Local social capital, necessity entrepreneurship and levelling up
‘You can’t do business without them’, says an owner of a food shop serving a local migrant community, talking about his social ties with customers who he consults for advice. ‘The competition is tough… It depends if customers trust in you. We have maintained trust in what we do and that’s why customers keep coming’ notes the owner of a computer repair shop, who immigrated to the UK from Somalia (Ram, 2021). Marginalised entrepreneurs often acknowledge that strong links to their local communities and customer networks are an important resource, a source of guidance, and a key to survival if not to success.
But is there any robust quantitative evidence on the role that the social structures found in local communities play in business creation? In ongoing research at the ERC and Aston University, we are creating new evidence on the links between local social capital and entrepreneurial activity. Across the UK, local areas and neighbourhoods differ largely not only in terms of economic welfare and physical infrastructure, but also in terms of the strength of ties between people living in these areas: the level of trust among neighbours, the sense of community and cooperation, all of which comes under a label of ‘social capital’. We know, for example from Klinenberg (2002) that this matters, especially at time of crises, but can it be of importance when it comes to start-up activity?
Social linkages resulting from activities such as neighbourhood chats, meetings at the local pub, attending group activities in local libraries and community centres, discussions between parents when collecting children from school, the encounters of dog walkers and exercising together in parks – are ‘appropriable’ for business purposes. During these interactions business ideas may be born and shared with potential customers, and collaborators and financial resources may be found at low cost. But our latest research finds that this is not equally true for all forms of entrepreneurship. Our findings, based on quantitative analysis of two unique datasets, Global Entrepreneurship Monitor UK and Co-op’s Community Wellbeing Index, suggest that local social capital is particularly important for so-called ‘necessity entrepreneurs’: those who are pushed into entrepreneurial activity because of the lack of alternative employment prospects.
Why does this matter? Research and policy action has previously been focused on ‘opportunity entrepreneurs’, or those who start a business out of personal aspiration in pursuit of growth, profit, and innovation rather than due to a lack of alternatives. There is an expectation that these opportunity-driven ventures will result in strong benefits for society. However, we argue that necessity entrepreneurship is important for those who are socially underprivileged, creating a route of escape from a situation of dependency and the poverty trap. Entrepreneurs, even if ‘pushed’ into self-employment, can gain new knowledge and skills, which may later lead to new opportunities and more ambitious venture creation. In this way, necessity entrepreneurship also plays a role in spreading opportunities, supporting communities and contributing to the ‘levelling up’ agenda.
This is why understanding what supports marginal entrepreneurship matters. What could this support look like? Improvement of social infrastructure, such as libraries, green spaces and sports and community centres can create safe local places where people can meet, exchange ideas, and come together with common projects, and may strengthen local social capital (Klinenberg, 2018). Identifying which types of social infrastructure are most beneficial when it comes to spurring on entrepreneurial activity should be an important area for future research.
Anastasia Ri , ERC Research Fellow
Neha Prashar , Lecturer,Aston University
Tomek Mickiewicz, Professor , Aston University
Mark Hart, ERC Deputy Director
Please note that the views expressed in this blog belong to the individual blogger and do not represent the official view of the
Enterprise Research Centre, its Funders or Advisory Group