Social Capital, Embeddedness, and Market Interactions: An Analysis of Firm Performance in UK Regions

This article presents results of a research project examining the effects of social capital on small and medium-sized enterprise (SME) performance. The first main part of the article is a review of literature of relevance to the study. The second part reports the main quantitative results of research on the role of social capital in SME markets in the UK. It compares SME performance and social capital usage across UK regions, with samples stratified according to degrees of knowledge intensiveness of firms and economic status of their area. It shows, perhaps surprisingly, that for many SMEs the "market'' is more or less wholly constituted by social capital. The third main part of the article investigates in depth a number of representative and illustrative cases of SMEs deploying social capital in distinctive ways within markets. It shows that without social networks most firms cannot function in markets. It shows high performance firms to be the most intensive users of social capital. This research on social capital underlines the distorted nature of mainstream (neoclassical) economic theory by demonstrating "relational embeddedness'' to be an important indicator of SME performance.