Most view the current global economic crisis as simply an economic crisis, but the secondary effects may be much broader. As noted in my blog post “Social Loss for Job Loss,” loss of social capital (empowerment from participation in community and civic affairs) tends to follow job loss in early or mid-career. The unemployed person loses social capital, not so much from the community being weaker, but from personally dropping out of participation in community.
Sociological research among 99 randomly selected small towns in Iowa found that loss of social capital not only results from loss of jobs, but also a variety of other negative economic shocks. These economic crises in small towns may include a plant closing, a school closing, toxic environmental contamination, or a natural disaster.
Sociologists Terry Besser, Nicholas Recker, and Kerry Agnitsch of Iowa State University studied nearly 100 small towns in 1993 and again in 2004. The results of their study were published in the academic journal Rural Sociology in December 2008 (73, 4, December, pp. 580-604). They documented the loss of social participation, and social capital more broadly, tended to follow negative economic shocks. Furthermore, they found that the loss of social capital was greater the greater, the stronger and more frequent the shocks.
Besser, Recker and Agnitsch also found that economic crises were more detrimental when the shock exposed differences of values within the community regarding appropriate economic response. Examples of value conflicts include using tax incentives to attract a controversial factory or termination of welfare benefits for a given class of citizens. Perhaps most remarkable was their finding that a series of small shocks produced as much damage on a town’s social quality of life as did a single, large shock.
Some make folk-wisdom claims that “hardship builds character” and “failure offers the foundation for success.” This occasionally may be true for individuals, but this research does not provide evidence that financial crises helps communities.
What we face now is a gigantic national and global economic shock. This shock is a jolt of such mammoth proportions that the social effects may be best described as a sociological disaster or social tsunami. That does not mean that we cannot learn a great many things from it. Hopefully economists and political leaders will remember the implications of the current financial crisis for many generations to come.