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Social embedding as a solution to a control problem? Evidence from Vietnamese small business* - page 14 / 52





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(Sahlins 1963). Facing episodic and ongoing systemic environmental contingencies

(Townsend 1994), businesses owners may attempt to coopt parts of their environments

(Pfeffer and Salancik 1978) or control the adverse effect of such contingencies by pooling the

risks in a web of social relationships (Stack 1974). The informal equivalent of insurance

premiums implied are essentially a business cost even if they may be masked by a form of

friendship or partnership in some form of economic exchange (Eisenstadt and Roniger 1984;

Fafchamps and Lund 2003). Those business owners that are unable to make the appropriate

provisions will not have the close social ties that we identify as social capital and they may

not be protected against risks.

Several have argued that businesses insure against the risks of appropriation by

investing in patron-client relationships in contemporary Vietnam (Appold and Phong 2001;

Fforde 2002). Such redistributive payments would be analogous to a tax to support a

regulatory state, and may, in fact, may be one of the origins of modern states (Laothamatas

1992). Similarly, families may be the most suitable institution available to pool the relevant

risks. Nepotism may be a strategy for ensuring against risks. Business owners could be

expected to provide jobs for the nieces and nephews (or provide other payment) in exchange

for a relative’s influence in securing a loan or landing a customer. Such provisions may be

the price for having other family members contribute resources at crucial points. Embedding

a business in a family provides for the possibility that someone could take over the business,

should the owner become too old or infirm to carry on, without losing all the income

generated. More likely, given the risky nature of most entrepreneurship, is that the business

owner would have a safety net. Most small businesses are rather ephemeral (almost 40

percent of the businesses in our sample were in existence for five years or less and cross-

nationally, even in rapidly-expanding economies, business mortality is quite high). Business


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