Abstract
Why do we find entrepreneurship within larger groups? This question has challenged the social sciences since Olson (1965) showed that it does not pay an individual to provide collective goods voluntarily, if the individual economic gain from doing this is negative. However, the fact that larger groups actually do organize in local areas cannot be explained in strict economic terms. In an attempt to fill this gap in literature, we offer another solution, namely the presence of social incentives called “social capital”. Social capital is derived from regular face-to-face, co-operative relations among larger groups in local areas. Such relations, we argue, are initiated by writing down formal “rules of the game”, which are sanctioned effectively. This suggestion seems to be confirmed by empirical evidence from rural Denmark 1800-1900. During this period, written rules in the form of the formal founding statutes of co-operative associations enhanced informal peasant co-operation and stocks of beneficial social capital of an inclusive nature. As an outcome of this process, entrepreneurs voluntarily organized larger groups which provided collective goods locally, thus contributing to economic growth in former poor, rural areas.
Highlights
In our opinion, the overall theoretical framework of such investigations could be further strengthened by introducing the concept of social capital
52 The question we raised was why entrepreneurs arise and voluntarily organize larger groups in local areas. This question was important because voluntary collective good provision in a local area enhances economic growth and alleviates poverty
We argued that a gap in economic literature exists
Summary
10 This point broke with traditional group theory which was based on the degree of consensus. 40 If the founding statutes did not fully lead to this idealist goal – at least, not in Sonne’s lifetime – they did offer an organizational structure apt to increase the material welfare of the poor majority of the Danish population – not at least in the countryside, where the peasants followed Sonne’s advice and formed their own wholesale societies to protect themselves against economic exploitation In this way, and especially from the mid-1880s, the number of wholesale associations rapidly increased to approximate 850 by the turn of the century and – which appears quite remarkable in an international context – all of them established in local rural communities, apart from a few exceptions (figure 2). This again strengthened the “recruitment” of new generations of local entrepreneurs providing collective goods and, at the same time, carrying on the building of beneficial social capital
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