Critical Analysis of Social Capital

and its impact on economic

growth
Social Economics Research Paper 2014

JULY 9, 2014
YE JIADONG 4S321
Word Count: 1293
0

Social capital refers to the institutions, relationships, and norms that shape the
quality and quantity of a society's social interactions. More specifically, it characterizes
the networks of relationships among people who live and work in a particular society.
Social capital is critical for societies to prosper economically through the furtherance of
interdependence and equity. However, its strength is conditioned upon its cohesiveness.
Rome for example had well-developed social capital between traders which contributed to
vast economic growth for the empire. Argentina on the other hand was the seventh largest
and most powerful economy at the twentieth century. However, due to untrustworthy
institutions, political instability and continuous attacks on community structures, it is now
ranked 64th 100 years later.
Social capital promotes interdependence by encouraging collective action for
issues that cannot be solved individually. For example, the Young Innovators Foundation
in India has been encouraging residents to bond and collectively solve issues plaguing their
own societies, such as rampant leopard attacks in rural communities. Over in Africa,
farmers cooperate to solve the issue of soil erosion, implement soil conservation on
individual farms (e.g. through labor exchange, marking out contours, credit provision, risk
sharing) and adopt new technologies. For example, farm technologies like terracing,
pesticide application and cattle spraying operate on the landscape level and require
widespread and coordinated adoption in order to be effective. This therefore leads to
increased agricultural productivity which contributes 32% of South Africas GDP.
Similarly in Brazil, alliances are being forged by indigenous groups such as the Xingu in
the Amazon to protect against encroachment by oil companies and other intrusions. The
Munduruku joined forces with the Indians to prevent the construction of Belo Monte, a
hydroelectric dam built on a tributary of the Amazon River that will severely compromise
water quality. According to Leslie Brown, one of the great pioneer environmentalists, The
economy depends on the environment. If there is no environment, if everything is destroyed,
there is no economy." A Trucost study estimated that environmental conservation reduces
government spending on tackling pollution, which totals up to 11% of the worlds GDP.
Similarly, norms and trust emanating from social organizations serve to facilitate
cooperation for the mutual benefit of the group. (Robert Putnam 2000) The communitys
associational life can be connected to the governance of the community and its civic virtue.
(Vanneman 2006) The resolution of problems can be expedited when problem solving is
crowd-sourced, leading to increased productivity for the economy.
Furthermore, social capital enhances participatory democracy and increases
government accountability when they become incompetent. The Mexican government has
constantly failed in its task of tackling drug cartels, with kidnapping rates rising 35% in the
first 8 months of 2013. Angered, an audacious band of citizen militias grouped together to
battle a brutal drug cartel (Knights Templar) in the hills of central Mexico, successfully
chasing the gangsters away, accomplishing something that federal security forces have not
managed in a decade. Adger (2000) demonstrated that community social capital facilitates
collective practices, such as sea dike maintenance in the absence of government support in
Vietnam. Moreover, when citizens in civic communities interact more often, join groups
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and trust each other, they demand more effective public services and their relationships aid
democratization by crystallizing and organizing opposition to a non-democratic regime.
(Putnam et al., 1993, p. 182) The democratic process gets legitimized across a wider
domain (Bunce, 1999; Przeworski, 1991) In discussing Japanese voting behavior,
Richardson (1991) emphasized the concept of influence communication which enables
people to be mobilized to get out to the voting booth, a crucial step in selecting the best
representatives to govern and determine most beneficial economic policies. A more
accountable and representative government will introduce policies that can better cater to
the needs of the country and economy.
Social capital improves access to physical capital and promotes equity. For example,
the Grameen Bank of Bangladesh provides access to credit to poor people in 35,000
villages. Members have developed rules to maximize repayment of loans, but trust plays a
critical role in the 98% success rate, particularly in the absence of collateral (Uphoff,
Esman and Krishna, 1997). People within organizations can utilise agency ties to assist the
people they work with, increasing the expansion of resources for the communities they
serve. This prevents populations from being marginalized. Consequently, health and
wellbeing benefit from access to clean environments, from living in communities which
are inclusive and fair, which reject discrimination in all its forms and which strive for
tolerance and the peaceful resolutions of difficulties and conflicts. Equal access to
resources reduces social inequality and alleviates poverty, leading to a much more robust
and happy population. Households in Bangladesh with weaker social and human capital
tend to be excluded from information on appropriate self-care treatments for diarrhea.
(Collins) In Eritrea, voluntary mutual aid community associations and health insurance
programs are built on existing social networks. (Habom and Rays 2007) According to a US
study by Astho, approximately $230 billion in direct medical care expenditures and more
than $1 trillion in indirect costs associated with illness and premature death for the years
2003-2006 would have been saved by eliminating health disparities for racial/ethnic
minority groups. Due to the lack of access to quality and affordable healthcare in South
Africa, more people died of AIDS in Africa than in all the wars from 1999-2000, causing
a drop of 0.9 percentage points for per-capita growth in GDP. Therefore, an increase in
equity will improve productivity and control large annual increases in healthcare/education
costs that consume a significant percentage of a countrys budget.
Even though social capital is an important determinant in economic growth, its
development poses several challenges. The most daunting but crucial obstacle is in
preventing segmentation. For example, India is a country of enormous ethnic and cultural
diversity consisting of broad ethnic groups such as the Indo-Aryans, the Mongoloids and
the Dravidians. Diversity, at least in the short run, seems to bring out the turtle in all of us
(Putnam 2007). This implies that the more ethnically diverse our surroundings are, the
more we stick to our own ethnic group, and the less we trust the other. For example, in
north-east India, the Bengali-speakers were first brought to Assam from Bangladesh by the
British, to cultivate chars. Consequently, tussle for control, struggle for jobs, land scarcity,
and population influx have intensified the historical differences between the native
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Assamese and Bengali into violent ethnic antagonisms in Assam. In sharp contrast, China
has invested far more than India in its physical and educational infrastructure to serve all
activities in a unified and coherent national mission. For China, social capital is not geared
to the protection of vested business or class interests, and its lack of diverse ethnic groups
or spiritualism due to its communist ideologies has allowed it to develop social capital that
is representative of the entire population, such as Guanxi. Heterogeneity only strengthens
in-group trust, and thus fosters social isolation. Thus, it is paramount to develop unified
and coherent social capital that is representative of the entire nation, most viably through
the embracement of social cohesion. The fostering of social capital within enclaves will in
fact only promote racial or ethnic superiority and embolden races to engage in increasingly
violent confrontations after having developed strong and robust ties with external
institutions and garnering a wide support base. Consequently, racial tensions will gradually
lead to the destabilization of the economy.
In conclusion, social capital is an important determinant in economic growth as it fuels
the development of interdependence and equity, leading to happier, healthier and more
productive populations that contribute more to the economy. However, it needs to be
properly managed and developed on the national level in order to prevent social capital
from hiding in its own social enclave.

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