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The present column studies the influence of social capital on the social progress. Notably the views of J.S. Coleman and R. Putnam are discussed. Putnam proposes an index for measuring social capital. He argues that society benefits from more social capital. Nonetheless, the conclusions remain controversial. Therefore the columns describes several alternative findings from psychology, philosophy, and institutionalism. This also does not eliminate the doubts about the conclusions.
Traditionally, economics is mainly concerned with the study of capital goods. Here, with a wink at Sam de Wolff, the namegiver of the Heterodox Gazette, a reference can be made to the publications of Karl Marx, with as their zenith the trilogy Das Kapital. The production factor capital C is presented as a homogeneous variable, although it is actually a collection of diverse goods. The neoricardian model of Sraffa has shown that the homogeneous capital C has little practical meaning. Nevertheless, the concept C remains extremely convenient and useful in theoretical discussions about economics.
In the production, C is used in combination with the second production factor, namely labour L. Marx has even given L a central place in his labour theory of value. Here he stresses, that L, similar to C, is not a homogeneous variable. The skills of the various workers determine the actual productivity of a unit of L. Therefore Harrod has presented the factor labour as A(t)×L, where A is a function, which at the time t determines the actual labour power of a unit of labour. A development path with such a dependency on the time t is called Harrod neutral. The value of A can be increased by means of education and training. Therefore A×L is sometimes called the human capital Ch 1. In principle human capital is an individual property, because each worker (each unit of L) is unique.
During the past decades the human sciences have added a new concept of capital, besides C and Ch, namely the social capital Cs. Within a short time, the concept Cs has become extremely popular in sociology and economics2. That is understandable, because Cs has the ambition to model the influence of the national culture on the productivity. In that sense Cs as an idea fits well with institutionalism. Yet Cs is a rather problematic concept. The present column is an attempt to clarify the meaning and theoretical value of the concept social capital.
Your columnist became familiar with social capital for the first time due to the famous sociolist J.S. Coleman, who in his most important book devotes a whole chapter to it3. According to Coleman, the neoclassical paradigm (in short NCP) is an abstraction, which does not accurately describe reality. Human behaviour is not purely individualistic. Notably the human networks greatly affect all social activities. Therefore Coleman introduces the social capital as a relation between two individuals or (sub-)groups, which has the effect that certain costs of their mutual transactions decrease4. Therefore Cs is a group phenomenon with a profit, at least for some of the concerned actors. But Cs is not the property of an individual, as is the case for the other forms of capital C and Ch. For, according to the definition Cs is attached to the social relations and structures.
Since Cs does not have a clear owner, the profit can not automatically be appropriated. The surplus will be distributed rather fortuitously among those group members, that engage in the exchange. Coleman states, that in practice the value of Cs can generally not be determined quantitatively. For, the surplus is distributed in a diffuse manner, and it is not well known what would be the situation without Cs. Thus Cs is actually a qualitative concept, which symbolizes the forms of behaviour and attitudes. Here and there Coleman yet tries to make the social capital somewhat more concrete by giving examples.
A striking example of Cs is the set of mutual obligations, which the group members create towards each other. It is known that especially in the Third World the members of a group support each other in situations of need, expecting that at a later time they can themselves lay claim to support. Those who oblige another to themselves by means of support, have accumulated a future right. In this form Cs is yet connected to the individual, who within his group carries a rucksack of rights and obligations, as it were5. The profit is created, because the obligation is honoured precisely in a situation, that allows for a huge profit. Consider for instance small farmers, who help each other during the harvest. In this view Cs will mainly grow among the poor. Coleman indeed states, that Cs decreases according as the welfare increases6.
It would be a mistake to see Cs as a capital, that allows to buy services. For, it is never certain if the others will really honour their obligations. Therefore the contents of the rucksack is rather volatile. The coherence of the group (network, circle) is essential for Cs, because it determines both the number of obligations and their reliability. It would suffice when here reliability merely refers to a predictable behaviour, perhaps in the form of a reputation. However, Coleman reduces reliability indeed to a mutual trust, in the sense of a willingness to cooperate7. This gives a special meaning to Cs, that is absent in institutionalism. For, institutionalism can easily be reconciled with competition and the NCP. This is an important difference, which in the remainder of the column will be elaborated further.
Besides obligations, Coleman includes other phenomena in Cs, notably social norms, and the structure of organizations8. In this case Cs really consists of institutions. Norms are generally derived from a common ideology, which formulates the core values of the group. Coleman does not include the ideology (morals) in Cs, probably because morals in itself do not yet create a concrete claim. Norms do, because they are rules of conduct. Facilities and rules, produced by the state, are not included in Cs by Coleman. Perhaps the reason is, that the state executes its actions by threatening with physical force. But an economic cartel or a strategic cooperation in the industry does form social capital. Here a disadvantage of Cs appears, namely that it can hurt individuals outside of the concerned circle.
Coleman gives a fairly clear interpretation of the concept of social capital, although the applicability remains uncertain. But after 1995 the concept becomes truly popular, thanks to the text Bowling alone by the political scientist R. Putnam9. Actually, Putnam sees it as his mission in life the make Cs popular. In fact he approaches Cs more empirically than theoretically, contrary to Coleman. Networks (both the separate groups and circles, and their combination) form the social capital. These networks have the essential hallmark, that they generate collective norms in order to regulate the behaviour of their members. In that sense Cs looks like institutions. However, the Cs of Putnam differs from institutionalism by assuming, that trust is a part of the norms10. Here Putnam follows the theory of Coleman. Contrary to Coleman, he believes that economic networks are not a part of Cs. The core of Cs is formed by the corporate life.
Now Putnam accepts the challenge of making social capital measurable. For this he uses the sociological instrument of the composite index, and defines the social capital index (in short SCI). The SCI is composed of five sub-indices, namely the intensity of corporate life, the interest in the public sector, the input of volunteers, the size of the circle of friends, and the degree of trust between people. Each sub-index is again composed of several indicators. Some of them are objective (that is to say, statistical data), and others are subjective (that is to say, personal opinions)11. The definition of the SCI can evidently not be justified theoretically. She serves merely for giving a somewhat credible impression of the inclination within society to form close networks. Putnam has computed the SCI fot the North-American member states of the Federation.
Putnam is convinced that the social capital has a positive effect in many policy fields, such as education, the quality of life in quarters, the economy, care and well-being, and the political participation. This implies that the SCI is an explaining, independent variable for the performance of policies. However, here the problem arises of deceptive correlations. Namely, the SCI itself depends causally on variables such as the income Y of the group members, their level of education E, and their demographical composition D. It is a function SCI(Y, E, D, ...). Individuals with a high education dispose of larger networks, and therefore over a larger Cs. Etcetera. Incidentally, E is again a part of Ch. Furthermore, the direction of the causal relation is not always clear. Is the SCI affected by the average Y in the group, or is Y affected by the SCI? Does one have SCI→Y, so that Y = Y(SCI, E, D, ...)?
Since Putnam wants to study the effect of the netwerks themselves, he must first remove the effects of income, education and the like. That is to say, he wants to find the ceteris paribus effect, the remainder, when income, education and the like are constant. This complicates the analysis of the empirical data. Putnam indeed often states during the analysis of some phenomenon, that he corrects for the effects of Y, E and possible other variables. Yet then he still finds a rest-term of positive effects, which therefore must be due purely to the netwerk itself. In a number of cases, it turns out that the rest-term even dominates the effects of Y, E and the like. Perhaps for this reason Putnam is not interested in analyzing the direction of the causal relation between SCI and the other variables. Nonetheless, the reader will understand, that due to these complications the arguments of Putnam become vulnerable for criticism.
Even worse, the epidemiologists R. Wilkinson and K. Pickett have started a counter-movement, which argues that SCI is not the dependent variable, but the inequality δY of the incomes is! They state this in their book The spirit level, which contains at least as much empirical data as Bowling alone12. According to them, the trust increases, according as the distribution of the incomes in the society becomes more equal13. And trust is the central component in the SCI. It is stated, that the political scientist E. Uslaner has shown, that δY affects the trust T, whereas the inverse causal relation is absent. In functional notation: one has T = T(δY), but not δY = δY(T). And a falling trust destabilizes the networks and groups. Thus Wilkinson and Pickett advocate a policy, which reduces δY. They reject a policy, which wants to increase the SCI, like Putnam proposes!
Perhaps the column ought to end here with the conclusion, that the science is in the dark. However, the SCI-approach of Putnam is significantly more popular than the δY-approach. Your columnist indeed can hardly believe, that the social functioning is so dependent of the differences in incomes. The reader can learn from this exposition, that science can be used to state anything. When the stories are phantastic, and pretend to know the ultimate causes of life, it is always advisable to remain alert for unsound arguments. What are the lessons of the SCI analysis of Putnam?
The arguments, which Putnam uses for supporting the positive influence of social capital, are evidently essential. First, Putnam separate Cs into two components, namely the building of relational bridges with other groups (bridging), and the strenghtening of the relations within the group herself (bonding). This is sometimes called the weak ties and strong ties, or an open and closed network. It is acknowledged, that closed groups lead to the exclusion of outsiders, and to damaging competition with other groups. Putnam calls this the dark side of Cs 14. The inclination to be intolerant is especially present in the bonding capital. Its influence varies, depending on the type of network (here in the sense of association). Especially during the first half of the last century the associations still stressed the inner cohesion15.
However, Putnam concludes, that the SCI usually correlates positively with tolerance. For the sake of convenience, here he identifies Cs with brotherhood. He states that apparently brotherhood can be reconciled with freedom. And the equality (for instance a small δY) is reinforced by brotherhood, because the latter contributes to emancipation. Consider for instance the
Networks have obvious advantages in the policy domain of health and well-being. A social isolation correlates with psychic complaints. And these increase the vulnerability for psycho-somatic illnesses. Thus according to Putnam isolation is accompanied by as much illnesses as smoking. Unfortunately, contrary to smoking, the direction of the causal relations is often not clear here. But is is logical, that unhealthy behaviour must be discouraged by means of group pressure. Besides, Putnam refers to the results of happiness economics. This discipline shows, that group activities contribute to the personal happiness and well-being. Furthermore, informal networks such as the family and friends are a source of happiness.
Social capital also contributes to the living conditions in quarters. In fact this follows naturally from the definition of Cs. Yet Putnam supports this argument with empirical facts. He refers to the criminality and lack of safety in ghetto's, where often the right of the strong rules. Street gangs have Cs, but of the wrong type. Such quarters evidently also suffer from low incomes Y and an unfavourable ethnicity D. But nevertheless after a correction for these effects a rest-term is found, which correlates with the SCI. Livable quarters go together with social control. Again the direction of the causal relation is controversial. Your columnist has once studied the literature of quarters with problems, and did not find a standard solution16. Each quarter with problems is different.
It turns out that good learning performances at school correlate with a high SCI. This is even true, after a correction for Y, E, D, ... etcetera of the parents. Putnam suspects, that in such situations the parents themselves contribute to the education. Such a behaviour is found in schools, where the composition of the parents is homogeneous, for instance with regard to religion. For, mutual trusts is essential here. This Cs is of the bonding type, which is not all together beneficial17. The influence of the SCI on the functioning of the democracy is two-edged. On the one hand, high values of the SCI correlate with dutiful citizens, and thus also with an integer administration. The opportunism is rare. Then private circles will prefer self-government, wherever possible, which reduces the burden on the state. On the other hand, this are often the more wealthy circles, so that the inequality (like δY) will grow. And many pressure groups are quite extreme by nature18.
Putnam convincingly shows in Bowling alone, that since approximately 1980 the social capital in the North-American Federation has decreased significantly. Since then, for instance the participation in corporate life has about halved. Putnam conscieniously analyzes the various causes of the decline. Important factors are (a) the increasing time pressure, including the entrance of women on the labour market, (b) the increase of the travelling-time by car, (c) watching television and serfing on the internet, and (d) the rise of a new generation (generation X) with a strong preference for individualism. Putnam believes, based on his analyses, that all in all the decrease of the SCI hurts society. Therefore he advocates a social offensive for reviving the corporate life. However, his plea is controversial, and moreover not relevant for the concept of social capital as such19.
One would expect, that the theme of social capital attracts the attention of the social psychology. However, this is not true. For, the social psychology studies the behaviour of the individual, at the micro level. And Cs affects especially large groups or even the macro level. Nonetheless the psychology gives an insight in group processes and thus contains useful information about the effect of Cs on society20. First, the social psychology reveals why networks (here in the sense of small groups) are useful. They facilitate specialization and division of labour, with as positive effect that the labour productivity rises. Each group member has his own role, which allows to optimally unfold his personal talents. There is learning by means of imitation, and mutual motivation. Furthermore, the group reinforces the identity of the individuals, and therefore their self-respect.
Besides, groups offer security, because the members support each other. For, the psychology has shown, that the group members value the norm of reciprocity. There are indeed mutual obligations. Apparently this is an emotion, which incidentally is amenable to manipulation21. Besides reciprocity there is a need for various norms. This is also studied by psychology. Group norms make the individual behaviour easier to predict. In addition they transfer information. A disadvantage is that norms push all members in the same direction, so that their individual behaviour polarizes. This is exactly the danger of bonding Cs. Moreover the productive competition is curbed in this way. Therefore innovative groups always create some room for their own minorities. Here the psychology shows the complex effects of Cs: in the formation of groups the balance of proces-gain and -loss is not always positive. This depends partly on the chosen goal.
Strong bonding can impede the free distribution of information. This partly makes groups inclined to take extreme decisions (risky or cautious shift)22. This is sometimes called group think. Groups create stereotypes of their environment, and that leads to biases. Thus the world becomes manageable, and actions are possible. But this also introduces rivalry between different groups. It is obvious that this furthers excesses, where the behaviour becomes irrational. Then the narrow self-interest becomes dominant. Such hostility can be diminished only by a conscious intervention, where investments are made in bridging Cs 23.
Finally, the psychology studies the pro-social behaviour of individuals, which gives useful insights in the mutual trust. Here trust implies the expectation of good will. Apparently this leads to an evolutionary advantage24. In fact here one has empathic reactions. They are curbed by time pressure and incomplete information. Here the willingness to help is always accompanied by a personal valuation of utility. This includes the effects of social control, which tries to maintain norms, such as justice and reciprocity. Apparently trust is partly a cultural phenomenon. In conclusion: the social psychology makes clear, that Cs has a decreasing marginal productivity. Moreover, the decrease is capricious, because it is specific for the given situation. This find is a nuance with regard to the optimism of Putnam.
Allmost all inventors of the concept social capital attach a positive value to it. They believe that Cs is an asset and an enrichment. Yet this is definitely not trivial. For, in fact an unconditional accumulation of Cs amounts to communitarianism, which disapproves of individualism, and therefore for many centuries has been combated by liberalism25. It is true that liberalism commonly acknowledges the individual right to organize as a collective. But it denies, that a higher body must intervene for that. For, then the individual autonomy and freedom of choice are actually restricted. The only collective limitation, accepted by liberalism, is the Constitution, and merely in the sense of a social contract. This implies justice, but not morals, and certainly not trust in mankind. The ultimate social norm is simply respect for the Constitution.
Communitarians believe, that individuals derive their identity from their own circle. There is a shared mental model. The ties in the circles or networks are so strong, that a debate about justice becomes superfluous26. This yields savings on the transaction costs. But the statement is more profound: someone is mentally empty without his own network27. Choices can not be made in a vacuum. Decisions (and therefore transactions) are merely possible thanks to the presence of the personal circle28. The neutral relation of the NKP simply does not exist. This is even true for the state, so that communitarians reject an ideologically neutral state, or find it unreal. The individual transactions adapt to the goals of the network29. Since communitarianism attaches so much value to the socio-history, it tends to be conservative. The conservation of the grown identity furthers the well-being. Rent-seeking behaviour of elites is ignored.
In short, according to communitarians, individuals have an obligation towards their society30. Incidentally, in most publications the social capital is presented in the form of an undogmatic communitarianism. It has just been explained, that the bridging Cs is an asset for all. On the other hand, the bridging Cs can lead to a social fragmentation, which increases the conflicts. It is desirable to have more of the first type, and a moderation of the second type. But certainly according to a protagonist such as Putnam the point, where the social capital can change into a burden, is still far away.
Institutionalism is actually pre-eminently a sociological theme. Here sociology commonly uses the inductive method of the evolutionary institutionalism31. In the column about this approach it has already turned out, that institutions can harm the economy. It is true that the concept Cs combines institutions with trust, but this does not guarantee success. It is for instance conceivable, that the maintenance of cooperative networks costs more than they yield. In this respect the inductive approach deviates from the neoclassical institutionalism, which stresses the effectiveness of institutions and is deductive32. The social capital of Putnam is a case in itself, because there the economic networks and institutions are excluded. This more or less decouples the SCI from the economy. This gives the present column an exclusively sociological stamp.
Institutions must legitimize themselves, that is to say, generate the trust that they are useful33. Due to the increasing anonimity in the modern society, trust between persons is more and more replaced by trust in (and among) institutions34. For instance, trust can be placed in the national rule of law, in the national currency, in public services, or in the government. In a durable relation a reputation can be established. Trust must not be confused with a naive optimism about the future. And those who express their trust in mankind, an index that Putnam included in the SCI, actually generalize their own environment in an unreal manner35. Here the danger is, that perhaps this sub-index measures naiveté! Yet is is used frequently. Often trust has a collective nature, so that it is amenable to herd behaviour. This makes Cs volatile36.
In formal institutions some distrust is desirable37. For, that is an incentive to improve the institutions, and if necessary to bring a democratically elected alternative to power. It is known from psychology, that critical minorities are useful, as long as they act in a constructive manner. Trust makes the individuals more willing to adapt, and thus more flexible. At the same time vigilance is required, that models such as Putnam's may seduce the state into increasing Cs by means of coercion, at the cost of minorities. This is exactly the liberal criticism with regard to communitarianism38.