Endogenous Social Progress as a Source of Economic Growth

In this essay, the author argues that social capital and social progress should be treated as a separate endogenous source of economic growth and, consequently, it should be included in endogenous growth models, along with physical and human capital and technological progress. Social capital is a public good, which not only raises the individuals’ intellectual capacity but also increases labor productivity, thus driving economic growth. The socialization process, along with learning by doing, helps to overcome the declining returns, which helps to maintain continuous and sustainable growth. Socialization, meant as a process of mastering knowledge and skills, shapes people’s perception and affects their attitudes, as it is explained in the behavioral economics. However, we need to find a way to measure the value of social capital and its impact on economic growth. The author illustrates its reasoning by the example of Chinese society and the transformation of China’s economic system, resulting in the rapid economic growth.