Live, laugh, and love: The role of social capital and social networks in promoting economic resiliency

Although the offshoring of manufacturing jobs has allowed firms to reduce input costs and relocate to emerging markets, this process has economically decimated former host regions like the Rust Belt in the U.S. However, not all cities have faced the same fate – some regions have been able to successfully shift their economies towards high-value-added activities such as advanced-technology manufacturing and service industries. The diverging responses by cities to similar economic and technological shocks indicate that different regions display varying levels of resilience in response to economic change. Given this trend, it is important to assess and understand the causal mechanism behind the capacity of an individual region or city to respond to change. With increasing automation and fragmentation of civic participation, social capital has become a prominent explanation for the divergence in levels of institutional resilience and response to shocks.  Social capital refers to the connections among individuals (e.g. social networks), and the resulting norms of reciprocity and trustworthiness. In a digital age characterized by automation and the breakdown of participation in traditional civic organizations, social capital is becoming an increasingly important determinant of economic growth and adaptability. 

The importance of social capital can be traced back to the works of Robert Putnam, a Research Professor at the John F. Kennedy School of Government at Harvard University. In his magnum opus, Bowling Alone: The Collapse and Revival of American Community, Putnam argues that the U.S. has experienced a drastic decline in social capital. This decline is characterized by decreasing participation in civic organizations, such as bowling leagues, and lower trust in government institutions. Putnam attributes this to a combination of urban sprawl and technology, with the latter playing a larger role by individualizing people’s leisure time through the higher consumption of television and Internet content. Most importantly, this precipitous decline in social capital coincided with the economic decline of the Rust Belt due to offshoring and automation. Hence, many policy makers began to realize that the breakdown of civic life can have devastating economic consequences. 

A TALE OF TWO CITIES: THE IMPORTANCE OF MULTIDIMENSIONAL SOCIAL NETWORKS

Sean Safford, in his 2009 seminal work Why the Garden Club Couldn’t Save Youngstown, advances Putnam’s work by trying to pinpoint the role of social networks in navigating change. Safford conducts his analysis by examining the diverging economic trajectories of Allentown, Pennsylvania and Youngstown, Ohio. Youngstown and Allentown were both Rust Belt communities that used to be the centers of the steel industry in the mid-20th century. Hence, both cities felt the economic shocks of the steel industry contracting in the 1970s and 1980s. However, Allentown was able to pivot and create a new positive economic trajectory while Youngstown regressed and fell into an economic depression. One of the factors contributing to the economic decline in Youngstown was that when steel manufacturing contracted, vital stakeholders, such as non-steel related companies, suburban leaders, and workers were excluded from the process of developing an action plan. As a result, each constituency developed their own contradictory plan which further contributed to the city’s decline. These conflicting plans also resulted in a leadership vacuum, a void that was eventually filled by organized crime. 

In contrast, Safford argues that Allentown’s transformation can be attributed to the multiplexity demonstrated by the city’s social networks. For example, the social networks in Allenstown cut across different social cleavages such as socioeconomic class, religious affiliation, and educational attainment. Consequently, Allenstown had alternative centres around which new development could emerge when existing social and economic power structures collapsed. Consequently, these alternative organizations were able to bridge the gaps between different actors in order to create a more diversely organized community. For example, the Boy Scouts and the Bethlehem Citizens Association acted as foundations for the creation of the Lehigh Valley Partnership. This newly formed organization brought local CEOs and community leaders together to rebuild the economy. As a result, successful community-based organizing and the cultivation of cross-class alliances in Allenstown allowed for an effective and efficient response to industrial decline.

BUILDING STRONG COMMUNITIES: POLICY LESSONS FROM THE REVITALIZATION OF ALLENSTOWN

The case study of Allenstown has important lessons for policymakers and private actors. The revitalization of the city highlights two actions that help communities successfully navigate exogenous shocks: (1) cultivate independent layers of social networks as mentioned above, and (2) ensure the participation of key economic actors in the upper ranks of local civic leadership networks. The participation of economic actors in civic leadership is critical, as they represent organizations with deep reserves of resources, whether it be financial, physical, or social. In addition, these economic actors are highly talented and can bring invaluable experience and expertise to the table. 

These experiences and expertise play a critical role in two ways: first, the concentration and diversity of leaders allows for the efficient creation and facilitation of bridges across key constituencies that have an interest in the region’s future; and second, the participation of leaders allows regional firms to make informed decisions as to how to re-organize their operations to create mutual benefits for both the companies and communities by identifying the competitive advantages of the region. Thus, cities and regions must create forums which bridge salient divisions and enable stakeholders to resolve specific localization challenges during times of crisis. Therefore, the most effective government policy, in the face of industrial decline, is to strengthen and bridge reciprocal and non-antagonistic networks and incentivize members of the community to draw on these relationships and identities. 

THE SILICON VALLEY STORY: MODERN APPLICATIONS OF SOCIAL CAPITAL

The massive economic success of Silicon Valley can be traced back to an abundance of social capital and the rich quality of social networks in the region. Silicon Valley inadvertently fostered the accumulation of social capital by instituting a technical culture which transcended firm and function. Silicon Valley was able to leverage social capital to inhibit opportunism, cheating, and shirking by punishing and reducing the returns on such behaviour. Professor AnnaLee Saxenian at the UC Berkley, in her book Regional Advantage, argues that the region’s pioneers created a decentralized industrial system which allowed firms to remain nimble and respond to rapid changes in the economy. The technical culture in Silicon Valley is characterized by a lack of formal hierarchies and the prominence of collaborative traditions which support experimentation. This collaborative tradition is rooted in the ubiquity of loosely-linked small engineering teams. 

Moreover, many of the region’s executives were alumni of Fairchild Semiconductor, which helped to forge a collective identity that gave rise to Silicon Valley’s collaborative tradition. These “Fairchildren” had overlapping quasi-familial ties which allowed them to balance social solidarity and individualistic competition. Together with geographic proximity and occupational mobility, this allowed new entrepreneurs to receive critical advice, financing, and access to infrastructure. These professional networks often manifested into informal job search networks and allowed engineers to engage in risky ventures without worrying about occupational mobility. Therefore, the organization of professional and technical networks around the region allowed for the organic and holistic growth of social capital.

BRIDGING THE GAP BETWEEN POLICY AND PRACTICE

Policy makers have begun to connect the dots and realize that social capital plays a central role in cultivating social and economic prosperity. Thus, the more abundant that social capital is in a region, the greater its chances of rebounding in the face of industrial decline. Therefore, in age where close social ties are being undervalued, it is important for cities and regions to understand that social ties can produce positive local economic outcomes. 

Sources

https://www.hsph.harvard.edu/population-development/tag/social-capital/

Florida, R. (2005). The World Is Spiky: Globalization has changed the economic playing 

field, but hasn't leveled it. Atlantic monthly, 296(3), 48.

Putnam, R. D. (2000). Bowling Alone: America’s Declining Social Capital. In Culture and 

Politics (pp. 223-234). Palgrave Macmillan, New York.

https://hbr.org/2000/07/the-new-new-capital-thing

Safford, S. (2009). Why The Garden Club Couldn't Save Youngstown: The Transformation Of 

The Rust Belt. Harvard university press.

Saxenian, A. (1996). Silicon Valley: Competition And Community. Regional Advantage, 

Cambridge, Massachusetts. London. S, 29-57.