Do variations in social trust impact upon regional levels of entrepreneurial activity?
Originally published on September 6, 2015
I’d been doing research previously around the topic of whether international students in Australia have entrepreneurial ambitions. Having read a lot of different papers as part of the literature has been a really interesting process, because it threw up a lot of things I hadn’t thought of or even considered previously.
While I’m not going to go into the topic in depth, essentially there are a variety of factors which impact upon whether people decide to become entrepreneurs. These range from motivations like ambition through to self-efficacy. Two factors stood out for me amongst the others, though – the first being the effect of role models and social networks, and the other factor being the possibility of geographical/regional differences.
Some of the literature around entrepreneurship suggests that those who have had direct contact with a business owner, especially if such a person is related, are more likely to have a positive view of entrepreneurial activities, and to try such a career for themselves. Likewise, the converse is true for those people who have little direct contact with business beyond being a customer.
In regards to the regional differences, I haven’t read much upon this, but one study by Franco et al (2010) compared two regions in Germany to another one in Portugal. (https://www.academia.edu/12367120/Students_entrepreneurial_intentions_An_inter-regional_comparison). Some of the findings indicate a much higher entrepreneurial desire amongst the Portuguese students surveyed in comparison to their German counterparts.
None of the variables tested indicated a clear pattern as to why this was the case. However, I cannot help but think some of it may have to do with the relative wealth of these regions. For many people in wealthy nations, entrepreneurship is probably more based on opportunity, when someone sees a gap in the market. In other places, however, maybe opportunity is more based upon necessity, especially in places where the formal labour market is weak at generating other employment options. I do not know if this is the case in the Portuguese example given.
All of this got me thinking: what if these two things were connected? What if the increasing polarization of different regions’ economic fortunes depended in part upon who knew who?
After all, social network theory often mentions the concept of homophily, i.e. that birds of a feather fly together. If this was true, could it mean that those individuals who have had exposure to business are, over time, more likely to end up in places where such entrepreneurial talents could be fully expressed? Or, would the lack of opportunity in some places cause a flowering of entrepreneurial activity?
More than this, I wonder if there is a missing link here around the concept of trust. Francis Fukuyama wrote a book called “Trust: The Social Virtues and the Creation of Prosperity” (a brief review is given here: https://www.foreignaffairs.com/reviews/capsule-review/1996-03-01/trust-social-virtues-and-creation-prosperity). My take on what Fukuyama suggests is that in countries with high levels of trust, that business is easier to do, and that it is able to scale up to larger sizes effectively, in large part because it does not need to depend upon an ever growing web of family connections or patronage.
The reason I raise this here is that I wonder if trust varies upon a regional level as well, and whether that has an impact at the local and individual levels? Could it mean that someone who grows up in a region with high levels of trust is able to function effectively in other regions that present opportunities? Also, does having this background mean that such a person is both more able, and possibly more disposed to, being mobile over the course of their lifetime?
Conversely, if someone grows up in a region with low levels of social trust (all else being equal); does that make it harder for such an individual to be mobile, and to follow opportunities? Are they likely to stay where they are, because that is where their trust network is strongest, i.e. among family and friends, even if it means they miss opportunities?
Do these two groups increasingly inhabit different regions? And are the patterns of entrepreneurial activity different as a result? I don’t have the answers to all of these questions, but I’d love to hear your thoughts on this topic using the comments field below.