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Trusting Communities Tend to Produce More Entrepreneurs


June 4th, 2014

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As the saying goes, “A group that works together, stays together.” Therefore, a group or community based on trust can reap benefits from one another. Trusting communities tend to foster self-employed people or entrepreneurs whose successes are one in the same with the community. Self-employment ranges from about 5.7 percent in areas with very low social trust to about 8.4 percent in areas with very high social trust.

Community Social Capital and Entrepreneurship, published in the American Sociological Review, examines the public good of what is called social capital — the relationship and networks of a group of people who live in and work in a particular community — to see how the benefits of social trust and organizational membership help not only the individual but also the community at large.

Seok-Woo Kwon, assistant professor in the Department of Strategic Management at Temple University’s Fox School of Business, started the research for this project 10 years ago with Colleen Heflin from the University of Missouri and Martin Ruef of Duke University.

“People have been researching a lot about the ‘If I have a lot of social capital, then I benefit from it,’” Kwon said. “For example, I get a better job, I get a quick job referral, or I have a higher chance of starting my own business. But I thought, what if I don’t have a high social capital but I’m surrounded by people who do. Their benefits are going to spill over to me.”

Kwon and his research partners tested their arguments about the communal benefits of social capital using data from the 2000 Census, Robert Putnam’s Social Capital Benchmark Survey and the National Opinion Research Center’s General Social Survey.

Their study suggests that the role social trust plays in entrepreneurship is crucial at the community level of analysis in two of the following ways: it encourages social groups to engage in the free flow of information and it helps small entrepreneurs to overcome a lack of recognizability.

Participating in voluntary associations produces social capital that benefits both the entrepreneur and the community. Because potential partners and customers for independent business owners are connected rather than isolated, they are encouraged to socialize and share ideas outside of their circles. Furthermore, these shared memberships between voluntary associations and organizations allow for the flow of word-of-mouth information.

There is a downside to this type of connectedness, however. Communities that are polarized by ethnic, political, religious or class differences tend to create homogenous organizations. Network expansion does not extend past the organization itself.

As the researchers were determining whether everyone receives an equal kind of spillover from neighbors, they found that that whites benefited from community social capital to a greater extent than minorities in the same community.

The same lack of spillover could also be seen among immigrants. This is for two reasons: immigrants have less individual-level social capital at the start than non-immigrants, and individual-level social capital is less generously compensated if a community social capital exists. This means that community-level social capital fails to spillover as much positive impacts and influences to marginal groups in the community, because some of these groups tend to be newer.

“The immediate, direct translation of this is that you’ve got to build a community with high social capital,” Kwon said. “That means building a community with a lot of trust, where people get to meet and socialize with each other. If you build that community, then everyone, not just a select few, benefits and can get information to start their own businesses.”

—Alexis Wright-Whitley

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