Entrepreneurial Demand for Social Capital within Market and Politics

Abstract

The paper is questioning about how small business collect and use social capital for productive and destructive purposes. The research looks specifically at functions of social connections and ties within market and at the crossroad of market and the state, that is everyday relationships between entrepreneurs and politicians (bureaucrats) on the way of achieving economic interests. Empirical data is based on extensive interviews with entrepreneurs and market experts in regional Russian centre. One of the main features in entrepreneurship development in Russia is close relations between business and state and high role of informal relations with state representatives for business development. However, the question about social background of these relations, about social connections with state representatives is still underexplored. In developing economics reputation, trust and other social constructions play a significant role in economic action. On the example of regional Russian city the author argues that social capital is the most valuable form of capital for an entrepreneur, strong and weak social ties do matter. Because of rational reasons entrepreneurs do not seek to make weak ties stronger, especially within political bodies. A pure protection of property rights and low trust towards state institutions causes two strategies of using social capital by small entrepreneurs. Some use it for productive purposes, with no harm for business environment. Others prefer ‘shadow’ practices, good for a particular firm, but bad for other market actors. Specific ties and connections with state representatives help to succeed in business and to increase credible commitment of property rights. However, entrepreneurs try not to overestimate their significance.