Role of Socialization in Business: Lessons from Dalit Enterprises

Abstract

Business-owners from historically stigmatized communities (HSCs) can face stigma and become victims of discrimination in business. In this paper, we argue that discrimination is uniquely persistent for HSC business-owners, while business-owners from other disadvantaged but non-stigmatized communities can overcome them. We use a detailed pan-India dataset - that includes more than eight thousand business-owners of various castes - to observe an array of business-owner characteristics. We analyze the sources of business income disadvantage, and document that HSC business-owners (Scheduled Castes in India) face a large income gap even if they have a similar socioeconomic background as other business-owners. Business-owners from socioeconomically disadvantaged communities that are not associated with stigma do not face an income gap if they are themselves socioeconomically at par. We document a greater business income gap for business-owners from HSCs that face greater stigma, and this disadvantage is greater in more relationship-based industries. We find within-community social capital with higher-status acquaintances to be highly resourceful for non-HSC business-owners, but not for HSC business-owners. Hence, beyond-community social capital becomes critical for the success of HSC business-owners, and policymakers should create inclusive spaces where such beyond-community social capital could be built.