Sunday, October 16, 2005

The Virtuous Circle of Social Capital / intro

According to Charles Leadbeater, Senior Research Associate with Demos, successful social entrepreneurs create a cycle of development that goes through 6 stages. These stages are:

  1. Endowment of social capital
  2. Physical capital
  3. Financial capital
  4. Human capital
  5. Organisational capital
  6. Paying dividends

The initial endowment of social capital is a network of relationships and contacts that are tied together by shared values and interests. This social capital, Leadbeater states, is vital to social entrepreneurs because they typically lack direct access to substantial financial capital. In this phase of development it behooves the social entrepreneur to leverage this endowment by using existing relationships to create more social capital. Leadbeater suggests that the social entrepreneur should focus on building a wider web of trust and cooperation for his/her enterprise. He states, 'With this start-up fund of social capital the social entrepreneur can then get access to the physical, financial and human capital needed to get the show on the road.' Unfortunately, Leadbeater and Demos fail to provide guidance in how best to go at this, or any task related to any stage of the development cycle.

To remedy this shortcoming the next several (I'm not sure how many) Ambassador entries will discuss a stage, or stages, of the 'virtuous circle of social capital' development and offer practical tips for completing tasks relevant to the stage(s) discussed.

Readers are encouraged to share their own experience and practical tips in the comments section of the post. My next entry will remain focused on stage 1 of the cycle: building the social capital endowment.

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Blogger et alia said...

This comment has been removed by a blog administrator.

5:00 pm  
Blogger et alia said...

Sounds like good old M→C→M' where M' > M to me. Just as a stopped clock is right twice a day, so the hour of vulgar economics has come 'round again.

5:02 pm  
Anonymous SansFaim said...

Et Alis says the hour of vulgar economics has come round again.

The record of government-funded foreign aid efforts is abysmal, the World Bank has funded and helped prop-up the repressive governments of Tanzania, Vietnam, Indonesia, and Ethiopia, to name but a few. It has seen massive defaults on below-market rate loans, supported backwards economic policies, funded agricultural devastation, and increased the dominance of leftist politicians throughout Africa.

Government aid, be it direct financial aid, or below-market loans through quasi-governmental entities like the World Bank, can only exist at the expense of private citizens. These citizens either have their tax money taken from them based on the will of the majority in their respective controlling governments, or see taxpayer backed loans handed out to risky and oppressive regimes at rates that would undercut competitors in the free market. Either way, personal liberty is decreased.

There is no way that government aid can help rebuild a devastated economy as efficiently or as fast as private enterprise. The source of this truism is simple: the profit motive works to channel resources where they will not only be most efficiently spent, but also best improve the lives of those involved.
The profit incentive, the freedom to succeed or fail, is what drives the entire system of progress. The prices that are generated via free exchange permit us to assess the priorities of resource use, to compare alternative uses, and to calculate profit and loss. There are no market prices in government work, which is why Mises compared central planning to groping around in the dark.

In addition, there is no profit incentive in government. Government not only perpetuates sloth, it encourages it by rewarding the most inefficient programs and workers with even more money. To hear media figures push for more government spending in devastated areas is to hear the siren call of bureaucracy, a chorus of the economically ignorant propping up the economically inefficient.

To be fair, it must be noted that even private charity is not as efficient at producing a desired outcome as private enterprise. The profit incentive drives private enterprise to work faster and better, to supply more products and more opportunities than even private charity. However, private charity performs better than government "charity" due to numerous factors. First, there is no "public choice" feedback, in which political connections direct money to inefficient recipients in return for later support in elections. Second, the personal connection at the heart of private charity cannot be reproduced by government.

Moses Maimonides, 1135–1204, a Talmudic thinker of Spain says as follows: “The noblest charity is to preclude a man from accepting charity, and the best alms are to show and enable a man to dispense with alms.”

NTC achieves this by supporting local farmers, purchasing local produce wherever possible, and employing local people to enable them to retain their dignity and not be reliant on government handouts.

12:53 am  
Anonymous Anonymous said...

Dear Tom,
I'm very interested in learning more about the Oxford NTC Alliance Ambassador. Are you in the Skoll Foundation? I'm writing a story for a business magazine about development issues in Egypt and would love to talk to some time.


11:52 pm  

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