Bowling Together?: a Preliminary Investigation of Social Capital Variables and Entrepreneurship

Drawing on a sample of 493 respondents from 21 counties in a southeastern state, this study examines the rate of business start-ups in relation to various measures of community social capital. The measures are drawn from four of the key variables in social scientist Robert Putnam’s book Bowling alone: The collapse and revival of American community. Of the four measures of social capital used—generalized trust, faith-based involvement, diversity of friendships, and civic involvement--only one, civic involvement, was found to be positively related to levels of entrepreneurship. Possible explanations for the findings are discussed. INTRODUCTION Just as physical capital and human capital facilitate productive activity, social capital does as well. Coleman, 1988, p. S101 Social capital–social networks and community connectedness and the trust and norms of reciprocity that accompany them (Putnam, 1995)--is the focus of increasing research in a number of fields, especially sociology, political science, and more recently, economics and organization sciences. Adler and Kwon, in their article “Social Capital: Prospects for a New Concept”, (2002), describe the concept as being in the “’emerging excitement’ phase of [its] life cycle” (p. 18.) Even noted economists, such as Kenneth Arrow (2001) and Robert J. Solow (2001), have ventured beyond traditional neo-classical economics and theorized about social capital. The work of Robert Putnam, in particular, has expanded interest in the social capital concept to the lay public. His book, Bowling alone: The collapse and revival and American community (2000) is among the most discussed and most quoted works of recent social science research (Lenkowsky, 2000.) Putnam points to a decline of civic and social ties in the U. S. since the 1960s and brings to bear considerable evidence. Membership in the PTA and all major civic groups is down; newspaper readership is down; fewer citizens are voting; fewer people are dining with friends; even membership in bowling leagues is down—despite the fact that the number of individual bowlers in increasing. Citizens of the U. S. are, in essence, “bowling alone”, both literally and figuratively, more and more frequently in their lives. Research in sociology, management, and political science finds that stores of social capital can bring significant benefits to individuals and to communities. For example, strong levels of social capital are associated with improved health (Kawachi, Kennedy, & Lochner, 1997), better educational outcomes (Coleman, 1988), reduced crime (Putnam, 1995) and improved organizational performance (Cohen & Prusak, 2001; Tsai & Ghoshal, 1998.) There are suggestions that there might be benefits in the realm of entrepreneurship research as well. Scholars have found that social capital can be related to economic development and to access to capital for entrepreneurs (Putnam, 1993), that kinship ties in ethnic enclaves provide support for new ventures (Portes, 1995, among others) and that social capital is associated with innovation (Cohen & Fields, 2000.) Social capital research appears to hold promise for the field of entrepreneurship, yet the concept is only beginning to be explored. This paper extends the concept of social capital in the field of entrepreneurship as it asks the question “Is the level of social capital in a community associated with greater levels of entrepreneurship?” THEORETICAL BACKGROUND Definitions of social capital in various disciplines Definitions and operationalizations of social capital tend to vary considerably by discipline. Four different studies from four different academic fields of inquiry –sociology (Portes, 2000) economics (Cohen & Fields, 2000), political science (Putnam, 2000), and management (Adler and Kwon, 2002)—together provide a summary of the evolution of the social capital concept and its various definitions and research perspectives. Sociology. In sociology, social capital is typically related to social networks; a vast body of research addresses this topic. One research stream addresses the role of networks on organizations and organization members. These networks can provide benefits such as access to information, influence, and control within an organization (Sandefur & Laumann, 1988; Burt, 1997); increased income (Meyerson, 1994), job opportunities (Granovetter, 1974, 1995), and overall career success (Seibert, Kraimer, & Liden, 2001) among others. At the organization level of analysis , scholars have found that organizational networks also provide access to information and other benefits (Walker, Kogut, & Shan, 1997.) Economics. Cohen and Fields (1998) present a comprehensive overview of the evolution of the social capital concept—though not always explicitly named as such—in economics and economic sociology. Their review of the economic history begins with Alfred Marshall and ends with an exploration of the economic success of the Silicon Valley area in California. They attribute the development of innovation in Silicon Valley to institutions and to social capital-but not the social capital of Putnam’s work. They find social capital in the networks of social relationships, particularly those involving venture capitalists and legal firms. These networks relay information about individuals’ reputations and establish “performance-focused trust” (p. 200.) Thus, social capital is not based on community interactions or civic engagement, but rather on trust in individuals that is relayed through personal networks. Political science. Political scientists focus on a larger unit of analysis, the community or the nation. In this macro perspective, social capital is made up of social networks and community connectedness and the norms of reciprocity that accompany them. Putnam’s early work (1993) concluded that economic performance was a result of civic involvement or “social capital.” Building on these findings, he studied levels of civic participation, volunteering, and trust in the U. S. and concluded that strong, prosperous communities were associated with greater community involvement on the part of the citizenry. Entrepreneurship. The role of networks in promoting entrepreneurship has been studied to some degree in several fields. Putnam (1993) points to the role of networks and the trust inherent in them as forms of social capital that facilitate access to capital for entrepreneurs. Social capital is also seen as a force impacting innovation (Fountain, 1998). Networks and kinship ties are seen as promoting ethnic entrepreneurship (Portes, 1995; Sanders & Nee, 1996, among others.) Within the established organization, social capital has been identified as contributing to corporate entrepreneurship (Tsai & Ghoshal, 1998.) Similarly, entrepreneurship research has studied networks in terms of formal and informal venture capital (Haar, Star, & McMillan, 1988; Wetzel, 1983). Personal relationships that entrepreneurs develop are also thought to positively impact new venture success (Aldrich, Rosen, & Woodward, 1987; Dubini & Aldrich, 1991; Johannisson & Ramirez-Pasillas, 2001; Christensen, Madsen, Neergaard & Ulhoi, 2001). These recent studies using the term “social capital” usually cite Putnam (2000 or 1993) but do not typically capture the community or aggregate basis of his research. The operationalization of social capital in entrepreneurship studies appears to be networks of individuals or of organizations. Regardless of definitional differences, at least two common aspects are found in the conceptualization of “social capital.” Social capital has its basis in a foundation of trust (Fukuyama, 1995, p. 26: “Social capital is a capability that arises from the prevalence of trust in a society or parts of it.”) This may take the form of trust in one’s family, one’s fellow workers, one’s neighbors, or one’s community leaders. Further, social capital arises out of associations with people (Coleman, 1988 ). SAMPLE AND DATA COLLECTION This study is part of a larger research project undertaken in 2000 under the auspices of the Saguaro Seminar: Civic Engagement in America. The full dataset is made up of a national sample of 3,000 respondents and an additional 26,200 community respondents drawn from 40 communities across the U. S. This paper used a subset of 493 respondents from 21 counties in a southeastern state. Interviews were conducted by phone; respondents were selected by a random dialing algorithm. The questionnaire is available at www.cfsv.org/communitysurvey /docs/survey_instrument.pdf. The dataset is also available on line. .Operationalizations of variables can be obtained from the author.. Pearson’s Chi Square test was used to test the hypotheses. HYPOTHESES The underlying question driving this study is this: “Is the level of social capital in a community associated with greater levels of entrepreneurship?” Past studies indicate that social capital in communities brings positive benefits, among these, economic growth. To examine this question, I will look at four particular components that the literature finds associated with social capital— trust, civic involvement, religious involvement, and tolerance. The preponderance of the evidence suggests that a community high in trust should provide fertile ground for new ventures (Fukuyama, 1995; Fountain, 1998, Putnam, 1993, for example.). Thus, Hypothesis 1: The level of entrepreneurship will be positively related to the level of overall trust within the community. Some have suggested that high levels of civic involvement provide social stability that creates a prosperous community (Putnam, 1993; Fukuyama, 1995). Indeed, high levels of civic participation are thought to be more highly correlated with reduced crime and greater community prosperity than are measures of individual income or educational achievement (Putnam, 2000.) Civic involvement on the part of citizens, then, should provide a munificent environment that is supportive of new business creation. Thus, Hypothesis 2: The level of entrepreneurship will be positively related to aggregate levels of civic involvement. A third aspect of social capital when viewed from a community perspective is that of participation in faith-based activities. Max Weber proposed that certain religious values predisposed a populace to individualism, hard work , and entrepreneurship (1930). It follows, then, that a high level of faith-based involvement might be associated with entrepreneurial endeavors. This leads to Hypothesis 3. Hypothesis 3: The level of entrepreneurship will be positively related to aggregate levels of faith-based involvement. In a different vein, a recent stream of research suggests that it is not social capital, as measured by political scientists (Putnam in particular), that drives economic growth and business innovation. It is, rather, “creative capital” (Florida, 2002; Cushing, as cited in Bishop & Lisheron, 2002) that is strongly associated with economic growth. This is seen as arising from a culture of high tolerance for diversity that attracts innovative individuals. It is these individuals that drive new business growth. This contrary perspective leads to the fourth hypothesis. Hypothesis 4: The level of entrepreneurship will be positively related to aggregate levels of tolerance for diversity. RESULTS AND DISCUSSION Table 1 presents the results of Spearman Chi-Square test of each of the hypotheses. Tests of hypotheses 1, 3, and 4, dealing with trust, faith-based involvement, and community tolerance did not find statistically significant differences. Only Hypothesis 2, dealing with civic involvement, was supported (p=.063/2 or .0315 for a one-tailed test.) ________________ Table 1 about here ________________ These results raise questions that suggest certain limitations to the study. First, since civic involvement and social trust are highly correlated (Putnam, 1995), why is civic involvement significant and the measure of trust is not? One possible explanation deals with the geographic area. The area is culturally conservative and thought to be inherently skeptical due to the dominant culture (Lewis, 1975.) In fact, in the national study from which these data are derived, this area ranked lower in measures of trust than all but two other areas. Also, this region ranked fourth highest in faith-based social capital. Thus, the measures of trust and faith-based social capital may be skewed at the outset. A second limitation deals with operationalizations of variables. Measures of trust and tolerance for diversity were developed for a national sample and may not have validity for this rather homogeneous geographic region. Also, the operationalization of the entrepreneurship variable is based on only one year—and is not the same year as the social capital survey. In spite of unresolved issues dealing with the social capital concept, it appears to be an issue that merits continued research interest. The field of entrepreneurship, in particular, may be especially well-positioned to apply the lens of social capital to research in the field.