Why Communities Should Focus on Building Social Capital and How They Can Do It

I drive within a 50-mile radius of my home quite often to meet with clients or potential clients. On one particular drive from one town to the next, the highway used to be lined with dozens of nursery wholesalers. Thousands upon thousands of trees, shrubs and plants used to grow along this stretch of the highway and many of the remnants of these nursery farms can still be seen.

Why would all of these nurseries locate side by side? Wouldn’t that increase the proximity of their competition, thus decreasing their potential sales?

This small, rural Alabama phenomenon about nurseries can also be said of Silicon Valley. While the companies in this region don’t necessarily compete for customers due to proximity- most of them have a global sales footprint- they most certainly compete for labor, as the nurseries did at one point in time as well. Wouldn’t the competition for labor (and real estate/land) in such close proximity to each other drive the prices on everything up leading to a diminished ability to remain competitive or produce as large a profit?

Turns out, the opposite is true as The New Geography of Jobs  points out.  The proximity to the social capital of your industry leads to value and competitive advantage, not the other way around.   And it creates a snowball effect.  The more technology companies that locate in Silicon Valley, the higher likelihood that more will come because it creates a community that is desirable and attractive to similar companies and the talent who work for these types of companies.  It creates a “thick” labor market.

While we’ve been talking a lot about individuals developing their social capital in order to grow their competitive advantage, communities can and should foster the growth of social capital as well.

But what comes first, the chicken or the egg? Do the organizations that create the jobs, thus producing the demand side of the economic equation provide the key to community growth or does the supply side, the people, create the growth?

Most economic stimulus policies focus on driving the demand or organizational side of the equation. Tax incentives focus on getting companies to locate in a community, and these packages continue to become more and more competitive. Some research even points to the fact that the ROI of many of packages isn’t there.

By and large, communities do not focus on stimulating the supply side of the equation through stimulus-type measures. Yes, communities work to improve their educational infrastructure and outputs to improve supply, but this doesn’t guarantee an increased supply of labor, especially in high growth or in-demand areas.

Because of the sheer power of social capital at a community level, stimulating supply side economics should be more of a focus for communities wanting to grow.

 

Some ideas for doing this include:

• Pay off the debt of students in high demand skill areas in exchange for them living and working in your community. This has been done for a while in rural communities and medical fields, but we are now seeing communities do this in technical fields like engineering and IT.
• Pay the best to come to your community and others will follow. If you want a good example of this, check out the Washington University example in The New Geography of Jobs on page 198-199.
• Create hubs for collaboration or co-work spaces in your community. This “turns isolated innovators into a real community, a creative ecosystem designed to maximize knowledge spillovers.”
• Incentivize entrepreneurs to come to your community through business incubation and accelerator programs. Although different, this can play quite nicely with creating hubs for innovation and co-work spaces.

 

Basically, all of this comes down to bribing people instead of bribing business. Because social capital is the competitive advantage driving innovation today, communities would do well to begin bribing people, not just business. Just make sure you bribe the right people- those with the skill sets and connections to drive innovation and create a multiplier effect of job creation and community growth.