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Social capital no less important than foreign direct investment
Social capital in the form of trust and cooperativeness would be beneficial for the economy. According to research, it helps to reduce household transaction costs and increase welfare.
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Women participants performing Gotong Royong (mutual cooperation) Dance as part of the Adeging Kutha colossal dance.
(JP/Ganug Nugroho Adi)
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obel laureate Joseph Stiglitz once said, “The erosion of social capital created an environment that was not conducive to investment”. This expression is a relevant warning to the government, which has been aggressive in promoting domestic and foreign direct investment (FDI).
Investment has become important for developing countries to promote economic development. A country without adequate investment, especially in infrastructure, human capital and technology, will not be able to create sustainable economic development.
Mostly, developing countries have the challenge of finding funding because of a lack of domestic savings, which means a lack funds for investment. As a result, they need investment from abroad to support development. Despite its dilemma, FDI plays a pivotal role in driving economic growth.
FDI provides not only monetary benefits but other social and economic benefits such as education and the transfer of skills and technology for the host country. Therefore, countries have competed to attract FDI. Indonesia has thus far performed fairly well in attracting FDI.
However, this positive situation has been overshadowed by the erosion of social capital. The values of gotong royong (cooperation), tolerance and pluralism have been eroded by sectarian movements that affect society’s cohesiveness.
As scholars cite, social capital is where values and understanding maintain social interaction between one to another. Usually, social capital contains trust, norms and networks as their attributes to achieving common goals.
Social capital in the form of trust and cooperativeness would be beneficial for the economy. According to research, it helps to reduce household transaction costs and increase welfare. As FDI is embedded in the host countries’ social and economic situation, international companies and investors prefer to invest in countries that possess high trust and cooperative traits.
