Higher social capital helps the growth
of the Indian economy
Social capital is an asset that exists in societies, but cannot be seen directly. It can only be understood. It is critical for the smooth functioning of societies. So what is it? It may be defined as the state of a society conditioned by the relationships and understanding among the members who constitute it.
Positive relationships, understanding and approaches among the members of the society lead to a mutually beneficial and peaceful atmosphere in the society. When there is higher social capital in a society, then it is better for it as the members derive lots of benefit out of it. On the other hand, societies with lesser social capital encounter serious problems as there will be distrust and negative feelings among the members.
It is important to understand that the benefits that accrue to the societies with higher social capital are not just confined to the family and social matters, but extend to the economic issues also. So we find more economic development in societies where there is mutual understanding and appreciation among people.
Francis Fukuyama notes: “A healthy capitalist economy is one in which there will be sufficient social capital in the underlying society to permit businesses, corporations, networks, and the like to be self-organizing. In default of this self-organizing capacity, the state can step in to promote key firms and sectors, but markets always work more efficiently when private actors are making the decisions.”
India is a family-based and community-oriented society. Close- knit relationships remain the basis of lives of people in the country. Hence going beyond oneself, living for the near and dear ones, reaching out to others and expanding relationships are natural to Indians. As a result there is plenty of social capital among different communities in the country. It helps them in different ways for their economic development. When the families and societies develop economically, the country also grows automatically.
Studies on the Indian economy amply prove that the prevalence of a high degree of social capital has been responsible for the faster and smoother development of our economy. In fact the social capital is responsible for initiating, propelling and even sustaining development in many places across the country.
Research studies among the successful business communities of India reveal that their social capital has helped them enormously in their entrepreneurship and growth. Many successful communities such as the Marwaris, Patels, Nadars and Gounders owe a lot to the higher social capital for their development. In fact the entry of so many people from these communities into different businesses was facilitated by the network of relationships.
There were only few Gujaratis in the diamond business during the initial periods. But gradually their numbers increased. Now it is they who dominate the diamond markets at the national and international levels. They have more than two- thirds share in the international markets. With the result they relegated the Jews who were controlling the business to the second position. Similarly the motels of the US are now almost totally in the hands of Patels who are of Indian origin.
Social capital helps in the growth of business in many ways. The net- work of relationships influence people to take bold initiatives, make them engage in activities with confidence and helps them in case of setbacks and failures. The fear of failure is the biggest thread to entrepreneurship. Communities countered this through social capital even from the earlier days. Quoting sources, Sudipt Dutta notes there were one lakh merchants belonging to the Agroha biradari of the Agarwal merchants in Agroha town. When one of their businesses fails, each of the remaining 99,999 businessmen would donate one rupee and a brick to help the insolvent person so that he could build his house and start business again.
Social capital innovates mechanisms to help people enter businesses when they have serious short comings. For example, when the enterprising people from the Nadar community found it difficult to invest funds and start business, the community developed a native financing mechanism called ‘mahamai’ which helped them with the necessary financial support by mobilizing it from within the community. As a result more number of people entered business.
It is interesting to note that the social capital helps the faster growth of industries by supplying the required capital even while the state institutions are weak, and enable businessmen to compete in the international market successfully. The World Development Report published by the World Bank acknowledges these aspects: “Since 1985, Tirupur has become a hotbed of economic activity in the production of knitted garments. By the 1990s, with high growth rates of exports, Tirupur was a world leader in the knitted garment industry. The success of this industry is striking. This is particularly so as the production of knitted garments is capital-intensive, and the state banking monopoly had been ineffective at targeting capital funds to efficient entrepreneurs, especially at the levels necessary to sustain Tirupur’s high growth rates. What is behind this story of development? The needed capital was raised within the Gounder community, a caste relegated to land-based activities, relying on family and community networks. Those with the capital in the Gounder community transfer it to others in the community through long-established informal credit institutions and rotating savings and credit associations. These networks were viewed as more reliable in transmitting information and enforcing contracts than the banking and legal systems that offered weak protection of creditor rights.”
Social capital results in higher efficiency and provides cost advantages in economic activities. It enables mutual trust among members and when there is trust in a society, the transaction costs get reduced. Yujiro Hayami notes this: “………… trust accumulated through personal interactions in the community increases efficiency and reduces costs…….” The economic growth of different regions of India has been facilitated by easier availability of funds and the cost advantages enjoyed by people due to social capital. We have to remember that the native Indian attitude of communities go beyond all the narrow considerations such as castes, creeds and religions.
Most of the western countries are faced with serious social and economic problems, as their individualistic beliefs and practices disturb community lives and destroy social capital. Harvard economist Stephen Marglin notes that their economic systems and theories undermine communities. To quote: “ ….. over the past four hundred years, the ideology of economics has fostered self-interested individual and the market system, and has undermined, and continues to undermine, the community.” With the result there is a huge lack of trust among members in their societies. Hence people remain without the support mechanisms that they need and lead disturbed lives. It ultimately affects social peace and hinders economic development. The richer countries of the world are thus compelled to spend around 20 per cent of their GDP to maintain societies and families.
One important reason as to why India has been emerging as a very important nation at the international level is the social capital that prevails in our country. It enables people to withstand difficulties, to maintain peace at the family and social levels and to take constant steps for progress.
When many of the countries are faced with serious social and economic difficulties, India remains a unique nation. The higher social capital that prevails in our country has been helping us to move forward in spite of many problems that are confronting us.
1. Francis Fukuyama, Trust, Free Press Paperbacks, New York 1996.
2. Stephen A Marglin, The Dismal Science – How thinking like an economist undermines communities, Oxford University Press, New Delhi, 2008
3.Sudipt Dutta, Family Business in India, Response Books, New Delhi, 1997
4.Yujiro Hayami, Development Economics- From the poverty to wealth of nations, Oxford University Press, New York, 1998
5.World Development Report 2001, World Bank, Washington
( Yuva Bharati, Vo.39, No.7, Vivekananda Kendra, Chennai, Feb.2012)