Small Firms, Social Capital and the Enhancement of Business Performance through Innovation Programmes

The paper explores the extent to which social capital is advantageous to small and medium enterprise (SME) growth. Social capital is a communal property involving civic engagement, associational membership, high trust, reliability and reciprocity in social networks. It is capable of being identified in social, political and economic contexts, often associated with strong communities. However, not all strong communities exert the effects of social capital in respect of business activities. This paper assesses government programmes to promote collaboration amongst SMEs for improving innovation capacity by increasing social capital through networking. It shows that, for a sizeable proportion of programme-funded firms in Denmark, Ireland and Wales (U.K.) social capital building was associated with enhanced business, knowledge and innovation performance. Of particular importance was the opportunity afforded to firms for linkage with external innovation networks, and the build-up of embeddedness, or the institutional basis for the enhancement of social capital. As a consequence of discovering the advantages of social capital, over a third of respondents planned to continue to develop it in future, in many cases funding such activities privately rather than calling on the public purse. Copyright 1999 by Kluwer Academic Publishers