Power & Market

Social Obligations and Entrepreneurship

In an era where entrepreneurs feel compelled to be agents of social change displaying deep commitments to social causes can yield immense admiration. Therefore, Corporate Social Responsibility (CSR) has become a seminal topic in the arsenal of entrepreneurship research. Often researchers divulge the pros and cons of CSR, though few consider the impacts of social obligations on entrepreneurship at the community level.

Large businesses are resourced to fund social activities, however prioritizing social obligations pertaining to family and community can hamper business growth. Unlike the narrative of CSR, social obligations are embedded in micro-structures operating at the family or communal level. The former is a call for companies to curate transcendental goals that comply with socially progressive causes. Yet there is an appreciation that companies can only fund social causes when they are prosperous.

Although some dispute the efficacy of CSR at least advocates accept that businesses are better situated to accommodate social demands when they are financially successful. However, the norm of social obligation in a communal setting is a different affair. In the context of social obligation, responsibilities are foisted on entrepreneurs because of the perception of prosperity. Social obligations are more relevant in collectivist societies where people are pressured to satisfy the interests of the group to the detriment of individual achievement.

Shedding light on the norm of social obligation can plausibly explain variations in high-growth entrepreneurship across regions. The potential for growth is stifled when a small business owner is expected to cover the expenses of family members and friends, due to the speculation that “he is rich.” Unfortunately, for the entrepreneur dismissing the solicitations of associates could result in him being depicted as selfish, so to avert this image, he may indulgence costly demands.

Using Africa as a case study researchers illuminate the adverse effects of committing to social obligations: “The kinship system in Africa exerts pressure on individuals to provide for the needs and obligations of other kin members. In East Africa, demands from one’s social relations, particularly kin, may include financial contributions to community projects, paying school fees or medical expenses, and providing for financial expenses of social events like weddings and dowry payment.” People usually comply with these burdensome requests to prevent social exclusion: “Because of fear of consequences of non-conformity to the kinship normative value “ “sharing without reckoning,” for instance losing legitimacy, status, and a following, entrepreneurs are forced to comply with demands from their social relations.”

Such developments exist because of the mistaken belief prevalent in some quarters that entrepreneurship ought to serve a social agenda. Similar beliefs are less pervasive in individualistic cultures, where people value autonomy, achievement, and self-actualization than group solidarity. Since individualistic societies, emphasize personal achievements entrepreneurs in these societies are more likely to perceive entrepreneurship as a tool to attain success by creating value.

In contrast, the constraints of social obligations levied on small entrepreneurs in a collectivist setting diverts attention from business expansion when scarce resources are directed to social obligations. By nature, the process of entrepreneurship aims to procure value for society. Hence jobs and the capacity to assist family members are merely the consequences of producing value. When one becomes an enabler of social requests, he is no longer managing a business, but existing to serve a social agenda.

Accordingly, Khayesi and George (2011) argue that high levels of communal orientation increase the acquisition of resources due to compliance with unreasonable social obligations and demands from kinship ties. Another recurring problem in these settings is that entrepreneurs might feel obliged to employ family members as a noble gesture. Yet, as research shows this can be a great error considering that the distribution of skills possessed by relatives could be narrow thereby limiting the scope of talent available for business expansion.

Moreover, neither is it cheap to maintain a network of dependents. In fact, researchers describe social payments to dependents as a solidarity tax, since failure to comply with demands will result in the isolation of entrepreneurs. Furthermore, beneficiaries of the entrepreneur’s benevolence often develop an entitled mindset motivating them to believe that the entrepreneur is permanently obligated to service their desires. This automatically slows growth by reducing resources available for capital expansion. However, in the long-term, beneficiaries are also victims.

By succumbing to their requests, the entrepreneur has ensured that they remain mendicants and this could deter them from acquiring the skills required to compete in an economy. On a broader scale, the negativities associated with excessive communal involvement often lead to declining profitability, negative firm growth, and ultimately financial demise. In hindsight, it is evident that unnecessary social obligations also impede the actualization of other businesses that could have been created with greater capital. Similarly, expending resources on social projects would have also depleted investments available for retooling.

However, the most pernicious effect of this arrangement is the perpetuation of the narrative that entrepreneurs exist to serve a social agenda. Without altering cognitive styles future generations will mature to embark on similar ventures, even to the extent of prioritizing social obligations before job performance.

To remedy the problem policymakers in developing countries where the situation is most dire ought to focus on reorienting cognitive perceptions of entrepreneurship. Entrepreneurship must be conceptualized as a medium to create value and not a tool to pursue social agendas.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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