Associative Entrepreneurship

The Importance of Society and Culture to Economic Enterprise

Structure of presentation

Are we competitive?

How is Wales doing in the global competition?

An exploration of social capital

An introduction to ‘associative entrepreneurship’

Economists have found that people tend to cooperate more than they would according to their theories, especially game theory. In the repeated prisoner’s dilemma game, for example, half of players chose to trust their partners, while three-quarters of respondents failed to violate this trust: ‘co-operating rather than defecting to the Nash equilibrium’.

Experimental and everyday observations indicate that people tend to co-operate and follow a set of social norms, though it would be economically rational [NB] for the individual to defect.

Svendsen, p. 25.

A Rational Mind?

The contribution of inward investment, and the threat

By 1999 Wales was attracting approximately 5 per cent of all the investment coming into Europe, compared with its population size of 0.5 per cent. There were about 380 foreign-owned plants employing around 75,000 people (Huggins, 2001). The foreign manufacturing base in Wales represented around a third of all Welsh manufacturing companies (Munday and Peel, 1997).

There is undoubtedly some evidence of the movements of factories who originally installed themselves in Wales originally when the UK

entered the EU. At that time then Wales was in the position that Poland will be after enlargement. It will be the lowest cost place to

assemble TV sets, electronic or motor components. Clearly after enlargement we will no longer be able to claim that Wales is the

cheapest location to do that kind of manufacturing investment. (Rhodri Morgan, Welsh First Minister)

Fanfare for LG

Was the LG project cost-effective?

£1,664m. for the promised creation of 6,100 jobs (WAC) from 1998Official cost per job of this scheme to the public was slightly in excess of £40,600Microchip factory mothballed; May 2003 jobs reduced to 350Most of the £250 million of development grants had disappeared into LG’s international debts, while the actual size of subsidy per job had risen to £124,000

Case-study of the Welsh steel industry

British Steel merged with Hoogovens, a Dutch steel manufacturer in 2000.Despite profits exceeding expectations, the corporation’s Llanwern plant was closed, perhaps because of poor redundancy protection.Allied Steel and Wire, the UK’s second largest steel maker with two plants in South Wales, went into receivership: pensions lost but eventually bought by Spanish steel-maker CelsaNothing could better illustrate the powerlessness of Welsh policy-makers and Welsh people over their own production and their own employment.

The Welsh Richard Branson

Are the Welsh entrepreneurial?

Importance of Welsh culture of equality and communityDependence on secure, well-paid jobs close to homeAssociation of entrepreneurship with exploitationRole of the highly oligopolistic coal and steel industries and the resulting concentration on industry-specific skills Strength of the radical tradition

Social capital as a substitute

Chapter 6 by Lars Hulgård and Roger Spear is titled ‘Social entrepreneurship and the mobilization of social capital in European social enterprises’.Hulgård and Spear argue that the concept of social entrepreneurship offers an opportunity to explore how social capital can be mobilized, substituting for other resources that may be unavailable in depressed local economies.‘interesting since it represents a challenge to conventional thinking about entrepreneurship, which tends to emphasize the individual, whereas in social entrepreneurship there often seems to be a more collective dimension’. Media stereotype of the entrepreneur as ‘heroic individual’ can be unhelpful to economic regeneration in such areas.

Social Capital and Entrepreneurship

Svendsen (2004), The Creation and Destruction of Social Capitalsocial capital as a ‘factor of production’He defeines social capital as ‘the presence of entrepreneurship and trust in a society’His chapter 2 provides a useful summary

What is social capital?

An attempt to unite sociology and economicsNorms are important in underpinning economic activity [quotation]If group members trust each other they can achieve more economic growth than an untrusting groupWhat economists call ‘transaction costs’ are reduced--take the US health system and the high levels of litigation as an examplePredictability of behaviour increases and its is no longer necessary to monitor and enforce economic transactions.

What are norms?

Norms of behavior reflect valuations that individuals place on actions or strategies in and of themselves, not as they are connected to immediate consequences. When an individual has strongly internalized a norm related to keeping promises, for example, the individual suffers shame and guilt when a personal promise is broken. If the norm is shared with others, the individual is also subject to considerable social censure for taking an action considered to be wrong by others.

Elinor Ostrom

Concept began with Bourdieu

Interrogating class stratification and exploitation across the economic, social, cultural and ideological territoriesA tamer version of social capital from his highly political one has been developed by such as Coleman and PutnamEconomists have found that people tend to cooperate more than they would according to their theories, especially game theory. In the repeated prisoner’s dilemma game, for example, half of players chose to trust their partners, while three-quarters of respondents failed to violate this trust: ‘co-operating rather than defecting to the Nash equilibrium’.

Bourdieu, P., & Passeron, J. (1977). Reproduction in education, society, and

culture. Beverly Hills, CA: Sage.

Economism knows no other interest than that which capitalism has produced through a sort of concrete application of abstraction, by establishing a universe of relations between man and man based, as Marx says, on ‘callous cash payment’. Thus, it can find no place in its analyses, still less in its calculations, for the strictly symbolic interest which is occasionally recognized (when too obviously entering into conflict with ‘interest’ in the narrow sense, as in certain forms of nationalism or regionalism) only to be reduced to the irrationality of feeling or passion.

Extension (and depoliticisation) by Putnam

Published a study of social capital in Northern and Southern Italy called Making Democracy Work in 1993. He uses the following measures of ‘civic engagement’:Voter participationNewspaper readingMembership of associations

Concludes that the greater wealth of Northern Italy is the result of a better level of associational life.

Putnam on the USA

Then turned his attention to the USA and identified the role of TV in reducing associational ties there:Television is . . . the only leisure activity that seems to inhibit participation outside the home. TV watching comes at the expense of nearly every social activity outside the home, especially social gatherings and informal conversations . . . television privatizes our leisure time.His latest work on this theme is Bowling Alone (2000).

Negative aspects of social capital

The attempt by groups to bind together to exclude outsiders, as in nationalismDistinction between ‘bonding social capital’ and ‘bridging social capital’In some cases social capital can often be seen as a negative externality and a barrier to economic growth at the macro levelBonding social capital tends to entail generalised distrust and lack of co-operation between groups Bonding social capital can be seen as superglue which ‘stiffens society and ultimately makes it a fragmented society’

Becker: the economist’s response

Individuals join social networks that they presume will confer benefits.‘extension of the utility-maximising approach to include endogenous preferences is remarkably successful in unifying a wide class of behaviour, including habitual, social, and political behaviour’This appears to turn Bourdieu’s ideas on their head: reciprocity, self-help, compassion and so on are only engaged in because of the desire by the individual to maximise her/his utility.Represents an attempt to inculcate rational choice theory within social theory, i.e. for economistic thinking to ‘colonise’ sociology (in the words of Fine).

The critical view of Bob Fine

Finds a political response to his question ‘Why has social capital proved so popular with limited effective critical response?’Also argues that it is poorly theorised: ‘a sack of analytical potatoes’--a new fashion not an operationalised concept.Identifies a desperation to find an alternative to socialism that is acceptable to the Establishment-- ‘scholarly third wayism’: ‘you can have anything you like as long as it is compatible with the (market imperfections view of the) economy’Concept taken up with alacrity by New Labour who see the need for a ‘moral and social reconstruction of society’: Commission for Social Justice, 1994

A damning condemnation of social enterprise?

‘A conceptual artefact of the First World (and wealthy), transposed to other Worlds (and the poor) on the basis of two closely related but distinct aspects. On the one hand, it is self-help and cooperation raised from the individual to the communal level at some tier or other. On the other hand, it is the rich and powerful speculating on how to improve the lot of the poor through prompting their self-help and organisation without questioning the sources of their economic disadvantage.’ (p. 199)

Importance of terms

if local entrepreneurs makes an argument more explicit by using the word ‘social capital’, they will probably be more successful in obtaining a ‘theory’ or ‘theorization effect’ (Bourdieu, 1977: 178), that is, by their symbolic practice contribute to shaping reality—just like Marx’s ‘the class struggle’ did.Svendsen considers the term ‘social capital’ might have saved the dairy co-ops; we would support instead the term ‘associative entrepreneurship’ to describe shared economic regeneration activity. We have developed this concept particularly in the context of the South Wales Valleys.

What do we mean by ‘associative entrepreneurship’

Channelling energy in the economic sphere towards shared social and economic goals.Objectives of a regeneration strategy to be much broader and more socially determined than the creation of an elite of profit-making entrepreneursMoney invested in regeneration would have the objective of community advancement, and the objectives would be set in collaboration with or partnership with the community.The key to this process lies in ensuring that regeneration is not viewed simply as an exclusively economic process.Genuine commitment to the community empowerment that many regeneration programmes pay lip-service to

Particular advantages?

Absence of shareholder pressure

Prioritisation of creation of well-paid jobs rather than short-term profit

Harnessing the energy of local people where other jobs create economic inactivity

Genuine worker involvement by uniting ‘workers’ and ‘bosses’

Tower Colliery as a prototype

Success in a competitive marketOperating for nine years, returning a surplus and paying a dividend in most of those yearsImportant impact via its local multiplier: without it the local economy would lose up to £10m. per yearOriginal buyout team of 239 has increased to 300 employees, 90 per cent of whom are shareholders. Another 100 people are employed as contractors.Tower is now the only deep mine in Wales employing more than 150 menAll 300 permanent employees have well-paid, relatively secure employment, which offers self-respect and is popularIn 2002 Tower Colliery ranked 174 in a list of Wales’s top 300 companies, with a turnover of £28 million, profits of £2.7 million and a 26.8 per cent return on capital