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Harnessing Social Capital Principles for Micro-economic Development
– SCFD, DSD
In his article titled “planning against business failure”, Rob Holland states that “the failure
rate for new businesses seems to be around 70% to 80% in the first year and only about
half of those who survive the first year will remain in business the next five years”. In
South Africa, a developmental state, with an unemployment rate of over 20%, SMME
development is considered to be a “critical vehicle in respect of direct poverty reduction,
creation of job opportunities, and contributing to transformation of the economic sector in
terms of representation and meaningful economic participation of black people, women,
people with disabilities, youth and other marginalized sectors in our society”. (Gauteng
Provincial Government,GDS April 2005,p 19)
This article seeks to examine the ways in which the social capital lens can support and
help to render micro-economic development strategies/ efforts more sustainable/
successful.
Author Wayne Baker writes in “Achieving Success through Social Capital”, that social
capital is not merely a matter of chance, it is intentionally engineered. He says, “Studies
show that lucky people increase their chances of being in the right place at the right time
by building a ‘spider web structure’ of relationships that catch information”. Furthermore,
“Success is social”, he writes, “all the ingredients of success that we customarily think of
as individual-talent, intelligence, education, effort and luck – are intertwined with
networks”.
The infamous old adage of “it’s not what you know, it’s who you know”, now takes on a
positive connotation in the business development context as the successful expansion in
size of a business across SMME levels may be strongly influenced by the business
owner’s ability and enthusiasm for “spreading the word” about his business, building his
own brand, promoting his reputation for good business practice and professionalism,
expanding his contact base and establishing confidence in his organization both outside
and within.
In an article published on the World Bank website (2008) on The Role of Poverty
Reduction in Economic Development, it was said that, “Social capital facilitates valuable
information exchange about products and markets and reduces the costs of contracts
and extensive regulations and enforcement. Repeated transactions and business
reputation provide the necessary incentives for parties to act in mutually beneficial
ways”. This information exchange can lead to more efficient coverage of government
services available to the entrepreneur/ small business owner, as knowledge sharing as
a result of good social capital will lead to a more widespread awareness of what
government can do to support and assist SMME owners to succeed and expand.
Sound social capital between government and SMME’s and SMME’s with each other
leads to a greater and stronger network of referral for goods and services – as people
work with people they trust. Stronger social capital does not only afford the small
business person the opportunity to establish a reliable business reputation and network
of contacts, but can lead to greater opportunities to access micro-finance, discounted
purchases through bulk-buying power and other time and cost saving benefits of pooling
resources. This higher level of trust, cohesion and reciprocity is often the key ingredient
that buffers the small business from going under in hard times as well as, unforeseen
shocks, including illness, poor weather, family stresses, government cutbacks and other
disasters eg fires.
As one of the biggest employers in the country, the government is in a unique position to
promote SMME growth by choosing to patronize a larger number of smaller upcoming
businesses, instead of the larger, already established service providers. Showing good
faith in the ability of entrepreneurial citizens’ to succeed and provide for themselves.
This is a great example of how a true developmental state seeks to provide
opportunities for people to empower themselves and for the country to grow with its
people.
An investment in social capital should, in these many ways, therefore be viewed as an
investment in economic development. Subsequently, as we take a social capital lens to
economic development at all levels of SMME development, we tackle poverty alleviation
and other social issues as well, and thereby contribute to social development. This is the
holistic, sustainable development process that the developmental state seeks to ensure.
Planning Against A Business Failure
A Growth & Development Strategy (GDS) For the Gauteng Province (pg19)
Social Capital in Poverty Reduction and Economic Development
http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTSOCIALDEVELOPMENT/EXTTSO
CIALCAPITAL/0,,contentMDK:20186616~isCURL:Y~menuPK:418214~pagePK:148956~piPK:2
16618~theSitePK:401015,00.html
Achieving Success Through Social Capital by Wayne Baker
Is Social Capital Really Capital
South African SMME Business Confidence Index