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EVALUATING SOCIAL CAPITAL, INCREASED ECONOMIC GROWTH, AND REDUCED ECONOMIC DISPARITIES
The basic task as an economist is to explain the patterns in economic growth and development while enabling people to brace themselves for the future based on economic indicator forecasts. There exist many different ways of quantifying economic growth, and it is in the validity of these measures that an economist’s work is qualified and acceptable even to critics. In practice mainly, Gross Domestic Product (GDP) is used (Chang, 2007). However, to bring forth an economic analysis that correctly forecasts economic times, it is important to understand where the facts lie. In most cases, facts will lie in Historic evidence as these are times already lived and the data is well and valid, for instance, the tremendous increase in economic development from as early as the 1800s (Khan et.al, 2007). Another fact is geographical; this gives a clear image of economic progression levels and the differences of the same in different parts of the world. These two facts have addressed economic changes over time and regional disparities in economic development. Together, these facts answer factors that led to the tremendous growth in economic development and why aren’t all regions balanced in matters economic development.
Theories have been advanced in the scholarly world in an attempt to answer these questions.
Ricardian’s theory seeks to measure economic progression regarding quantified outputs of production in an economy (Krugman, et.al, 2015). This argument is plain and lacks in depth to convince economists that production quantities are the measure of economic development. It reduces economies to machines- input and output. Ricardian theory assumes that output is not affected by data or technological advancement across different economies. It is faulted in that it holds all other production factors constant, ceteris paribus, and only looks at the output amount (Krugman, et.al, 2015). In truth, the output is a function of inputs. Inputs of capital and labor and levels of technological advancement do indeed affect production output. The ratio of capital to labor determines the marginal efficiency of capital and the marginal productivity of labor which in turn affects the production quantities. Ricardo’s theory blatantly fails to address economic disparities in the sense of what production outputs should be considered in the determination of economic development as different regions are endowed differently. In Africa, for instance, mineral and agricultural outputs would be quantified in kilograms whereas, in the middle-east, oil production would be quantified in liters (Khan Et.al, 2007). [“Write my essay for me?” Get help here.]
How then would we compare two regions that are differently endowed and subsequently differ in production quantities and sufficiently make a conclusion about economic progression? It would make more economic sense if economic development were measured by the overall increase gross domestic product which is the summed up value of all goods and services produced in an economy. It would have been more viable for Ricardian to compare economies based on monetary values of production over absolute production quantities. The theory’s weakness is further underlined by its inability to convince economic historians. It does not address the factors that led to an increase in human capital and technological superiority in different economies. A few scholars, Pomeranz, attempted to advance the works of Ricardian and claimed that the increase in production in the 1800s was due to new resource discoveries in the Americas and England (Krugman, et.al, 2015). Pomeranz’s work was analytically weak as it implied that it was not only in the Americas and Europe where resources were discovered. If indeed, economic development in the 1800s was a child of resource discovery, why then did less developed countries emerge yet they carried a heavy endowment of resources that were also under discovery (Krugman, et.al, 2015).
The unsatisfactory explanation advanced by the Ricardian theory, a prominent neo-classical economist, led to the scholarly effort that tried to explain the ambiguity that surrounded Ricardian and peers work. Ricardian’s work is an overview of neo-classical economists view. These economists are a supply-demand, output quantity kind of mind. But, factors that lead to economic growth and development cannot just come from resource discovery that would magically boost output production (Khan et.al, 2007). There must be something outside resource development that led to the accelerated economic growth in the 1800s which has not been experienced ever since. Development economists thoroughly questioned the validity of neo-classical economists work as it failed further to explain the problem of the Less Developed Countries which underscore economic disparity (Chang, 2007). In fact, Robert Solow, an American economist, hypothesized that an increase in physical inputs only accounted for a small part of observable increases in output. The work that followed this resistance led to a breed of development economists who shifted focus from resource endowment to look onto how to improve and realize full potential in economies. With this new light, several efforts were put forth to enlighten means and ways to boost economic potential while closing the gap on economic disparities. Among them were infrastructural spending, deregulation, tax cuts and tax rebates (Khan Et.al, 2007). Infrastructural spending advocates for governmental efforts, both central and devolved governments, to put in place physical structures the facilities that are necessary for commerce and social prosperity. [Need an essay writing service? Find help here.]
Infrastructure boosts productivity by promoting efficiency and ease in doing business. Tax cuts and tax rebates advocate for reduced taxation of the people to increase overall productivity from increased income. Deregulation seeks to achieve a more relaxed environment for doing business. These are older means designed to achieve economic growth and development. It is important to take into consideration that these forms of incentives for economic development only lead to a widening of economic disparities as it is class based. For instance, deregulation is mostly an effort by the societal crème that extends their ease of doing business. To close the gap, it was important to identify the way to get to the grass root and shake up potential in the communities. However, after many decades of pushing forth these older ways, low economic development and continued disparity continue to rock economies the world over. It is in this place that Social capital has become more fashionable, yet has been in existence for over a century, in the recent past as a way to improve economies globally. Attention to social capitalism grew after the Robert Putman’s in “Bowling Alone: The Collapse and Revival of American Community” French economists such as Bourdieu are at the forefront of revolutionizing social change (Putnam, 2000). Social capital seeks to address economic differences in the society by use of social variables. It is embedded in a reinforcement relationship between communities.[Click Essay Writer to order your essay]
Social capital according to Lyda Hanifan, an author, has been termed as “those intangible assets that count for most in the daily lives of people: namely good will, fellowship, sympathy, and social intercourse among the individuals and families who make up a social unit” (Hanifan, 2011) In another context it has been defined as the network of human relationships that enable people of a particular region to work together. Another describes social capital as a form of economic and social co-operation where social networks and human relationships are at the core, with reciprocation, trust and cooperation being the hallmarks of transactions. Here, production is not a function of own betterment but an effort by agents to produce goods and services for a common interest. These explanations allow only a feel of what is meant by social capital. However, it would be impossible to capture this concept in a way that satisfies everyone.
In light of the tremendous disparity in economic development, social capital seeks to close the gap with overall production aimed at a common interest. Regions endowed differently would now produce to reciprocate the trade in what they lack. At the core of social capital are communities (Putnam, 2000). A community’s vital characteristic should be social capital. Social capital does not stand alone and is often affected by other flows and stocks of capital. Identifying a community’s capital stock is the first step in spiraling up of these communities. An interaction of different communities’ capital stock forms a network that leads to a spiraling up of economies.
The question that would be asked after such a case for social capital would be, “How effective is social capital in economic development, and if effective, does it lead to sustainable development?” (Emery & Flora, 2006) Looking at a case of internal investment in the form of creation of a new system to enable positive community change, an illustration of the benefits of identifying community capital can result in a rise in capital stock as the community begins building on one another. Capital stock measures accumulation of wealth as opposed to being a need-based measure which would allude to production quantities. The Community Capitals Framework (CCF) comes into play enabling an analytical review of the effectiveness of the development effort (Emery & Flora, 2006). CCF analyzes community economic development in a trickle down (systems) approach that identifies capital interactions and the subsequent results measured in impacts across capitals. The program sought to “reverse patterns of neglect and disinvestments in rural America” HTC was on a mission to reverse the population’s dwindling per-capita income. With the help of National Rural Funders Collaborative (NRFC) who went out of their way to look for partnerships in strategic proposals that would cure, if not alleviate, the vicious cycle under which rural America had come to, brought in three not-for-profit organizations who brought in a total of $75,000 over the following three years and subsequently initiated the HomeTown Competitiveness Program” (Emery & Flora, 2006). The approach used was a strategic one that sought to undo the population and the dipping per capita income for the rural communities on the Great Plains. The three not-for –profit organizations possessed such a unique characteristic that was used independently to form a synergy. Heartland Center for Community Leadership Development had unique strengths in leadership development. RUPRI Center for Rural Entrepreneurship was advantaged in “entrepreneurial development” and the Nebraska Community Foundation displayed an edge over the others in “Community organizations” (Emery & Flora, 2006).
Together, these three organizations had already built place-based strategies. It was advantageous that the leaders of the three groups had roots in rural Nebraska. Above that, these leaders had previously worked together in different capacities, formally and informally for a good number of years (Hudson, 2011). The compatibility in the mission statement of the three organizations and the vast network they possessed in the state and nationally became advantageous. The group maintained a flourishing reputation for integrity and effectiveness being at the core of their stronger values. HTC, which was newly formed, thus maintained advantageous bonding and experience in bridging social capital even as they began to practically put into place the integrated strategy (Emery & Flora, 2006).
The reputation that preceded the three organizations allowed them to be eligible for many grants. In a first wave, HTC received $50,000 in grants in 2002 that was positioned for learning (Hudson, 2011). The team must have done well with this grant as it opened them up for a renewed grant of the same amount in 2003. HTC was well to do with more grants coming their way and the second phase of subsidies was dedicated to supporting collaborative development. It is in this phase that individual strengths of the three organizations were pulled together to bring in a synergy. Therefore, under the collaborative development effort lay “philanthropy to support entrepreneurship through strong local leadership” It is in this phase that HTC formalized its 4-part strategy. The first one is to boost philanthropy and philanthropic efforts to boost community foundations through a re-direction of rural wealth to the community foundation. Secondly; to curtail migration of youth into cities and towns by actively including them in leadership, entrepreneurship and philanthropy (Hudson, 2011). The third one is to drum up efforts on leadership capacity through inclusive leadership development. The fourth approach is to build on local assets by strengthening local economies through innovative business platforms and opportunities and an intergeneration of business continuity (Hudson, 2011).
The NFRC using CCF was able to analyze the use of community capitals in transformative strategies. It is in this CCF framework that the NFRC was able to analyze the effectiveness of the investment it had made to alleviate rural poverty through capacity building on every front such as; leadership, innovation and entrepreneurship that would lead to increased assets in the rural families and subsequently to the community (Emery & Flora, 2006). The approach by NFRC is one that provides economists with two things: One, the effectiveness of social capital in building on local assets hence economic growth and development. The second one is how to analyze the outcome of community-based investments (Emery & Flora, 2006). It is important to note that CCF moves away from the traditional production model and delves into the capacity building on every front from leadership to philanthropy to entrepreneurship. How effective then was CCF as an analytical tool for economic development?[Need an essay writing service? Find help here.]
The focus will be on HTC’s use of CCF to document how many rural communities’ decline had been reversed by one community’s strategy. In reality and in most communities it becomes progressively difficult to mobilize political capital that would come in aid of a decline in financial capital following industry losses in a community or closure of many businesses leading to a continued decline of human and social capital as one leads to the next: lack of political will leads to capital declines forming a vicious cycle of desperation and despair (Emery & Flora, 2006). In an almost perfect display of private and public collaborations, HTC was out to reverse the vicious cycle and promote a “spiraling-up” (Hudson, 2011). How effective were these partnerships in Valley Country, Nebraska where the works of HTC were centered? An incredible degree of integrated and collaborative strategies was in play and led to an increase in community capitals in a system of interactive community development. Was the entry strategy that sought to identify key investments in social capital as the focal point for community change effective?
According to NRFC, there are seven components of social/community capital: cultural, natural, human, social, political, financial, and built capitals. The core of NFRC’s work was the assets and not needs with a focus on investments. One is that Natural Capital refers to assets that come with particular regions. The endowment of these regions that span from natural resources, geographic isolation, weather differences (Hudson, 2011). The second on is that cultural capital influences the way people “see the world” It is in this kind of capital that creativity and influence are birthed and influence breeds leadership as it is of the influence that individuals choose what voices to listen to (Liu, 2010). The third point is human capital: this is where skill, expertise, and ability of individuals to develop their resources and reach out for more resources come into play. This is where leadership ability lies for persons that can lead across divides (Liu, 2010). Social capital is the fourth point: this refers to the networks of social relationships among people that dictate empathy, sympathy, etc. It is in this form of capital that; people can work together and tolerate each other (Liu, 2010). Another point is political capital influence power and access to power, influences ability to get resources on a need basis, that is, connection (Liu, 2010). Financial capital is the financial resources that are ready for investment in the community to enable capacity-building, business development and to support entrepreneurship. On the other hand, built capital is the tangible capital that includes infrastructure, and this is the form of capital that supports all the other forms of social capital (Hudson, 2011).
CCF was a wonderful way to analyze the success of community-based strategies. However, it failed to convince others whose entry point would differ as it sought to show increased capacities in projects whose strategies focused on vital entry points such as human, social and financial capital (Ocampo, 2008). CCF advocated that an increase in assets from this forms of capital led to a subsequent increase in other forms of capital. Critics were made of people who had determined that the increase in assets, although helpful to the community, lacked in impacting the overall capacity of the community. It was the works of individuals such as Guiterrez-Montez that established a flow of assets across capitals (Ocampo, 2008). His work, for instance, advocated for “human capital invested in a project leads to increases in the stock of assets building on assets leading to an upward spiral/ “success on success’’ and was supported further by the study of HTC in Valley County. (Emery & Flora, 2006)
The study at HTC showed that capacity could not be measured by stock asset increases but needed to be measured from an increase of asset stocks in the vital/entry capitals. It was true for the spiral down as was for the spiral up. In the periods of spiral-downs, all community capitals declined and generated a feeling of despair among members of the community (MacKinnon & Cumbers, 2007). In a spiral-down, all forms of capital slowly degenerated as human capital was eroded as people moved to try and make a living. The inability to make a substantive living led to a decline in financial capital. Political capital, in periods of decline, shifted from the once prestigious influence of power to an attempt to boost reliance based on commodity programs. Infrastructure depreciated and therefore the functioning of business activities was undermined. The Spiral-down is a confirmatory practical experience to the theory of cumulative causation by Gunnar Myrdal which states that “The place that loses assets, for whatever reason, will continue to lose them through system effects” and the vice versa is also true, thus, a spiral-up would reinforce asset growth enabling asset growth (MacKinnon & Cumbers, 2007). [Click Essay Writer to order your essay]
The contention in CCF lies in whether social capital as the best entry point. CCF is a concept that embraces and speaks to teamwork. However, how realistic is it in today’s economy and larger cities? How sociable are people a decade after NMRC in Valley County, Nebraska? What is of importance to note is that Valley County Nebraska in itself provided a ready environment for a change following previous activity such as a tax option that had been presented locally whose aim was to create new jobs through a commitment of resources and personnel (MacKinnon & Cumbers, 2007). The community foundation in Nebraska, the Nebraska Community Foundation, had initiated the Valley County
Foundation Fund. It leaves a question whether this would be reciprocal able strategy elsewhere in the world and does it yield sustainable development. Analytical weakness is seen in CCF’s measurement of economic growth as ‘impact on society.’ It is important to note that impact can be positive or negative. Is a negative impact included into the measure? Again, what about the impact that is not tangible or felt right away? How is that to be incorporated?
CCF seems more theoretical over practical. Underlying weaknesses make it difficult to reciprocate the model.NMRC was centered on three roles: leadership and capacity building, capturing funds from the transfer of wealth, economic development and entrepreneurship. Even with social capital as the strategic entry point, political capital that stems from leadership and capacity building created a breed of power brokers, connections to resources and influence. It, therefore, would take a noble leader in modern day communities to disregard political bias as this is the only way that economic disparity can be curtailed. It is in the power of the political elect to equitably distribute wealth and resources for the spiral up to help close the gap.
Valley County is an ideal situation. NMRC had a substantial boost in their efforts receiving grants of up to $ 50,000 twice and additional grants (Hudson, 2011). Valley County brought with it an environment that spoke to readiness for a change. It is the reality of many communities that the gap between the rich and the have-nots is widening. So, moving outside Nebraska, is social capital the entry point in catering to the needs of the community even as the community seeks to build on assets?
Outside of Nebraska, CCF should seek to answer the following question: how are good institutions formed, how would a different setting affect the institutional arrangement that would drive economic growth and development (Emery & Flora, 2006). The problem with this literature is that does not shed any light on how NMRC strategy can be reciprocated in settings that are not as ideal as that of Valley County. It is a literature work that does not review communities where human capital is made up of purely unskilled labour, where the needs of the members of the community must be addressed before building on assets, where people are highly unmotivated from the vicious cycle of despair (MacKinnon & Cumbers, 2007). It is a literature work based on a more developed community where leadership strategies are already in place. If fails to address communities where the rule of the jungle applies.
The minimal regard for infrastructural capital underpins another weakness. If at all spiraling-up creates mutual reinforcement for communities and promotes economic growth for all communities, isn’t infrastructural development a means to open up isolated areas? To infect other communities with the spirit of asset build up, it is important for cultural exchanges to be initiated and promoted. Without good road networks and mass transportation means, that is, public transport, how else will cultural exchange take place and how will a community infect another for overall spiraling-up? Cultural exchange is where it all begins. Because it is in a culture, that influence is embedded. The influence of the voices to be heard and listened to which subsequently affect the voices that we listen to in every area of our lives and subsequently determines innovation and creativity is a product of cultural capital. It is of importance to understand how “stimulating public transport impacts Community Economic Development”( Hudson, 2011).
“I believe the primary purpose of the economy is to improve the welfare of members of the community while filling the gap in economic disparities” (Hudson, 2011) argues that “it is inevitable to avoid uneven distribution/ regional problems in capitalist economies; regional problems are unavoidable. Indeed it has been argued that uneven distribution is a necessary part of capitalist development.” For a capitalist economy, it would be impossible to avoid uneven development. Hudson terms the inability to avoid uneven development as a genetic encode or a structural necessity to successfully accumulate capital. In essence, a capitalist economy does not promote the welfare of its citizens as labor is class based and production is centrally placed- production should take place somewhere undermining the inability to cut transportation costs in the movement of resources to areas of placed production. [Click Essay Writer to order your essay]
If indeed labor is class based, wage rate disparities must be magnified further separating “the haves, and the have nots” Necessary placement of production activities undermines the importance of “production anywhere” that accompanies a bridge in the gap that separates the rich and the poor. It is in this form of production dictatorship that some communities are embellished of human capital and financial capital. Isn’t this what has led to urban sprawl and creation of “ghost town”? (MacKinnon & Cumbers, 2007) The start of a widening economic gap began with private capital and the need to create profits that prompted the urge to go into areas where production was necessarily placed leaving out the rest of the communities. But why couldn’t the government intervene? The disparity is as a result of unintentional, collaborative activity between the private and the public sector that foresaw the abandoning of places that could potentially become production sites leading these places into being “left behind” as the other places developed. In these places, there was no opportunity for the community members to improve in welfare. The means of improved income had been stripped away and therefore there was no opportunity to close the economic gap.
The overwhelming evidence on the effect of capitalist economies and widening economic disparities is the reason that led a shift in the UK from liberal to an interventionist state in the 1920s /1930s (Hanifan, 2011). This was a policy change that centered itself on uneven economic development as the barrier to accumulating capital and accelerating overall economic growth that birthed mass unemployment and many places writhed in poverty. It is in this period that regulation shifted from a state to a regional effort. A more devolved system of economic wealth distribution emerged and a social economy that offers prospective that is more human-centered and socially oriented. In light of the factors that erode social welfare and widen the gap between the rich and the poor, in a business set up, I would ensure an equitable wage rate. As the head of the business, the benefits advanced to me would be minimized to create business wealth and promote employment for the members of the community.
I would aim to fall off the wagon and set up a business where the market uptake would be substantive yet located outside the city. In this, economic development would be devolved, and with an improved availability of resources and a closed need gap, welfare would be boosted. The above are noble moves but do they promote community continuity of the business? Does the initiative set up outside cities promote sustainable development? An effort towards answering these concerns would mean that I recognize team culture. In a team context, it is easier to enhance continuity. It is easier to promote entrepreneurship that would enable sustained development, a social capital initiative disguised in human capital.
Conclusively, social capital closes the gap on economic disparities. But social capital structures need to be put in place that cut across all communities that veer off the idealness of Valley County, Nebraska.
References
Chang, H.-J. (2007). Institutional change and economic development. New York, NY: United Nations University Press.
Emery & Flora (Spring, 2006) COMMUNITY DEVELOPMENT: Journal of the Community Development Society, Vol. 37, No. 1
Hanifan, L. J. (2011). The rural school community center. Philadelphia.
Hudson, R. (2011). Regional Problem and social Economy: Conference on sustainable community business. Cape Breton.
Khan, S. R., Khan, S. R., Rifaqat, Z., & Kazmi, S. (2007). Harnessing and Guiding social capital for rural development. New York: Palgrave Macmillan.
Krugman, P. R., Obstfeld, M., & Melitz, M. J. (2015). International Trade: Theory and Policy.
Liu, G. G., Zhang, S., & Zhang, Z. (2010). Investing in human capital for economic development in China. Singapore: World Scientific.
MacKinnon, D., & Cumbers, A. (2007). Introduction to economic geography: Globalization, uneven development, and place. Harlow: Prentice Hall.
Ocampo, J. A., & Vos, R. (2008). Uneven economic development. London: Zed.
Putnam, R. D. (2000). Bowling alone: The collapse and revival of American community. New York: Simon & Schuster.
