Documentation:

Abstract/Key issues: Understanding innovation as interactive learning implies that cooperation is necessary in making firms and regions competitive. Building social capital is a key instrument in promoting cooperation within firms, in network of firms and in regions. Social capital can be rooted in civicness as well as be a result of organisational and institutional innovations, the latter being most relevant in this context, as it can be build, while the former type only can be build on. (Bjorn Terje Asheim)

The dynamic of institutional relationships underlying more cooperative forms of governance requires a greater capacity for social capital and trust among a wide range of social and economic actors within the region, including erstwhile competitors. Social capital refers to various features of the social organization of a region, such as the presence of shared norms and values that facilitate coordination and cooperation among
individuals, firms and sectors for their mutual advantage. The existence of social capital depends upon the ability of people to associate with each other and the extent to which their shared norms and values allow them to subordinate their individual interests to the larger interests of the community. It secures the conditions that enhance the benefits derived from more tangible investments in physical and human capital. The networks that constitute social capital in this sense comprise a rich and dense social community in which the business relationships of the local economy are embedded. Social capital tends to be accumulated as an unintended consequence of other activities that people are engaged in; its presence or absence is linked to the vitality of civil society in that region.

The concepts of social capital and trust as outlined above may help us understand why certain kinds of economic activity tend to cluster despite the opposing trend towards dispersal brought on by the spread of globalization. Social capital becomes progressively more valuable as the process of globalization continues; it is not equally available in all communities; it cannot be purchased or transferred; and it is difficult to imitate or replicate. Trust, as a component of social capital, helps overcome market failures or reduce the level of market costs for firms in densely related networks, by supporting stable and reciprocal exchange relationships among them. Partners involved in these relationships establish a willingness to exchange information on something more stable and enduring than a barter basis. Both sides of the relationship can benefit from lower costs and improved quality in the knowledge thus attained. As these relations grow and develop, a larger component of the knowledge shared and transmitted becomes tacit, rather than explicit with a concomitant increase in the level of understanding gained through the exchange. Ultimately, the relationships can be extended to include other partners of the respective firms, further enhancing the extent and the value of the network. (David Wolfe)