Friday, March 31, 2017

The Value Of Entrepreneurship And Social Capital

See Two Michigan cities by Scott Sumner of EconLog.
"Tyler Cowen recently quoted from a paper by Ed Glaeser and Wentao Xiong:
"In 1961, Benjamin Chinitz argued that New York City was more resilient than Pittsburgh during the 1950s, because New York City had a culture of entrepreneurship that meant that its business leaders were good at adapting to industrial decline. In modern language, we might describe New York as having a healthy endowment of entrepreneurial capital because its dominant industry, garment production, had limited-scale economies and few barriers to entry. In contrast, Pittsburgh had U.S. Steel, and the steel industry had large-scale economies, which meant that Pittsburgh trained company men instead of entrepreneurs."
This reminded me of a very interesting study that compared two cities in Michigan, Flint and Grand Rapids:
In 1946, sociologist C. Wright Mills and economist Melville Ulmer concluded the fortunes of two of Michigan's largest cities, Flint and Grand Rapids, were headed in opposite directions. Seventy years later, their predictions are getting new notice from academics.
The researchers warned Flint was overly dependent on its big employers even though its workers made 37 percent more than the national average at the time.
The warning seemed out of place. By 1950, Flint was labeled "the happiest city in Michigan" and the "epicenter of the American Dream," thanks to its thriving auto industry.
Grand Rapids, whose economy was defined by its numerous small businesses, was less flashy. But it offered its citizens more mobility and opportunity for its middle class that would help it survive tough times, the researchers concluded.

Flint was still booming in the late 1960s, so it looked like this 1946 prediction was wrong. But then the prediction suddenly came true. Flint's metro population fell from 445,589 in 1970 to 410,849 in 2015. In contrast, Grand Rapids has been booming, with its metro population soaring from 539,225 in 1970 to 1,038,583 in 2015. And both of these places are in the rustbelt state of Michigan. A 2016 paper by Michael DeWilde has lots of interesting things to say about this study, and the subsequent evolution of these two Michigan cities. Here's one example, which reminded me of Tyler's recent discussion of Utah:
If the Weberians are right and social capital comes first, where does it come from specifically? We can report that 90% of the business leaders we interviewed in West Michigan spoke, unprompted (though occasionally apologetically), about religion as the source for much of what was "uniquely good" about living in and doing business in the region. There was an understanding that, as one person put it, "maybe West Michigan isn't for everybody and maybe that isn't a bad thing." What he meant was that it was alright with him that people self-selected to be here on the basis of shared values with roots in particular religious traditions. The cultural norms that expressed themselves in West Michigan because of those traditions were responsible, to some large degree, for our economic and civic success. This was a widely shared view, even if put more inclusively in other interviews. And there is a shared concern that as religion qua religion becomes less important to younger generations, much of what is uniquely good about the Grand Rapids area will ultimately be lost--work ethic, fair dealings without the added cost of legal oversight, stewardship, philanthropic spirit, and so on. Eighty percent of those same business leaders expressed this concern. As one CEO lamented, "The values that made West Michigan successful are in decline." Interestingly, in his new book, Our Kids, Robert Putnam echoes this observation, citing declining church attendance and the diminished community role of churches as a factor in our collective decreasing social capital (affecting us all, but disproportionally hitting poor communities). The evidence suggests conservatives and fair-minded liberals are right to point out that there is a connection between religion and social capital (i.e., religious traditions are one source of social capital, an important though sometimes ambiguous one given temptations to exclusivity), but as formal religious institutions become less important to Americans, the question for many becomes: what might take those institutions' places as it relates to the formation and extension of social capital?
Don't take this the wrong way; I'm not suggesting that "religion" is good for growth. It may be in some cases, but there are many types of religious culture. I'd guess that Pakistan is more religious than San Jose, California, but that doesn't make it more prosperous.

DeWilde's report is not too long, and well worth reading if you want to know more about what's going on in different parts of America."

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