophy of mind and language[START_REF] Kripke | Wittgenstein on Rules and Private Language[END_REF].

Hume's first conception of convention was introduced through the example of property rights. At a time when natural rights theories abounded, Hume inversed the accepted logic to argue that claims to private property were a matter of convention, an artifice of human invention. He characterised this type of convention (convention 1 ) as a reciprocal agreement based on the linguistically signalled adoption of a common principle of action.

Beta is the sensitivity of the security's returns to the overall returns of the market. The equity risk premium reflects the assumption that the holder of a more 'risky' asset should be rewarded by a higher return. This discursive formulation is fromWatson (2006: 2)