Chapter 5 turns to social embeddedness, describes this in terms of two kinds of social identities people have, and explains how a world stratified by social groups produces two kinds of shortfalls in the capability development of people in disadvantaged social groups. First, a microlevel mechanism, social group stigmatization, or social identity stereotyping operates in relational social identity settings, limits stigmatized individuals’ ability to develop their capabilities, and results in what I call capability devaluations. Second, a macro-level process, sorting people over club goods and common pool goods types of social economic locations, produces social group inequalities especially by race/ethnicity and gender, limits lower ranked groups’ capability development, and results in what I call capability deficits. How these two kinds of capability shortfalls combine and reinforce a hierarchical ordering of social groups is explained using a basic complexity theory analysis from Simon. Combatting these two capability shortfalls – motivated by the goal of creating nonhierarchical, democratic societies that promote individuals’ capability development irrespective of social identity – is associated with policies to eliminate social discrimination in the case of capability devaluations and to advance social group reparations in the case of capability deficits.