Social Economics - The Approach of Social Capital - Essay Example

Social Economics - The Approach of Social Capital Contents Social capital 1 Poverty alleviation 3 Linkage between social capital and poverty alleviation 4 Relevant literature 8 Conclusion 9 Works Cited 10 Social capital The commonality which can be observed between the different definitions of social capital is that they all identify the social relations that produce benefits which are productive in nature. The concept of social capital recognizes some aspects of social structures by their functions. Social capital in a social context can be defined as the attribute of an individual. The quality of life is affected by happiness, optimal health and economic sufficiency. The outcomes in the areas of social policy including health, education, employment and family can be influenced by the policy makers. Improving the social being is one of the prime concerns of the governments and devotes a lot of interest to achieve economic prosperity. But economic prosperity may not bring improved social well being for all as well being is not directly related to income. The aspects of social capital can act to reduce transaction costs and also encourage behavior and trust. The different sources within the community can be thought of as the origination of social capital. Social capital can operate and emerge in families and educational institutions and also in business and local community. Social capital can have both positive and negative impacts on the society. On the one hand it creates social division and on the other leads to social and economic well being at least for some sections of the society. There are mainly five mechanisms by which social capital can affect the outcomes. 1. Improves of the ability of the society to observe the government’s performance 2. Accelerates the possibilities for joint action to solve problems 3. Injects the process of innovation 4. Eliminates or negates the imperfections in information 5. Accelerates insurance between the households and allow them to accrue higher returns. (Morris, p.7) A distinction can be made between the formal and informal forms of social capital. Formal social capital refers to patterns of behavior, exchange norms, networks which are formally defined. The networks operating outside this formal system refer to informal social capital. The usefulness of this distinction lies in illustrating the problems arising in operations of social capital. The first kind of social capital can be found in the extent of civil society while the second form can be difficult to find as it requires household surveys. Dimensions of social capital: (Abdul-Hakim and Abdul-Razak, p. 5) Poverty alleviation At the national level poverty refers to a country’s lack of resources necessary towards education, health and infrastructure. This may give rise to political unrest. In the developed countries poverty is one of the social problems. Poverty alleviation has been one of the guiding principles for most of the governments. The role of economic growth and development in creating employment avenues has clearly been recognized. Some specific sectors have been chosen by most administrations and growth oriented approach has been undertaken. The planning process is filled up with the initiatives that will reduce poverty relating to health, education and other fundamental services. Poverty encircles different dimensions of deprivations that relate somehow to human capabilities. To achieve environmental sustainability poverty must be reduced. The key to all dimensions of poverty is to reduce gender inequality. The process of poverty reduction involves a political dimension. Social and political transformation can be achieved by strategic partnerships within the government and within the civil society. Only rapid and sustainable growth can be the factor that will act to alleviate poverty. The situation governed by good administration, competitiveness in the markets, and optimal use of natural resources is the need of the time. The degree of inequality accrued at every level of society regarding human capabilities and access to resources which are productive such as land, training and credit must be eliminated. Linkage between social capital and poverty alleviation The facet of poverty includes the lack of social capital. As regards poverty, social capital can be seen as a tool towards the end or as an end in itself and it depends on the way poverty is defined. The concept of social capital has been theorized as the asset consisting of friends, family and associates who can be relied upon in times of crisis and leveraged for material gain. This community who is supported by rich stock of social networks and civic associations gains the upper hand in a fight against poverty and vulnerability according to development literature. Social capital entered into the debates about economic performance on the claim that it constitutes an independent factor of production. Land, labor and capital have been identified by classical economists as the three basic factors that will shape the way for economic growth. The concept of social capital can be fuelled by social skills, honesty and corporation along with some political measures that include rule of law and civil liberties. In the world development report formation of social capital has been regarded as one of the important strategies to reduce poverty. A new paradigm has been developed by political scientists around social capital. The strategy of social capital formation has legalized the investments of non-governmental organizations in community work. But on the other hand donors are visualizing this concept as another unsuccessful attempt to reduce poverty. The World Bank advocated the diminishing role of the state and the reduction in public expenditures. The new agendas of encouragement to be loyal towards organizations for employers rather than for the society have risen. Recent studies prove that poor people do not take part in the same kind of organizations as those who are well-off. This type of non participation is closely connected to poverty. The participation in networks created around nonprofit activities is regulated by time. Exchange of goods and services in a symmetrical pattern of mutual expectation forms the basis of these networks. Family support may create another kind of network which may stretch in geographical terms. The workers of the community do try to develop networks with the local population but the tendency is that they do not form lasting members of the group. Some people are allowed to enter as members of the state or organization because of stratification in the society. The majority is outside the groups and the minority grabs the privileges. The present picture of integration through formation of social capital is unrealistic. If the poor are not able to develop useful networks that will increase their social capital on a large scale and they are not allowed to take part in creating network the whole system of social capital formation will be inefficient for poverty reduction. But this does not mean that efforts to increase social capital should not be undertaken. The need is to mobilize the poor if certain changes in the standard of living are to occur. Political life should be part of their living requirements enabling them to act for democracy to develop. Civil conflicts can be avoided by increasing the social capital of the poor. If major resources are redistributed then it might lead to the reduction in poverty. Datt and Ravallion in 1996 came out with a model of poverty reduction. There were three components mentioned in the model namely the dependant variable consisting of the various measures of poverty, an explanatory variable which is dependent on time i.e. dynamic in nature, and the start off conditions. The model thereby takes into account the paths in which negation of poverty is a function of some dynamic factors like income, inflation and real wage. The start off endowments of physical and human capital is also present in the model. The econometric estimated model for measured poverty in region i at time t (Pin) is as follows: lnPit = πlnYit + γ‘Xit + ηi + εit , Here, Yit is the matrix of the dynamic variables, Xi is the matrix of the start off conditions, ηi is the state specific fixed assets invariant to time and εit is the error term. The structure of the model is as follows: (Morris, p.10) Social capital is recognized as the tool through which protection is provided to the poor against unexpected shocks and diverts the resources like food and credit for their benefits. It enables the needy to start up a small enterprise that will raise the income level which in turn raises the standard of living and as a result there is reduction in poverty. The contribution of Francis Fukuyama has led the World Bank to analyze the strategy in mobilizing the social capital for development. The instruments of survey include the groups and the networks, empowerment and political action, action taken collectively and mutual corporation. Social capital intensifies the efficiency of rural development programs. It increases the agricultural productivity and facilitates the management of natural resources making the rural businesses more profitable. Social capital can reduce poverty through various macro and micro channels which can mobilize useful information to the poor and accelerates growth and distribution of income at the national level. Relevant literature Several studies have been carried out to establish the link between social capital and economic development. Studies of Helliwell and Putnam in 1995, Knack and Keefer in 1996, focuses on the bridge between culture and economy. They focused on the extent to which social factors determines economic success. Conceptions and different measures of social capital have been used in their approaches. But availability of data acted as a constraint. In the paper Putterman asked the questions of what cultural conditions can affect economic growth and some of the preconditions for development. Social capital as seen by him is an extended form of human capital. He encouraged the argument that social capital can augment human capital which will provide the opportunity to increase the capacity of the country so that it can acquire modern technology and organization can be formed. Again some are of the opinion that some form of measurement of social capital needs to be identified. Rose in 1996 criticized the use of a specific measure of social capital and opines that it may vary across the societies. Helliwell and Putnam in their paper took the data of Italian social capital to test the hypothesis that some of the regions in Italy have been successful to maintain a higher level of output per capita due to larger endowments of social capital. The study of Narayan and Pritchet in 1997 shows that higher levels of social capital endowed to village is related to higher income even after controlling the education of the household and characteristics of the village. Conclusion The Approach Of Social Capital takes the structured outcomes into account. The outcomes which are anticipated in this approach are social participation and economic development. The goal to achieve or step up to the higher levels of economic development does not rest exclusively on the approaches of social capital alone. It is only the manner through which economic development can be achieved. The approach emphasizes the empowerment of individuals as they communicate and create relationships within the society. It is argued that as a consequence of the process of interaction there will be development of shared objectives and the formed networks will intensify the growth process along with the growth of some variables such as trust. The issues that have emerged in the debate of social capital paving the path of social development reflect some divergences that are theoretical and conceptual. The controversies provide the opportunity to deal with the tools of analysis rather than negating the relevance of the concept. Social capital is positively correlated with the influence on per capita expenditure and negatively correlated to the probability of being poor. It is also evident that social capital and human capital endowments are complements in reducing poverty. There are spaces where further research is possible to illustrate more on the importance of social capital in the welfare of the households. One of these areas may be the effect of social capital on the benefits which are long term like accumulation of assets. It is required in order to find out the effects of social capital on the associations of welfare and poverty. Works Cited Matthew Morris. Conceptualisation of Social Capital. n.d. Social Capital and Poverty in India. 14 March, 2012. Web. < http://www.ids.ac.uk/files/Wp61.pdf> Roslan Abdul-Hakim and Nor Azam Abdul-Razak. Measures of social Capital. 2010. Does Social Capital Reduce Poverty? A Case Study of Rural Households in Terengganu, Malaysia, 14 March, 2012. 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