I finally read this Pettis piece from last month. This point struck my interest:
Developed countries are rich because they have higher levels of social capital than backward countries, and not, as is sometimes believed, because they have abundant capital stock. On the contrary, rather than the cause of wealth, abundant capital stock should be, but isn’t always (China may be an example), a consequence of abundant social capital. The resulting higher level of worker productivity makes it easier to justify additional infrastructure that saves the time and labor of productive workers. A high level of capital stock is a “symptom” of wealth, not a cause.
It got me thinking about the types of things I like to think about, in this case neighborhood/community/economic revitalization.
A caricature of neighborhood gentrification would be, “Gays and hipsters move in, start fixing up the neighborhood, cool bars/coffee shops follow, and then entrepreneurs and wealth/yuppies enter the scene.”
If I had to formalize/abstract this a bit, I’d say that first the cost of real estate has to fall to a level such that there’s a market opportunity in buying access to physical infrastructure (however dilapidated it might be) for less than its market value. This allows “social capital formers” who may lack financial capital to come in and build community/social capital.
As the level of social capital rises it attracts financial capital and status seekers. I’d define a status seeker as roughly someone who’s risk averse in nature but often hard-working and looking for social/financial capital trends to follow.
As a neighborhood becomes more and more rich in social capital the demand for physical infrastructure improvements rises, as does financial capital and economic activity. Now the neighborhood is booming. The boom goes on for awhile.
In the latter stages of the trend social capital begins to decline (through some combination of the aging/death of the high social capital population, and/or high social capital young people being unable to afford the neighborhood), and often debt levels rise as status seekers/entrepreneurs stretch to enter the neighborhood/community.
A decline in social capital coinciding with a rise in debt levels then becomes the most dangerous possible state for a community — an economic shock makes the debt unserviceable, unemployment and vacancies increase, the price shock creates vacancies for less desirable community members to enter, which creates further downward shocks to social capital, and so on. And the natural state of physical infrastructure, as with everything, moves in one direction — decline/decay.
But the bottom line is social capital is everything.