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David B. Smith

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It Will Take Social Capital To Get America's Economy Humming Again

Posted: 07/25/2012 10:58 am

In the past several years, city councils, governors' cabinets, regional Federal Reserve Banks, and President Obama's own economic advisors have searched for creative ways to improve our local and national economy. In these diverse conversations, ideas such as moving sports stadiums downtown, recruiting a new research center, attracting the latest technology conference, or launching a new tourism campaign have been suggested as a means to invest in the local economy and create jobs.

In how many of these discussions do you think volunteerism, neighborliness or nonprofits ever came up? Financial capital is always at the table, human capital is often included, but social capital is mostly overlooked. While each of these ideas have great merit, the latter is less expensive by an order of magnitude and will not only reduce unemployment today, it will build economic resiliency for the future.

Last fall, the National Conference on Citizenship (NCoC) in partnership with several organizations including CIRCLE, and Harvard's Saguaro Seminar, published a report showing the strong correlation between civic health and unemployment. In short, cities and states with high levels of civic health in 2006 rebuffed the economic collapse and unemployment crisis better than their less-engaged counterparts. This was true even when controlling for numerous economic variables -- including housing inflation, presence of oil and gas industries, and a workforce with professional degrees.

Not only did these findings hold up, but we were able to go a step further and show the magnitude of how civic health indicators connect with unemployment. Our data shows that, in the midst of an economic crisis during which almost all communities experienced a sharp increase in unemployment, a community that had higher rates of residents working together experienced a less severe increase in unemployment. For example, if a community's rate of working with neighbors was four percent points above average, then that community would have experienced one percent point less increase in the unemployment rate between 2006 and 2009. Public meeting attendance had the second highest correlation, followed closely by volunteering.

How does civic health lead to economic resiliency? While our research has shown a strong positive connection between the two, we are now investigating further why this connection exists. With the support of the John S. and James L. Knight Foundation, we are exploring the following six hypotheses and will release new findings at the 67th Annual National Conference on Citizenship in Philadelphia on September 14th:


  • Human Capital Hypothesis: participating in civil society can develop skills, confidence, and habits that make individuals employable -- skills such as team building, critical thinking and problem solving.

  • Networking Hypothesis: people get jobs through social networks and, similarly, engaging in one's community expands your number of connections.

  • Information Hypothesis: volunteering, attending meetings, and interacting with neighbors spreads information -- ultimately helping to match employers in need of talent with labor seeking employment.

  • Trust Hypothesis: participation in civil society builds trust, and high levels of trust in the business community, facilitates economic transactions.

  • Good Government Hypothesis: communities with higher levels of citizen engagement are more likely to have good government, which in turn, attracts businesses that typically look for stable institutions before planting roots.

  • Attachment Hypothesis: as Knight Foundation and Gallup found through their Soul of the Community project, communities with high levels of attachment have greater economic growth. We look at highly attached communities as places with fertile soil upon which civic health can easily take root, and lead to greater social, human, and financial capital growth.


Our examination of this year's data will also delve deeper into the role nonprofits play in the underlying economic health of communities. In many communities, nonprofits are the hub for social innovation and play a critical role in solving our nation's social and economic problems. There are 1.4 million nonprofits in America, employing 10.7 million Americans -- over 10 percent of the workforce -- and channeling almost $300 billion in investment into local communities each year.

Moving forward, we must not allow social capital to be absent from the conversation forming around our nation to address our grave economic needs. We need the regional Federal Reserve banks, the Council of Economic Advisors, governors and mayors, cities, and rural localities to join us in our efforts to further explore this connection and ensure civic health strategies are included in all national and regional economic development plans.

We collect terabytes of information related to our commercial transactions in this country. We need to invest just a fraction of those resources into better understanding and monitoring our social transactions. Both are essential to building a vibrant and thriving nation.

 

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