Social Capital Concept on Political Economy Study in Developing Countries

Introduction

Development process, including political economy, will always relate with social condition, since economic is embedded to social relation. Conducive social capital is important to profound daily tasks and creates trust and social relation among groups.

To achieve an efficient economic and politic development progress, social capital is vital. Besides trust and networks, building social capital in developing countries represents the cultural component. In developing countries, particularly in the rural areas, it is informal rather than formal associations that have most value for citizens (Krishna, 2002). Informal associations are common as rural communities. Hayami (2001) studies on community role in the developing country cleared that rural communities demonstrated their capacities to manage resources.

There are many factors influence social capital growing; customs-ethnic and religion as the social capital sources in developing countries, participation, bonding and bridging quality, networks, or even the state interference. Here are seen high and low conditions of social capital. Though a general decline does not mean decline everywhere (Putnam and Feldstein, 2002 : 4), because social capital built in one area is not always the same with other places and in addition it takes time in its forming.

Further, this paper will discuss about the advantages and disadvantages of social capital concept on political economy study in developing countries. To gain clearer understanding, some cases in Indonesia will illustrate the explanation.

Advantages

Paul Collier mentioned about classification of social capital based on the economically beneficial results. First, social capital facilitates the transmission of knowledge about behavior of others, reducing problem of opportunism through repeat transactions that establish trustworthiness and reputations. Second, it facilitates the transmission of knowledge about technology and market, reducing market failures in information. Third, by relying norms and rules, social capital reduces the problem of free-riding, thereby facilitating collective action (Grottaert, et al , 2002:9).

In my opinion, the advantages of social capital using in the political economy are :

1. The economic function of social capital is to reduce the transaction costs of private goods and services, associated with formal mechanisms like contracts, and bureaucratic rules. Trust and network play an important role here. The economic process will be run more efficient if social capital implemented well.

First example is about natural resources management. Rural association or community group can manage and utilize natural resources with a certain system or mechanism. All members can get benefit from the natural resources, but on the other hand there are rules or norms which tie all of the members and monitoring mechanism to prevent free-rider. The irrigation system in Indonesia is included here.

From the neo liberalism view, this concept must apply totally, means that state function has to be applied in a minimum scale. However, developing countries including Indonesia have not been able to decrease state role in managing resources. State role is still needed to regulate the rule of resources management, in particular for public natural resources.

Second example is in trade transaction, in case of market and state are failed to fulfill the demand of people, community –social capital — can replace the mechanism and furthermore they will act independently. Hayami (2001) explained community as critical in correcting state and market failure.

The case about small-medium enterprises (SMEs)in some areas in Indonesia is real example of this. When they face difficulties to get financial loan or credit from the bank, because of difficult requirements and bureaucracy and they also lack of knowledge and networking, then they gather to form a small association among them and step by step try to overcome their problems together. Their efforts is due to collective interest and sacrifice some things such as fund, understanding, patience, discipline for they obey the groups rule, but later obtain benefits such as networking, marketing, customers and income. In the beginning, the association formed small with few members within. Then members are increasing time by time. One prove of their achievement is during the last financial crisis, it is only SMEs that can survive. Since they are not depend on state, when state was facing difficulties then they were not influenced. However, this success story is not happening entirely in all part of Indonesia.

2. Social capital helps to understand or even prevent conflicts better. For example, in the post-conflict areas, social capital is commonly used as the tool to build recovery and social glue among all components of societies. Christiaan Grootaert (2002;12) mentioned that “ … in some cases fostered cultural revitalization”. Furthermore, understanding in social capital will be related in understanding political economy in that area. The example is Maluku case in the reconciliation that exercises social capital in local village first to unite society.

3. Social Capital and State

Taken from Synergy View, concludes that synergy between government and citizen action is based on complementary and embeddedness (Evans, 1992,1995, 1996, in Woolcock and Narayan, 2000).

“Complementary refers to mutually supportive relations between public and private actors and is exemplified in legal frameworks…… Embeddedness refers to the nature and extent of the ties connecting citizen and business group”

This is important to understand that government in applying the development program must give attention to local social relations. To reduce poverty, the policy made by public institutions must involve people to participate in the development program. This approach can reduce the cleavage which is inefficient for development.

However, in the social capital organization or community, the role of state or government is limited or at least be certain of the group. State must not influence the group to a large extent therefore be dependent. State can open opportunities for the groups or facilitates so the social capital comes up and networks widen (bridging). In other words, state and community position must be balance. Any powerful community will also lead negatively to weaker position of state.

Disadvantages

Using social capital in the political economy study also has some weaknesses so far, especially in the developing countries which have pluralism characteristic. First, no matter how little it is, social capital through the form of association has possibility to separate people. In the multicultural, multi religions or multi-ethnics countries, ethnics or customs and religion are easily becoming the source of association. Somehow, it is rather different with the concept of unity in countries. For instance, there are many associations based on ethnic source in Indonesia, but the state always sounds about nation and unity among people without seeing what ethnic they come from. State then proclaims ‘unity in diversity’ as one way to overcome this but without neglecting the unity.

In countries where ethnic and religion are two sensitive matters, social capital must be developed carefully. If it executes inappropriately, then conflict is potential comes up.

In one side, the ethnic association – contains social capital and trust within- can perform progress including in the economic field, for their life. However, on the other side, it is different with state program that always promotes national unification.

Secondly, most of the studies of social capital are still based on developed countries, whereas social capital in the developing countries also grows with their characteristic. In my opinion, the approach of social capital in developing countries relates with many factors including religion and customs values. There are more diverse forms of social capital in countries where multi cultures and multi-ethnics people live. Norms and sanctions have sources from customs or religion or none of them, and in some cases the members in the groups do not determine them, but just follow the customs rules.

That condition can be different with western countries, where formal associations are common and the diversity is not emerged largely.

Conclusion

Social capital concept is important in the political economy, especially in the developing countries. The types and quality of social capital are different among associations, however the function are significant in the development process.

The advantages are based on empirical evidences that social can contribute to economic development and poverty reduction. The economic function of social capital is to reduce the transaction costs of private goods and services. Furthermore, related with social conflict, a fine application of social capital can prevent conflict because there is awareness to other people, and for post-conflict area, social capital can be used as social glue. Social relations provide opportunities for mobilizing other growth enhancing resources (Woolcock and Narayan, 2000).

The disadvantages are there is opposite intention from the grouping or association from with the unity spirit of state or developing countries. Secondly, the study of social capital in developing countries still rare and have to focus to customs and religions values as the sources of social capital.

In the field of political economic, people must understand how to connect to state and market. In some condition, when there is state failure, then the social capital can grow well.

Reference

Grootaert, Christiaan, and Thierry van Bastelaer (eds), 2002, The Role of Social Capital in Development : An Empirical Assesment, Cambridge University Press, Cambridge

Hayami, Yujiro, 2001, Development Economics : From Poverty to the Wealth of Nations, 2^nd edition, Oxford: Oxford University Press.

Krishna, Anirudh, 2002, Active Social Capital : Tracing the Roots of Development and Democracy, New York, Columbia University Press

Putnam, Robert D. and Lewis M. Feldstein with Don Cohen, 2002, Better Together Restoring the American Community¸Simon & Schuster Paperbacks, New York

Woolcock, Michael and Deepa Narayan, 2000, Social Capital : Implications for Development Theory, Research, and Policy, The World Bank Research Observer vol. 15 no.2 .