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Social capital no less important than FDI
Nobel laureate Joseph Stiglitz once said, “The erosion of social capital created an environment that was not conducive to investment”
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span>Nobel 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.
It does matter to create trustworthy business relationships that make investment successful. However, when social capital is eroded, social conflict is more likely to emerge. As a result, the conflicts will not only shake the market situation but also investor confidence. These conflicts generate costs for us and hinder our economic development.
Social and religious tolerance and unity in diversity are essential to building up cooperation and an inclusive society. This tolerance and spirit of cooperation should be nurtured in individuals and institutions, especially after the nation seemed to have been divided by political polarization during the elections in April.
Social Progress Imperative, an international nonprofit organization focusing on improving the quality of life and building strong societies, has designed an index to complement economic measures like gross domestic product called The Social Progress Index, where basic human needs, foundations of wellbeing and opportunity are the main dimensions of social progress measurements.
Inclusiveness is one of the components included in the opportunity dimension, where Indonesia has performed poorly by having a low inclusiveness score of 38.77 out of 100 and ranked 99th out of 146 countries. Indonesia is also underperforming in freedom of religion, with score 2.54 out of 4 and ranked 118th from 146 countries.
Both indicators tell us two things: First, there is still inequality of political power where the power is concentrated in the majority and high-level socioeconomic groups.
Second, despite the existence of public authorities and official recognition, minority ethnic and religious communities are still being repressed, prohibited, or systematically disabled, and discriminated against by individuals or groups. One of many cases happened in Sukatani village in Bekasi, West Java, where the adherents of Hinduism were prohibited from building their own temple.
According to Setara Institute, in 2018 there was an increase to 109 cases of intolerant acts within religious activities because of political interests. In the long term, this intolerance may lower not only the trust between one to another but also the willingness to cooperate and hinder investment. Perhaps we may learn from East Kalimantan province, which has a high level of tolerance and is listed as one of the 10 provinces in Indonesia with the highest FDI inflows in 2017.
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The writer, an economics lecturer at Universitas Prasetiya Mulya, Jakarta, holds a master’s degree in international economics and public policy from Johannes Gutenberg Universitat, Mainz, Germany.
