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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

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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

Commented [Tp1]: Find a way to emphasize this in 1 sentence

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huoysSticky Notepunctuation?

huoysSticky NoteSocial capital begets interdependence, building better solutions and stronger foundations for a society. Collective action, which effectively utilises the networks of relationships among people, makes it possible to solve issues that cannot be overcome by an individual alone.

huoysSticky Notenot "when", but "should"

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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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huoysSticky NoteRelook this paragraph. Does it adequately answer you research question? Can you improve on the sequence of your examples so that the point is clearer?

huoysSticky NoteRephrase your sentence. Also, "reject discrimination in all its forms"... what makes you say this?

huoysSticky NoteBe clear. Paragraph is much better written than its opening!

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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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