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Trust and Entrepreneurship

A West–East Perspective

Edited by Hans-Hermann Höhmann and Friederike Welter

In this innovative book, international scholars investigate trust and its role in relation to the entrepreneurial behaviour of small firms across a variety of institutional and cultural settings. The contributors draw on original empirical material from a number of West European and East European countries, highlighting the role of culture and the significance of a multi-disciplinary approach in researching trust and its importance in entrepreneurship.
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Chapter 4: Social Capital in Western and Eastern Europe

Gert Tinggaard Svendsen


1 Gert Tinggaard Svendsen Commerce and manufactures can seldom flourish long in any state which does not enjoy a regular administration of justice; in which the people do not feel themselves secure in the possession of their property; in which the faith of contracts is not supported by law; and in which the authority of the state is not supposed to be regularly employed in enforcing the payment of debts from all those who are able to pay. Commerce and manufactures, in short, can seldom flourish in any state, in which there is not a certain degree of confidence in the justice of government. (Adam Smith 1776 [1997]). INTRODUCTION Our overall contribution in this chapter is to apply the concept of social capital to the problems of transition in Eastern Europe. Social capital is broadly defined as people’s ability to co-operate in achieving a common goal (Coleman 1988, p. 95). Eventually, this ability to co-operate materialises in terms of trust and economic growth. Face-to-face interaction facilitates social sanctioning thus reducing the likelihood of free-riding behaviour. Enhancing the level of trust within a given group in this way means that more transactions can take place at a lower cost as it is no longer necessary to monitor and enforce all transactions. A group with members that trust each other may be capable of accomplishing more economic growth than a similar group without trust (see Paldam 2000; Svendsen 2003). Voluntary co-operation among agents has been explained in traditional economic theory by referring...

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