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Theory to Practice: Place Matters – Social Capital and Community Economic Development

July 22, 2020 / Jamie McCall, Emily Stallings and Kevin Dick / CDFI, Community Development, Economic Development, Economic inequality, Economy, Jobs & Employment, Public Policy, Small Business, Theory to Practice

Theory to Practice is an occasional blog series that explores the intersection of economic development research and current issues of debate within the practitioner community. In this post, Jamie McCall (Vice President of Policy and Research), Emily Stallings (Director of Development), and Kevin Dick (President and CEO) examine some recent findings from CSBDF’s newest peer-reviewed article. The article, summarized below, is co-authored with Austin Bussing, (UNC Chapel Hill), Dr. Michele Hoyman (UNC Chapel Hill), and Dr. Laurie Paarlberg (Indiana University). 

It’s no secret among scholars and policy practitioners that social capital – defined as social norms, community trust, and networks -is vital to regional prosperity. Social capital has long been at the heart of community and economic development, though the topic was popularized by Robert Putnam’s 1993 book, Making Democracy Work. Despite its fashionableness as a subject of academic research, it has been unclear how community institutions might influence social capital levels through public policy. This might be because of the varying approaches taken to define, operationalize, and test social capital as a concept.

A Social Capital-Based Theory of Change

But it is also unclear to what extent governments and other community institutions can aid in the creation of social capital. Governments are naturally interested in this as a development strategy because high levels of social capital are linked to a variety of positive economic outcomes. Research has shown how communities with higher social capital have higher employment, higher per capita income, and stronger small business networks. However, studies of social capital promotion policies by governments across different regions often come to very different conclusions. The different methods governments often use to increase local social capital in one area may not work as well if tried in a different place.

What such data suggests is that social capital could be place-bound or path dependent. That is, an area’s social capital is determined by characteristics and facets of place that are not easily changeable. Carolina Small Business recently had a co-authored article on this topic accepted by the peer-reviewed Journal of Public Policy.  The article delves into the complexities of measuring social capital across counties by accounting for different regions and whether a county is in a metropolitan or non-metropolitan area. The analysis considers the capacity of local governments (expenditures per capita) as well as a variety of other local characteristics that might shape social capital levels.

Geography and Place May Shape Social Capital

Empirically, the resources and capacity of local governments are related to aggregate county levels of social capital. Stronger government institutions are related to higher social capital – but that relationship declines somewhat when accounting for some facets of place. The data also show that some characteristics like high levels of education – which are hard to change at least in the short term – are more important predictors of social capital in certain regions. These findings demonstrate that social capital as public policy could be at least partially shaped by place.

Place Matters for Community Economic Development

Such findings align with other arguments of path dependency which frequently appear in community economic development scholarship. A community’s social capital is somewhat place-specific – set by a constellation of variables that are not always within the span of control of governments. This is important for community institutions like Carolina Small Business Development Fund, because it suggests we play an important role in shaping social capital that is often missed by government institutions. The ability of community-oriented organizations to respond to the place-specific needs of an area makes them central development actors.

One of Carolina Small Business Development Fund’s pillars is research and policy analysis. It isn’t enough for us to just believe that our work sustains community economic development. We seek to demonstrate – through empirically robust scholarship  – that community institutions like us are pivotal in the creation of desirable socioeconomic outcomes. We are proud to be one of the few CDFI’s in the nation to have our work published in peer-reviewed journals, because we know such venues represent the highest standards of evidence. Our staff work every day to generate social capital by promoting small business as the cornerstone of North Carolina’s economy. And our research efforts highlight why this work remains important for our communities.