In the current context of globalization, decentralization and devolution, local communities are more crucial than ever for environmental quality, economic vitality and quality of life.
Investments in community tend to look at only one resource-dollars. That maximization of a single community resource can undermine long-term sustainability. Research in progress by the North Central Regional Center for Rural Development and our partners suggests that communities can creatively work with and invest community resources in ways that enhance multiple objects.
A community is the interactions among individuals for mutual support. Both communities of interest and communities of place are important. Communities have resources available to them collectively, which are either consumed, held in reserve or invested. When resources are invested to create new resources, they become capital. We have found five areas of capital particularly useful for community research and development.
1. Community Financial Capital
Financial capital consists of money or instruments of credit for investment and speculation. Futures, stocks, bonds, derivatives, mutual funds and mortgages are all forms of financial capital. Financial capital can be public or private.
Individuals generate financial capital through salary and wages, earnings on investments, or loans. Firms generate financial capital through earnings, investments, and debt offerings such as stocks and bonds. Governments generate financial capital through fees, taxes and borrowing (e.g., bonds and other government debt instruments).
The public sector transfers resources to the private sector through loans, grants, tax abatements and other tax advantages. This form of financial capital is increasingly used as a development tool with little consideration of its impact on other forms of capital within the community.
Financial capital is the most mobile of all forms of capital which can be invested in a community. The international flow of financial capital has increased markedly over the last 25 years. As the Financial Times of London (September 30, 1994) explained, international financial markets are governed by the principles of fear and greed-neither one conducive to community sustainability.
2. Manufactured Community Capital
Manufactured capital in a community is composed of its physical infrastructure such as machinery, homes, office buildings, schools, roads, sewers, factories and water systems. Financial capital is turned into manufactured capital by either the private or public sector.
While the sewer and roads constructed by the citizens of a community to attract a factory to be built are relatively immobile, the factory and machinery within it can be easily dismantled, as many rural residents are discovering. Much light manufacturing has moved off shore, where wages are lower, environmental restrictions are fewer, and government regulations are less intrusive. Yet the financial instruments to fund the manufactured capital-in the form of higher taxes-are still in place.
3. Human Capital
Human capital includes individual capacity, training, human health, values and leadership. Economists use the term labor, consisting of the skills, abilities, education and training which workers possess and bring to their jobs. Human capital includes non-formal skills associated with experience carrying out a particular task and indigenous knowledge about an area. Health status and commitment are other aspects of human capital important for communities.
Human capital makes financial and manufactured capital more efficient. Individuals with good training in statistics and a good understanding of financial trends and possibilities-and with a value set that includes following both the spirit and the letter of laws and rules-generates more financial capital on a sustainable basis than an individual with less skill, understanding, and internalization of the dominant values. For example, machinery works better and longer when it is run by a skilled individual than by one with little knowledge of how it works.
4. Environmental Capital
Environmental capital consists of air quality, water (its quality and quantity), soil (its quality and quantity), biodiversity (plants and animals) and landscape. The components of environmental capital are highly interrelated and tend to enhance one another. Attention to biodiversity helps maintain soil cover, which decreases soil erosion and enhances soil quality in terms of organic materials and biological communities within the soil. This in turn contributes to water quality.
Environmental capital creates fresh air, clean water, food and fiber, and scenery. The natural beauty of an area can be environmental capital if it is linked with other kinds of capital to encourage people to come to a place either temporarily (tourism) or permanently (amenity-based in-migration).
5. Social Capital
Social capital in a community is defined as collective norms and networks of reciprocity and mutual trust that contribute to working together for mutual benefit. Social capital on a community level depends on strengthening communities of interest and communities of place.
Some scholars conclude that the decline in social capital and the tendency not to invest in social capital creation is because of the public goods nature of social capital, which means individuals capture little of the asset enhancement of their investment. Often there are structural reasons, rather than reasons of individual motivation, that are biased against the formation of social capital.
For example, the way that manufactured capital is enhanced can either help or hurt social capital development. Much of urban renewal increased (for the short term) the housing, but destroyed the social capital of the old neighborhoods. Often access to public space is limited, particularly to minority groups, in ways that hinder the formation of social capital through coming together informally.
Each form of capital can enhance the productivity of other forms of capital. Increasing social capital greatly cuts transaction costs, making other resource use more efficient. A number of scholars have found that social capital has an independent effect on the functioning of economic systems.
Overemphasizing the value of a single form of capital can reduce the levels of other forms of capital. For example, focusing on increasing short term financial and manufactured capital without regard to the pollutants generated can reduce the value of human capital through negative impacts on health, on environmental capital through destruction of soil and water quality, and on social capital through by-passing local networks and replacing them with impersonal bureaucratic structures with top-down mandates. Attention solely to environmental capital can lead to a wasting of human capital and a decline in financial and manufactured capital, as that form of capital preservation is pursued.
Privileging any form of capital over another results in medium-term decline in community well-being, despite the short-term gains. Even excessive concern for social capital, the capital resource most often overlooked, can be problematic for other resources.
The NCRCRD is currently working with our partners on research and outreach tools to help communities work together to use local resources even more effectively to invest in a sustainable future.