Voices from Eurasia
Unlikely allies: Can social networks help build new business?
18 Jul 2012 by Milica Begovic Radojevic, UNDP Montenegro
It’s a paradox: Montenegro’s poorest citizens live in the northern region endowed with 100 percent of surface water reservoirs and hydro-electric potential, 67 percent of the cultivable land, 71 percent of the timber mass, 70 percent of cattle stock, and immense potential for year-around sustainable tourism.
This paradox is most evident in the tourism sector, where out of 1.5 million tourists that visit Montenegro only five to seven percent visit the northern region. Could social network theory provide some ideas as to how to address this problem?
Montenegro’s northern region features situational inequality - people in the north are on average much worse off socio-economically than those living in other parts of the country. But there is another type of inequality at play best explained with a following example: a person living on $2 a day is not likely to be friends with someone who owns a Ferrari.
This is a positional inequality, where some people are better off because of who they know and where they’re located in their network of contacts. A wealthy person may attract other wealthy friends, thus becoming even wealthier - by being at a source of good information, business opportunities and influential individuals.
This isn’t a novel concept. Poorly connected people are more likely to befriend those typically disconnected from a larger network and at its periphery. In other words, positional inequality exists not because of who we are but who we are connected to. Cognitive Edge has developed a method on addressing this aspect in corporate settings - Social Network Simulation.
There is now plenty of evidence showing that these connections affect where we fit within a larger social network, which matters more than our race, class, gender or education. This social network property rests on its efficiency of spreading not only information and diseases for example, but anxiety, obesity, crime, and economic opportunities.
Economic policies traditionally address binding constraints to growth - geography, climate, urbanization, infrastructure development - assuming that lack of connectivity comes as a result of these constraints. Social network theory indicates that in addition to focusing on who the poor are, and where they live, policy makers ought to understand better who do the poor know and what kinds of networks they are a part of.
In Montenegro, our concern is that two aspects of social networks may worsen situational inequalities in Montenegro:
The rich-get-richer dynamic: better connectivity transfers more power to the well connected, who then reap higher rewards. Therefore positional inequality may perpetuate socio-economic inequality, leaving the poor further behind.
Limited individual influence: our position in a network depends on our own choices, but also the choices of others around us. This implies that not everyone is in the best position to shape their own network, and by extension obtain benefits from it.
In this case, no amount of capacity building, technical training or financial transfer will address socio-economic inequality unless it is complemented with efforts to link people living in poverty with those better off, helping them establish new relationships with other groups within the society (here ‘connectivity’ can take many forms, from improved infrastructure to novel partnerships).
This is exactly what a consortium of partners (Ministry of Economy, USAID, Cooperative Housing Foundation and UNDP, ) will try to do. We developed a challenge aimed at the northern region where two or more resident companies would form a team that will either design a new product for a National Park (located in the northern region) or improve the existing one.
If a team includes at least one partner from the south of the country, this will result in extra points when it comes to the proposal evaluation. Teams with the best solutions will receive a mix of financial (grants) and non-financial incentives (mentorship in marketing, business plan development, or access to regional markets).
Our intention is to forge a cluster of diverse businesses and unlikely socio-economic allies that will co-create new and innovative products and in the process foster ties between a larger economic network’s centre and periphery. A challenge is likely to stimulate both competition and innovation, pillars of growth.
In essence, our idea is to establish new relationships between the companies in the underdeveloped north and wealthier region, knowing that the right type of clustering is likely to result in a diversity of resources, ideas, and talent ensures resilience and spurs innovation, and addresses positional inequality. We’ve used a similar logic previously at the local level though we’ve never specifically used prizes as a method.
Establishing rules that incentivize partnerships between the centre and periphery of an economic network in Montenegro is just a start. Harvard’s Atlas of Economic Complexity and the Aid on the Edge of Chaos blog have both served as inspirations for developing the challenge – it drove our focus on setting up rules that will foster greater diversity and complexity of interactions and connections among the companies.
So the follow up process of working with the winning business clusters offers a wealth of opportunities for forging novel relations and links between companies in the underdeveloped northern region with those better off within and outside the country.
This will be the major objective of our non-financial rewards for the winning teams: mentorship. We plan to borrow heavily from some successful examples such as Nesta’s Neighboorhood, Start Up Factories, and Big Green Challenges.
But in addition to this, we would love to learn from you:
What’s your experience with social network theory for growth of business clusters and poverty alleviation?