Bright and Dark Sides of Organizational Social Capital: Influence on Economic Performance of the Industrial Enterprises

It is conventional wisdom that social capital is a forceful vehicle of socio-economic development at all levels, and the scholars of social capital found plenty of its positive externalities for society: from an increased sense of security for an individual (Coleman, 1990) to reduced transaction costs for an organization (Fussel et al, 2006). However, the proposed paper argues that the influence of social capital at the same time can be twofold, some of its components can enhance the development, while others can have negative externalities. The main goal of this research is to reveal how enterprises vary according to their organizational social capital and how this organizational social capital affects a firm’s survival during the global financial crisis and its further economic performance. Organizational social capital is defined as an organization's resource, reflecting the nature of relations between employers and employees, which is manifested through trust and cooperation between them. This paper is based on the empirical study of the Russian manufacturing enterprises in 2007-2014 during the economic crisis. Two sources of data were used: i) sociological survey of the 300 CEOs and 1500 employees of 300 Russian manufacturing enterprises collected by means of two comparable questionnaires in 2007 (for example, the similar questions on trust were in both questionnaires) and ii) statistics on economic performance (sales) in 2001-2014 for these companies. We used logistic regression analysis to study the role of organizational social capital in coping enterprises with the global financial crisis. According to our results: trust has a significantly negative influence on an enterprise’s “survival” during the crisis, however, the presence of a high level of cooperation may weaken this effect. The relation between enterprises' organizational social capital and their economic performance after 2008 is counterintuitive: those with high cooperation and a rather low trust between CEOs and employees are more likely to have significant average annual sales growth. We discuss these results in the context of the current institutional arrangement in a model of Russian capitalism. This is the result of serious dysfunctions in the operation of a number of most important legal institutions, primarily the law enforcement system. In order to trust in “work”, employees' rights and property rights must have reliable legal protection (Hosking, 2011). Otherwise, the cultivation of trust turns out to be a risky strategy both on the part of employees and on the part of managers. Trust between managers and employees is an obstacle for a firm’s “survival” during a crisis in Russian conditions. However, if employees claim that they are involved in the decision-making process that affects their situation, satisfied with the attitude of the heads to employees’ needs, suggestions, and complaints, it may smooth out the direct negative effect of trust.