How Social Capital Helps Build Strong Local Economies
Editor’s Note: This piece originally appeared on the author’s website. It is republished in a modified format here, with permission. To view the original, and to connect with Patricia Rattray, make sure to visit PatriciaRattray.com.
Image via Pikist.
I have dedicated the last 20 years of my life to real estate, small business development, and community engagement. The most important factor that links these three passions is their reliance on social capital for success.
Scholars have defined social capital in numerous ways. Pennar describes social capital as a network “of social relationships that influences individual behavior and thereby affects economic growth.” Alternatively, Nahapiet and Ghoshal describe it as “the sum of the actual and potential resources…derived from [this] network…”
So, social capital points to our network, the resources we gain from it, and the behaviors and interactions that result from and enable it. Such resources can be external, including gifts, tools, technology, knowledge, and labor; and internal, such as confidence, agency, a sense of belonging, status, and safety.
How Social Capital “Works Its Magic”
Decades ago, high levels of social capital were taken for granted in most communities. On the East Coast of the U.S., waves of immigrants arrived from common homelands. Neighbors had frequent and sustained interactions across all areas of life. They shared the same language, culture, values, friends, intergenerational bonds, job opportunities, and social circles. These bonds flourished due to proximity, familial connections, and neighborhood homogeneity, which contributed to high-trust relationships and commercial transactions.
Today, people are more transient, and neighborhoods are more multicultural, multilingual, and less multi-generational. As a result, social capital is not built by the same traditional mechanisms. Yet it is still essential for a high quality of life.
In his 2000 book, Bowling Alone, Robert Putnam explores how our nation has been suffering from a steady decline in social capital and civil society since the 1950s. Fundamental changes in how we work, go to school, and participate in civic organizations, in addition to increased engagement with electronic entertainment and technology, are some of the factors that have contributed to this decline.
Putnam’s research helps us understand “how social capital works its magic.” In summary, social capital in America allows citizens to:
Resolve collective problems more easily
Reduce the cost of everyday business and social transactions
See how our fates are linked
Test the veracity of our own views
Enable the flow of information that facilitates achieving our goals
Cope better with traumas and fight illness more effectively
Putnam encourages us to start rebuilding social capital by showing up again to those events and relationships that create it.
This begs the question: How do we rebuild social capital if the very things that fostered it have been dramatically declining for so long, and entire generations lack role models for building it? Putnam and Lewis Feldstein, writing together a few years later, said that the “one key to creating social capital is to build redundancy of contact. Common spaces for common place encounters are prerequisites for common conversations and common debate.”
Social Capital and Economic Development
Daily, I see the importance of social capital, not only in building community but in economic development.
Successful local businesses, developers, and non-profit organizations with high levels of social capital navigate their networks like well-oiled machines. They rely heavily on referrals from the people they trust for information and services. They also have more access to existing resources and they can expand their resources more efficiently when needed. Furthermore, social capital helps them see the skills and qualities in others that go beyond what is reflected in a professional role or title. Business owners and investors who understand social capital tap deeper into the resources of their employees, neighbors, partners, and customers than those who don’t.
In addition, local consumers and real estate investors with high levels of social capital often prefer trusted vendors over unfamiliar, though potentially less expensive, options, because buying decisions are never just about cost.
We must start getting together again in new ways, in our neighborhoods, towns, and cities, but we must do it strategically. At minimum, building social capital requires us to commit to a sustained series of community interactions. I created the I-Develop Conversation model for this purpose.
I-Develop Conversations are discussions organized by volunteers that welcome everyone and help build the social capital required for building strong communities and strong local economies. Residents, local leaders, and business owners are all represented, and participants are drawn from a variety of backgrounds and across multiple neighborhoods. Regular topics include local stories, local brands, the visitor experience, and more.
These conversations create regular opportunities for interaction across industries, between the for-profit and nonprofit sectors, and across community spheres. They provide a forum for meeting new people, a chance to model and practice good social and communication skills, and an opportunity to identify shared values.
In short, they help create the common ground and trusted networks required for social capital—and our local economies—to grow.
Cover image via Unsplash.
Strong Towns member Patricia Rattray has over 19 years of experience as a Realtor and 15 years of experience in business consulting. She works with homebuyers, investors, and developers; and she helps small businesses with strategy, operations, and growth. You can connect with her on Twitter at @PatriciasStory and on her website at PatriciaRattray.com. For more information or if you’d like to work together to implement this model in your neighborhood or city, please email Patricia Rattray at prattray@wpsir.com.
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