Research reguarding clusters of small and medium size businesses in the Mezzogiorno which produce garments, shoes and household goods was conducted over the last tree years. Well known studies of industrial districts located in northen and central Italy have shown the importance of trust and loyalty in business relations and the existence of social capital for the establishment and development of clusters of small and medium size businesses. It has been commonly held that these conditions do not exist in southern Italy, some economists concluded that these types of industrial clusters do not exist there either. Our research, however, has discovered many industrial clusters throughout the Puglia, Campania and Basilicata regions of southern Italy. These clusters were all semi-hidden in the sense that they avoided paying taxes as much as possible, their employees were not hired in accord with existing labor laws and their workshops were built with almost total disregard for safety and environmental laws. This semi-hidden mode of conducting business serves to evade stringent government regulation (expecially with regard to labor) and to hide from criminal extortion. In addition to beeing semi-hidden the industrial clusters in southern Italy are based on different types of trust and loyalty relashionships. In the North, these relationships are founded on friendship and professional capabilities, whereas in the South they involved family and friends.