The solution is to recognize the critical role of social innovation enabled by networked human and social capital.

This week I’ve addressed the structural reasons for the decline of the middle class. As with all complex systems, there is no one cause–instead there is an interconnected web of causes:

The Decline of Small Business and the Middle Class

The Changing Nature of Middle Class Work

How the Middle Class Lifestyle Became Unaffordable

The Destabilizing Truth: Only the Wealthy Can Afford a Middle Class Lifestyle

So what is the solution to this decline? We face a double-bind dilemma: we are constantly reassured that technological innovation can provide the solution to all problems–yet the problem here is that technological innovation is destroying the need for costly human labor. Technological innovation alone can’t solve the problem because it is a key cause of the problem.

As I have noted many times, the solution is not to limit technology–that only leads to impoverishment of the entire economy.

The solution is to recognize the critical role of social innovation enabled by networked human and social capital.

I have stressed that the purpose of work is to create value and solve problems. To understand what this means in the real world, let’s look at two small-scale examples of how value is created in the emerging economy with social innovation.

Studies have found that human creativity is largely the result of sharing ideas and transferring innovations in one field to other fields. Innovation may arise from a single person, but its application requires human and social capital.

These local-economy examples illustrate how human and social capital works in conjunction with infrastructure, community and financial capital.

Example 1: Farming as currently practiced is overwhelmingly industrial, and few would see any application of knowledge to the sector as being useful except to further the mechanization/automation of agribusiness. Yet highly educated people are profitably truck farming by applying their knowledge of marketing, food preparation and the restaurant business.

For example, the trend-setting restaurant Chez Panisse in Berkeley, Calif., has a supply network of small farms, which in some cases are run by former employees of the restaurant. These small farmers are paid a good price for supplying very fresh organic produce. What is delivered daily sets the restaurant’s menu for that day’s lunch and dinner.

The key value creation in this arrangement is trust (social capital), attention to quality, and the ability to fashion menus around a variety of seasonal produce and meats (human capital). The labor of raising the produce is essential but it alone doesn’t create the value.

Example 2: Street-Level Cycles in Berkeley, Calif., is an organization that partners long-abandoned city property with private enterprise to offer classes in bicycle repair and free use of the shop’s tools to do-it-yourselfers who want to repair their own bikes. It also provides bike repair services and sells used bicycles. The income generated by the repair service and sales of used bikes supports a small staff and enables the free community use of the shop’s tools.

The amount of financial capital needed to start this enterprise was modest. The city-owned building was unoccupied for years. In exchange for use of the property, the city gets a self-funding, free community educational resource and service.

The enterprise serves a wide spectrum of the community: students, do-it-yourselfers, those needing bike repairs or an inexpensive used bicycle. In offering the free classes to students, the enterprise has no competitors. In selling repair services and used bikes, it competes with other local bike shops. If someone wants to learn how to repair bicycles, this organization offers a nexus of tools and opportunities to learn and practice.

This low-cost synergy of local government, private enterprise, education, community service and social and human capital did not require any technological innovation– it required social innovation. It illustrates that the profit motive–often held up as the only motivator within capitalism–is not the only motivation for either innovation or enterprise.

These small-scale examples illustrate that innovation often takes what already exists in terms of financial capital and infrastructure and combines these ideas and resources into new methods of value creation. They also show that the key role of human and social capital in creating value via social innovation does not necessarily require more financial capital or infrastructure–and indeed may require less. This can be summarized as doing more with less.

Value creation and problem-solving arise from many sources, not just the technological innovations that receive media coverage. If we combine the many sources of value creation unleashed by digital technologies, we realize that ours is one of the great transformative eras in human history. 

Want to give an enduringly practical graduation gift? Then give my new book Get a Job, Build a Real Career and Defy a Bewildering Economy, a mere $9.95 for the Kindle ebook edition and $17.76 for the print edition. 

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