Relationships as building blocks for economicsby Peter Kimuyu
Introduction It has been observed that good filial relationships are not only healthy for parents and children but often spur the drive for achievement. Good marital and family relationships generates synergy that uniquely brings out productive potential and creativity bound up in individual members of a family. One evidence of good family relationship is where members of a family appreciate, encourage, and support each other. It is from such families that the motivation for achievement is nurtured. Recent research shows that in work places where the owners, management and work force relate warmly, productivity is usually high. There are of course many measures of good relationships in a work situation, including disparities in incomes, the extent of diffusion of ownership, and the degree to which corporate dreams trickle down. A common vision, preoccupation with parity, intensive interactions and truthfulness are key pillars of a good relationship. Most of the positive side effects of good relationships arise from these pillars.
Relationships as Social Capital Social capital is part of a country's institutional foundation. Interactions between people generate norms that impose relational obligations. Acceptance of a norm leads to a personal commitment to be governed by the norm. Since norms tend to be general, persons who selectively accept a norm expect others to abide by it as well and the violators of the norm to be punished. When a larger proportion of a community shows commitment to a norm, such a norm tends to direct behaviour internally through respect and externally through fear. How are social norms created? When people in a community have some incentive for indicating willingness to accept a practice, and when such acceptance increases general prosperity, people are unlikely to openly contest the practice. This consensus permits personalising of the norm by some members of the community who also pass it on to progeny. Thereafter, the new norm becomes part of a community's institutions. Those who personalise a norm cooperate even when the payoff for cooperation is smaller than the payoff for opportunistic behaviour, an outcome referred to as principled conformity to a norm.2 On the other hand, individuals may fail to accept a norm but still cooperate when the objective payoff for cooperation is at least as high as the payoff for opportunistic behaviour. This latter outcome is referred to as an adventist conformity to a norm. In other words, cooperation is influenced by forces resident in relational norms. Norms are standards of conduct which people believe they should follow to avoid sanctioning. They sustain patterns of behaviour when a society imposes sanctions against violators of such norms. In larger groups, interactions tend to be anonymous so that private sanctioning is of little benefit to the agents that punish. Where relational norms prompt people to take others into consideration, their very existence provides a framework for self-policing. The tendency to cooperate is often greater for small groups since relational norms develop more easily in such groups In other words, voluntary cooperation-operation is more likely in smaller groups because repeated interactions result in fondness and lead to an establishment of codes of behaviour that assign positive value to compliance.
Relational Norms and Commerce Long-term, interpersonal relationships support time dependent exchanges, but only provide safeguards for capital flows of a particular kind. This is why, although trade and commerce can be found everywhere, industrialisation tends to be more restricted because it requires other forms of institutional protection. At any rate, relational norms form the bedrock on which transactions are founded. In business networks, investment takes place among private individuals that have a lasting relationship. When private individuals are committed to such relationships, voluntary cooperation-operation becomes a side effect. But enduring relationships derive from friendships, kinship, religion or ethnicity, and substitute for state enforced laws. The groups around which an enduring relationship is structured develop strong ideologies that become instrumental in stabilising and enforcing relationships. In situations where exchange is market intensive and the costs of doing business are high, institutions arise to minimise such costs. Such institutions emphasize either relationships or sharing of information through communities or networks.4 This relational contracting deters anti-social behaviour such as cheating, primarily because in choosing either to cheat or not to cheat, participants compare the short-term gains of such behaviour with the long-term losses and the costs of establishing a fresh relationship. An example here is trade credit which only flows towards enterprises that have invested in developing reputation with their suppliers. Since people trust others they already know, trusting results from repeated success in exchange situations. The building of trust is time costly. Where business parties also share social activities such as funerals, weddings and religious meetings, socialisation becomes an important side effect of business. Potential exchange parties who socialise extensively and also experience more business contacts are more inclined to trade with one another as they can more easily find and screen each other. Because members of an ethnic group tend to socialise among themselves, they tend to find common acquaintances among themselves and a referral system emerges that could lead to ethnically concentrated business networks. Family, religion and ethnicity play critical roles in initiating business networks but such networks are kept in place by the business itself. This is because commercial relationships are nurtured in business meetings.
Summary Studies have revealed that in Kenya, rotating savings and credit schemes that draw participation from kinship and acquaintances are useful in mobilising funds. Some of the funds are used in either starting or expanding small businesses.5 Other studies have shown that persons who are part of business related support groups have better access to credit. For example, the Asian business community in Kenya enjoys considerable network externalities that improve the performance of Asian businesses.6 Of course, the side effects of networks are not always positive. Networks driven by gangsterism and those promoting tribalism have to be countered by legislation that promotes more progressive relational norms.
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