Uneven Social Capital Prevents Many From Fulfilling Their Entrepreneurial Dreams
In 2020, it was estimated that over a quarter of employees would like to be entrepreneurs, driven in large part by their dissatisfaction with corporate life. This desire for entrepreneurship doesn’t always translate into actual entrepreneurship, however, especially when people have mortgages, families, and other expenses that are ill-suited to periods with minimal income.
This situation was nicely captured by recent research from the University of Manchester, which found that around half of Londoners would prefer to be self-employed than they would salaried employees, less than one in six actually manage this goal.
Supporting ambitions
It’s widely accepted that entrepreneurship is vital for economic vitality both in terms of the new innovations that come to market and the jobs that are created. As a result, this gap between our desires and our actions is significant.
The researchers set out to understand some of the drivers of entrepreneurship, and discovered that it is often a dynamic and multi-staged process:
- Never-considered entrepreneurship, where we are largely unaware of the potential of entrepreneurship or how we might go about becoming entrepreneurs.
- Pre-establishment stage, where we are considering becoming entrepreneurs but have not made practical steps to establish anything.
- Recently started young entrepreneur, where our venture is in the early stages.
- Established entrepreneur, where our business is well established and we are familiar with its requirements.
At each of these stages, entrepreneurs can have different needs, goals, and constraints, and the researchers believe that by viewing entrepreneurship as such a multi-staged process it better exposes when potential bottlenecks might arise.
The importance of place
Crucially, the research reminds us that entrepreneurship isn’t something that exists in a vacuum, but is instead dependent upon the context within which it takes place. Foremost among this context is the location of the entrepreneur themselves.
Location plays such a fundamental role because so much of our social capital is location specific. So-called regional social capital emerges from the repeated interactions we have via voluntary associations, such as professional associations.
This social capital helps potential entrepreneurs access vital resources and information. The researchers believe that our social capital needs to be greatest when we want to officially launch our venture.
Social capital
Unfortunately, the requisite social capital is not equally spread. The researchers analyzed 110 regions from across Europe, and over 22,000 individuals to understand how social capital is distributed. This was measured via membership of various voluntary associations.
The analysis shows that regional social capital plays a crucial role in the entrepreneurial process, but can be most influential at certain stages. For instance, it was especially important in helping those who want to start a business to actually do so. It’s less important in terms of creating entrepreneurial aspirations to begin with or indeed in helping ventures to survive.
The research underlines the notion that our social context exerts a significant impact on our willingness and ability to be entrepreneurs. This challenges the notion that the factors influencing our entrepreneurship are uniform and instead suggests that they’re inherently variable.
Leveling up
This has clear policy implications, not least as many governments are striving to level up economic opportunities and prosperity, thus helping communities that had previously been somewhat left behind by globalization.
“Entrepreneurship promotion programs are a priority of many governments and international organizations,” the researchers explain. “Whereas many policy initiatives have been directed towards improving formal institutions, our study highlights the role of regional social capital, a regional resource stemming from associational networks.”
This is a crucial distinction, as many current programs have focused on giving budding entrepreneurs the skills to thrive or bolster the institutions. They haven’t focused on improving their social capital or to the socio-cultural conditions entrepreneurs exist within.
“Regional social capital is malleable and subject to less stability than for example (entrepreneurial) culture and it may be strengthened by enhancing the conditions for membership in voluntary organizations,” the researchers continue. “In implementing such policies, it is important to focus on facilitating membership in associations that generate frequent personal contacts between their members and across associations, rather than membership in isolated special-interest organizations whose members never meet personally.”
Generating such social capital obviously brings many other benefits to a region too, not least of which surrounds the pride people have in their community. That this also provides valuable spillover consequences in terms of entrepreneurship is a secondary boost.
Bringing people together
This chimes with recent research from the University of Cambridge, which argues that the key to improving the fortunes of “left behind communities” is to develop spaces and facilities that bring people together.
The report argues that 25% of any funds allocated for “leveling up” should be spent on “social infrastructure” that will allow people to interact with their local communities and generate a sense of local identity. The authors say that these investments are just as important as more widely publicized physical infrastructure schemes, such as the High Speed 2 rail link or the rollout of 5G. Indeed, they believe that the success of such schemes depends on the social plumbing community schemes provided.
“When the local pub is shuttered, the park is unkempt and the high street has been hollowed out, the pride of a once close-knit community can give way to pessimism and disenchantment,” the researchers say.
“There is an ingrained bias in government towards large-scale infrastructure projects, but interventions that seek to restore dilapidated town centers or support local initiatives may be far more socially and economically beneficial than many policy-makers appreciate.”
That such efforts also appear likely to close the gap between those who would like to become entrepreneurs and those who actually become entrepreneurs is a nice added bonus.
