Ekomenzoge; Social Capital (As A Factor For Regional Development)


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A seminar paper presentation at Vrije University Brussels, Belgium, for a master degree in European Integration and Development.

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Ekomenzoge; Social Capital (As A Factor For Regional Development)

  1. 1. SOCIAL CAPITAL AS A FACTOR FOR REGIONAL DEVELOPMENT Presented By: Ekomenzoge Metuge Euromaster: Free University Brussels (VUB)
  2. 2. Social Capital an Indicator for Regional Development in EU <ul><li>Introduction </li></ul><ul><li>Definitions </li></ul><ul><li>Indicators </li></ul><ul><li>Social Capital & Regional Policy ‘the OSTUNI CONSENSUS on Social Capital </li></ul><ul><li>Social Capital as a Factor of Regional Development </li></ul>
  3. 3. Social Capital Formation <ul><li>Globalisation Economic Development </li></ul><ul><li>Competitiveness Complexity </li></ul><ul><li>Innovation Networking </li></ul><ul><li>Social Capital </li></ul>
  4. 4. Selected definitions of Social Capital <ul><li>Social capital is networks together with shared norms, values and understandings that facilitate cooperation within or among groups (OECD 2001) </li></ul><ul><li>Social capital is an instantiated informal norm that promotes cooperation between two or more individuals (Fukuyama 1999) </li></ul><ul><li>The ability of actors to secure benefits by virtue of memberships in social networks & other social structures (Portes 1998) </li></ul><ul><li>The information, trust & norms of reciprocity inhering in one’s social networks (Woolcock 1998) </li></ul><ul><li>‘ ..features of social organisation such as trust, norms & networks that can improve the efficiency of society by facilitating coordinated actions (Putnam 1993) </li></ul>
  5. 5. Selected definitions of Social Capital <ul><li>Social capital represents the degree of social cohesion which exists in communities. It refers to the processes between people which establish networks, norms & social trust, & facilitate co-ordination & co-operation for mutual benefit (WHO 1998) </li></ul><ul><li>Social capital is defined by its function. It is not a single entity but a variety of entities with two elements in common: they all consist of some aspect of social structures & they facilitate certain actions of actors – whether persons or corporate actors – within the structure (Coleman) </li></ul><ul><li>The aggregate of the actual or potential resources which are linked to the possession of a durable network of more or less institutionalised relationships of mutual acquaintance or recognition, (Bourdieu 1985) </li></ul><ul><li>Resources embedded in a social structure which are accessed/mobilised in purposive actions (Lin, 2001) </li></ul>
  6. 6. Indicators of Social Capital (1) <ul><li>Horizontal Associations: </li></ul><ul><li>Number & type of associations or local instititutions </li></ul><ul><li>Extent of participatory decision-making </li></ul><ul><li>Extent of trust in government </li></ul><ul><li>Extent of trust in trade union </li></ul><ul><li>Reliance on networks of support </li></ul><ul><li>Old-age dependency ratio </li></ul><ul><li>Perception of extent of community organisation </li></ul><ul><li>Percentage of household income from remittances </li></ul>
  7. 7. Indicators of Social Capital (2) <ul><li>Civil & Political Society </li></ul><ul><li>Index of civil liberties </li></ul><ul><li>Percentage of population facing political discrimination </li></ul><ul><li>Percentage of population facing economic discrimination </li></ul><ul><li>Percentage of population involved in separatist movement </li></ul><ul><li>Index of democracy </li></ul><ul><li>Index of government inefficiency & corruption </li></ul><ul><li>Degree of decentralisation of government </li></ul><ul><li>Measure of ‘human liberty & political stability’ </li></ul><ul><li>Voter turnout </li></ul><ul><li>Constitutional government changes </li></ul>
  8. 8. Indicators of Social Capital (3) <ul><li>Social Integration </li></ul><ul><li>Indicator of social mobility </li></ul><ul><li>Ethnolinguistic fragmentation </li></ul><ul><li>Riots & protest demonstrations </li></ul><ul><li>Strikes, Homicide rate, Suicide rate </li></ul><ul><li>Prisoners per 100.000 people </li></ul><ul><li>Percentage of single-parent homes </li></ul><ul><li>Divorce rate </li></ul><ul><li>Youth unemployment rate </li></ul>
  9. 9. Indicators of Social Capital (4) <ul><li>Legal & governance aspects </li></ul><ul><li>Quality of bureauracy </li></ul><ul><li>Independence of court system </li></ul><ul><li>Expropriation & nationalisation risk </li></ul><ul><li>Repudiation of contracts by government </li></ul><ul><li>Contract enforceability </li></ul><ul><li>Contract-intensive money (currency/M2) </li></ul>
  10. 10. Measurement of Social Capital <ul><li>Direct obervation, content analysis, SWOT, surveys, enquiries, indepth interviews, logic frameworks, case studies, expect panels & focus groups, etc. </li></ul><ul><li>The pertinent data should be: </li></ul><ul><li>Associational activity indicators (general & of businesses </li></ul><ul><li>Trust (interpersonal & generalised </li></ul><ul><li>Rules & institutions (private & public) </li></ul><ul><li>Actual results </li></ul><ul><li>Clearly defined & easy to understand </li></ul>
  11. 11. Social Capital & Local Economic Development (1) <ul><li>Is Social Capital Capital? If yes, then value of Stock & Asset </li></ul><ul><li>Social Capital Accumulation: Can be accumulated by: extending the borders of networking (bridging), & by increasing the frequency of mutual interaction in the community (bonding) </li></ul>
  12. 12. Social Capital & Local Economic Development (2) <ul><li>Social Capital is fungible: (Economic, Cultural & Social) capital </li></ul><ul><li>Economic capital; convertible into money & may be institutionalised in the form of propice rights </li></ul><ul><li>Cultural capital; can be transformed into economic capital & may be institutionalised in the form of educational qualification </li></ul><ul><li>Social capital; can be convertible into economic capital & may be institutionalised in the form of a « title of nobility » </li></ul><ul><li>The idea of convertibility (rotating savings & credit associations (RoSCAs)) </li></ul>
  13. 13. Role of Social Capital in the EU Economy <ul><li>As quoted by Ostuni, social capital is especially relevant for regional development. In this context social capital is market based social exercise based on trust, shared norms & institutions. </li></ul><ul><li>Second, it facilitates cooperation within & among groups as well as enlarges a capacity action lending to mutual benefits </li></ul><ul><li>Third, it improves collective processes of learning & constitutes a key element of knowledge creation, diffusion & transfer – all processes critical for innovation and competitiveness </li></ul><ul><li>Finally, social capital cements value based networks stimulating successful regional clusters as well as regional innovation strategies & policies. </li></ul><ul><li>This issue is especially important for the less favoured regions that have weak social capital & little understanding of science, yet face fundamental economic, technological & social change. </li></ul>
  14. 15. SOCIAL CAPITAL AND REGIONAL POLICY <ul><li>Draft for edition and publication </li></ul><ul><li>Reflections on social capital, innovation and regional development </li></ul><ul><li>The Ostuni Consensus </li></ul>
  15. 16. THE OSTUNI CONSENSUS ON SOCIAL CAPITAL <ul><li>-In July 2003 a number of academics and regional planners came together in Ostuni (Italy) in a Summer School </li></ul><ul><li>-to discuss the contribution of social capital to regional economic development and innovation in lagging regions, </li></ul><ul><li>- after the summer school participants were asked to summarize their thinking on this topic in a short ten-page paper, </li></ul><ul><li>-these papers make the chapters of the book, </li></ul><ul><li>-over twenty academics and policy makers from more than ten countries from Europe and the U.S.A. and from two international organizations, the OECD and the European Union, contributed to this effort. </li></ul><ul><li>-The book is divided into two parts: </li></ul>
  16. 17. SOCIAL CAPITAL <ul><li>-The book is divided into two parts: </li></ul><ul><li>-the first part </li></ul><ul><li>-deals with regional development models and policy issues in connection with the concept of social capital, </li></ul><ul><li>-reflects a variety of views about the challenges ahead for regional policy and the best policy options at hand </li></ul><ul><li>-the second part focuses on </li></ul><ul><li>-the relevance of social capital for innovation through its significance for innovation networks and clusters, </li></ul><ul><li>- the possible contribution of the social capital to the creation of efficient regional innovation systems and learning regions. </li></ul>
  17. 18. SOCIAL CAPITAL <ul><li>All participants in Ostuni agreed that, </li></ul><ul><li>-Social capital and the ability to form and nourish appropriate networks and interactions among regional stakeholders are necessary conditions for a sustained and sustainable development path in less favoured regions, </li></ul><ul><li>-conventional economic theory and policy practice so far had underestimated the influence that the social capital may have on regional growth prospects, </li></ul><ul><li>-there are limitations in understanding, measuring and using the concept of social capital, </li></ul><ul><li>- improving our understanding of regional development and economic competitiveness requires understanding the concept of social capital, </li></ul><ul><li>-it is necessary to integrate the organisational, institutional, cultural and political aspects into economic theories about regional development, </li></ul>
  18. 19. ARGUMENTS FROM SOME PARTICIPANTS (1) <ul><li>Mario Pezzini argues that </li></ul><ul><li>-Globalization process raises the need for a paradigm change in regional policy, </li></ul><ul><li>-regional policy should aim at facing globalization by regional empowering, </li></ul><ul><li>- it is necessary to change from an inter-regional redistribution and gap-reduction approach towards policies that focus on exploiting underutilized resources at the local level </li></ul><ul><li>-to do so, it is necessary to change regional policy from cost reduction subsidies towards regional empowering through public investments in innovation and social capital, </li></ul><ul><li>- the main objective of regional policy should be to create an adequate institutional and economic environment for new economic opportunities to flourish by improving organizational skills, institutional capacity, community participation and democratic local management, which are recognized as key ingredients of economic development success, </li></ul><ul><li>-the capacity to valorize local collective goods, such as multicultural integration, inter-firm relations and access to natural and cultural resources is the main source of regional disparities </li></ul><ul><li>-so, social capital, in the form of regional and local networking and improved governance, should be a key ingredient of the new generation of regional policies, </li></ul>
  19. 20. ARGUMENTS FROM SOME PARTICIPANTS (2) <ul><li>Antoni Kukliński argues that </li></ul><ul><li>-There is a need for a new model of regional policy, which shifts from 'socially minded' regional policy towards a 'globally minded' regional policy, </li></ul><ul><li>-The latter model, is based on the idea that regions must be an efficient actor on the global scene, </li></ul><ul><li>-social capital should be recognized as an crucial element in the construction and implementation of the new model of regional policy. </li></ul>
  20. 21. ARGUMENTS FROM SOME PARTICIPANTS (3) <ul><li>Jean-Marie Rousseau claims that </li></ul><ul><li>-The way forward for less favoured regions is not an “assisted” mentality which gives priority to policies based on traditional physical infrastructures, </li></ul><ul><li>-It is the innovation promotion policies based on intangibles which focus on building social capital in the form of </li></ul><ul><li>-an ability to internalise a regional strategy and renewal or revival of local identity, </li></ul><ul><li>-a capacity to coordinate, participate and link up the threads of interrelationships and of interactive and smart connections, </li></ul><ul><li>-acceptance of a culture aimed at reinforcing human capital, investing in knowledge and the thirst for creativity in each and every firm. </li></ul><ul><li>-social capital which boosts confidence and mutual trust among local actors seems most suited to bringing effective solutions to local problems. </li></ul>
  21. 22. ARGUMENTS FROM SOME PARTICIPANTS (4) <ul><li>Benedicte Mouton argues that </li></ul><ul><li>-Social capital is a regional partnership process in which priority is given to the networking of actors, </li></ul><ul><li>-in social capital, the role of regional governments is to create an environment favorable to the regional innovation system, playing the role of catalyser, broker and animator in order to “open minds rather than to open roads”, </li></ul><ul><li>-social capital is a key success and failure factor in building regional innovation systems, </li></ul><ul><li>-public and private partnerships and networking among firms and the regional knowledge-based infrastructure flourished in those regions </li></ul><ul><li>-where good regional governance structures and adequate political and community commitment existed and were appropriately mobilized through direct participation and open discussion; </li></ul><ul><li>-progress was scarce or non-existent in those regions </li></ul><ul><li>-were there was a lack of trust among institutional actors and absence of a good public-private collaboration. </li></ul>
  22. 23. ARGUMENTS FROM SOME PARTICIPANTS (5) <ul><li>Carlos Roman claims that </li></ul><ul><li>-Conventional economic development or growth models were unable to capture the complexity and interactions among the different factors of economic development in a given region, </li></ul><ul><li>-there are no one-fits all solutions for economic development, whose understanding requires </li></ul><ul><li>-a different paradigm much more open, systemic, wide, multicausal and flexible, in which social capital plays a critically important role, </li></ul><ul><li>-economic development may depend basically on the social aptitude to self-organize and to create value for endogenous resources regardless their nature, to acquire information and to use knowledge, </li></ul>
  23. 24. ARGUMENTS FROM SOME PARTICIPANTS (6) <ul><li>Lydia Greunz argues that </li></ul><ul><li>-Knowledge has become a production factor and, mainly due to globalisation, more than ever, innovation is a necessary condition for economic growth, </li></ul><ul><li>-social capital is the material of knowledge spillovers, </li></ul><ul><li>-the quality and quantity of social capital have become major determinants of the innovation performance, </li></ul><ul><li>-policy efforts aiming at developing social capital are essential for the implementation of an innovation system able to nourish sustained economic growth </li></ul>
  24. 25. ARGUMENTS FROM SOME PARTICIPANTS (7) <ul><li>Knut Koschatzky points out that </li></ul><ul><li>-Social capital is constituted by general components like trust, norms, values, attitudes and understandings attained through the process of social interactions, and therefore it has a strong collective feature, </li></ul><ul><li>-social interaction is the most important means in social capital accumulation, </li></ul><ul><li>-networks can be regarded as social capital’s infrastructures, </li></ul><ul><li>-the stimulation of network building, the promotion of key persons as network moderators and the production of success stories might contribute to the objective of increasing the social capital stock of regions and to make use of this social capital for innovation and regional development </li></ul>
  25. 26. ARGUMENTS FROM SOME PARTICIPANTS (8) <ul><li>Phil Cooke claims that </li></ul><ul><li>-Social capital is a protean concept for defining ‘the missing ingredient’ in successful practice that economics cannot explain, </li></ul><ul><li>-Social capital is the application or exercise of social norms of reciprocity, trust and exchange for political or economic purposes, </li></ul><ul><li>-social capital in the world of the real economy is a kind of entry-ticket to doing business, </li></ul><ul><li>-according to the results of his empirical research, </li></ul><ul><li>-not only are the most competitive regions the most pronounced exploiters of social capital, but also good-performance areas in all types of region contain innovative firms that are high social capital users, both locally and globally. </li></ul>
  26. 27. ARGUMENTS FROM SOME PARTICIPANTS (9) <ul><li>Stuart Rosenfeld argues that </li></ul><ul><li>-Social capital creates economic advantages, which may be a key force for clustering, </li></ul><ul><li>-in clusters with high levels of social capital, knowledge and innovation is transferred much more readily, because </li></ul><ul><li>-social networks developed within clusters help companies make more informed decisions about investments, services, and suppliers, </li></ul><ul><li>-cluster associations are structures for social capital and sources of intelligence, </li></ul><ul><li>-social capital often proves to be the difference in competitiveness of clusters that are “overachievers” and those that are “underachievers” which exist but lack synergy. </li></ul>
  27. 28. ARGUMENTS FROM SOME PARTICIPANTS (10) <ul><li>Similarly, Sergio Arzeni and Dina Ionescu argue that </li></ul><ul><li>-Social capital can play a critical role in shaping inter-firms relations within local clusters and in contributing to the identity of clusters, </li></ul><ul><li>-since innovation in clusters is based on collaboration, proximity and networks and spurs through a process of mutual learning, emulation, positive role models, and personal contacts and much of this exchange is of a social nature, social capital building seems to be a necessary ingredient to successful cluster building </li></ul>
  28. 29. SOCIAL CAPITAL AS A FACTOR FOR REGIONAL DEVELOPMENT. <ul><li>Traditional neo-classical economic thinking placed emphasis on agents (firms/regions) acting individually in the pursuit of defined outcomes. </li></ul><ul><li>And competitiveness depended on strategic location (proximity to seaports, highways, large markets), access to unique and/or cheap resources (oil, gold, patents, labour, abundant rainfall/sunlight, etc). </li></ul><ul><li>Also, policy-making was basically top-down, and focused on human and financial capital. </li></ul><ul><li>Increasingly, however, more critical reflections have shifted the emphasis markedly, more so, in a globalised and knowledge-driven world – individualism is replaced by collectivism, and location or natural resource factors, by knowledge creation and dissemination, and planning, by strategy. </li></ul>
  29. 30. HOW SOCIAL CAPITAL WORKS (1) <ul><li>The Ideals of collectivism, knowledge creation and sharing, and of strategy (see Lisbon Agenda) are captured by the concept of social capital . </li></ul><ul><li>Social capital is the “resources embedded in a social structure, which are accessed/mobilized” in purposive actions” (Lin, 2001). </li></ul><ul><li>Therefore, social capital is localised, and consists in social networks, shared attitudes and values that generate trust and reciprocity, but more importantly, in the special knowledge and other advantages enjoyed by regional actors. </li></ul><ul><li>Unlike “pedestrian” resources (buildings, cars, furniture, etc) and other natural/location factors (see feta cheese: Greece vs. Denmark; and tomatoes: Spain/Italy vs. Holland), this learning and sharing experience enables regions to innovate and enhance their competitiveness, in a knowledge-based world that demands relentless improvement. </li></ul>
  30. 31. HOW SOCIAL CAPITAL WORKS (2) <ul><li>“ Capital” means this is an asset, and “social” means by belonging to a social group, one enjoys the asset. This entails trust, loyalty and reciprocity. </li></ul><ul><li>Two complementary forms of social capital exist: bonding social capital - strong communal ties that relay reliable, though mundane information, and bridging social capital - loose links with outsiders that relay fresh and varied, though less reliable information (Putnam, 2000). </li></ul><ul><li>Both forms of social capital, usefully combined, may offer competitiveness-enhancing benefits to a region: </li></ul>
  31. 32. SOME BENEFITS OF SOCIAL CAPITAL (1) <ul><li>(i) Knowledge Sharing </li></ul><ul><li>useful information is vital for competitiveness, but difficult and </li></ul><ul><li>expensive to attain from the market </li></ul><ul><li>through social networks, a region can gain easier access to such information that might concern new technologies, market niches, and reliable business partners, which give it a competitive edge </li></ul><ul><li>(ii) Cost Saving </li></ul><ul><li>strong communal links (bonding) lead to trust and loyalty, </li></ul><ul><li>thereby preventing dishonesty – members are aware that information about dishonesty could cause loss of potential partners, and access to knowledge (especially tacit knowledge), due to social exclusion. </li></ul><ul><li>-accordingly, reliable information can be volunteered, tacit knowledge shared, contracts honoured, and relations become informal, free and fair, with less cost of enforcement </li></ul>
  32. 33. SOME BENEFITS OF SOCIAL CAPITAL (2) <ul><li>(iii) Group Action </li></ul><ul><li>social capital facilitates partnership and solidarity, that help in the supply of public goods such as joint marketing, waste management, and the running of training/research centres </li></ul><ul><li>mutual support also serves as a form of risk management that encourages innovative actions, particularly in societies that lack formal insurance mechanisms. </li></ul>
  33. 34. Empirical demonstration of social capital <ul><li>Research has demonstrated a positive link between social capital and economic performance. </li></ul><ul><li>Case Studies: </li></ul><ul><li>(i) Pays de Saint-Flour </li></ul><ul><li>cattle breeding-based economy, located on a mountainous region, but with rich landscape, traditional craftsmanship and food products, </li></ul><ul><li>good transport links to metropolitan centres (Clement Ferrand and Montpellier) </li></ul><ul><li>suffers, however, from declining employment and population </li></ul>
  34. 35. Empirical demonstration of social capital <ul><li>Research findings </li></ul><ul><li>collective action virtually non-existent – hardly any cooperation among municipalities on basic matters such as common schools, tourism agencies, etc </li></ul><ul><li>also no collaboration among firms even when synergies are clearly possible in the food and tourism sectors </li></ul><ul><li>population intolerant to strangers, reinforcing their isolation (see Michael Florida’s 3 Ts) </li></ul>
  35. 36. Empirical demonstration of social capital <ul><li>(ii) Pays du Forez </li></ul><ul><li>situated at the edge of Saint-Etienne, a dwindling industrial area </li></ul><ul><li>nonetheless, proves to be economically dynamic </li></ul><ul><li>Research findings </li></ul><ul><li>collaboration very common in the economic sector, particularly among firms, although less so among municipalities </li></ul><ul><li>very open to strangers – many workers come from the neighbouring Saint-Etienne, and claim to be attracted by this Pays’ positive image </li></ul>
  36. 37. Empirical demonstration of social capital <ul><li>(iii) The Third Italy/ Italian North </li></ul><ul><li>populated by craft-based SMEs (clothing, ceramics) </li></ul><ul><li>characterised by industrial districts </li></ul><ul><li>economically more developed than the Italian South </li></ul>
  37. 38. Research findings <ul><li>a strong culture of interaction and collaboration among the SMEs, and the industrial districts, unlike the South </li></ul><ul><li>also thrives in co-petition – an efficient mix of competition (driving innovation), specialisation (boosting productivity), and cooperation (facilitating knowledge sharing, as well as reduction of intrigues and anxiety) </li></ul><ul><li>the presence of this trustful, entrepreneurial, collaborative and learning tradition created an endogenous development path </li></ul><ul><li>See similar research on Burgenland (Austria), Jämtland (Sweden), Lucena (Spain), the Ireland/Northern Ireland border region, etc., by the European Foundation for the Improvement of Living and Working Conditions </li></ul>
  38. 39. The flip side of Social Capital <ul><li>The flip side of Social Capital </li></ul><ul><li>Though clearly vital to regional development, social capital if not properly managed, may produce negative outcomes: </li></ul><ul><li>being embedded in a social structure might stifle the efficient allocation of resources </li></ul><ul><ul><li>partners may form according to social, rather informed business considerations </li></ul></ul><ul><ul><li>also a community’s loyalty to the local shop owner might mean loss of cheaper options for the former, and inefficiency for the latter, in the absence of “cold shower effect” </li></ul></ul>
  39. 40. The flip side of Social Capital <ul><li>(ii) social embeddedness may equally lead to </li></ul><ul><li>discrimination and exclusion - “we” vs “them” </li></ul><ul><li>consequently, valuable input from the excluded class (bridging) is lost, and open tensions might develop, with overall welfare losses for the region. </li></ul>
  40. 41. Conclusion <ul><li>Social capital (bonding and bridging) is crucial to regional development </li></ul><ul><li>Natural and location factors may give comparative advantage, and “pedestrian” resources may sustain daily operations, but are not sufficient for competitiveness. </li></ul><ul><li>Therefore, it is imperative for national and regional policymakers to establish the conditions for social capital to flourish, whilst taking care to minimise potential side effects. </li></ul><ul><li>Such efforts should create space for social dialogue among citizens, communities, businesspeople, academia, research/technology centres, NGOs, and authorities at the local, regional and national levels. </li></ul>
  41. 42. References <ul><li>Boschma, Ron A. The Industrial Rise of the Third Italy (no publication date indicated). </li></ul><ul><li>Coleman J., 1988, ‘Social Capital in the creation of human capital’, American Journal of sociology, 94, pp. 95-120 </li></ul><ul><li>Collier P., 1998, ‘Social capital & poverty’, Social capital Initiative Working paper, World Bank, Social Development Department, Washington, DC. </li></ul><ul><li>Cote S., Healy T., 2001, The well being of nations. The role of human & social capital, Paris Organisation for Economic Co-operation & Development </li></ul><ul><li>Callois, Jean-Marc & Aubert, Francis. Towards indicators of social capital for regional development issues (2005). </li></ul><ul><li>European Foundation for the Improvement of Living and Working Conditions, Regional social capital in Europe (2005). </li></ul><ul><li>Grossaert C., 1998, ‘Social capital: the missing link?’ Social capital intiative, working paper n° 3, The World Bank, 22p. </li></ul><ul><li>Helliwell, J.F. & Putnam R.D. “Economic Growth and Social Capital in Italy” in Eastern Economic Journal (2000) Vol. 21, No. 3, 295-307. </li></ul><ul><li>Maskell, Peter. Social Capital and Regional Development (1999). </li></ul><ul><li>Narayan, D. “Bonds and Bridges : Social Capital and Poverty” in Policy Research Working Paper, World Bank Poverty Reduction and Economic Management Network (1999). </li></ul>