Social Capital and Civil Society
Francis Fukuyama
The Institute of Public Policy
George Mason University
October 1, 1999
Prepared for delivery at the _IMF Conference on Second Generation
Reforms_ (https://www.imf.org/external/pubs/ft/seminar/1999/reforms/index.htm)
Contents
1. _What is Social Capital?_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#I)
2. _What Functions Does Social Capital Play in a Free-Market Liberal
Democracy?_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#II)
3. _How Do We Measure Social Capital?_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#III)
4. _Where Does Social Capital Come From?_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#IV)
5. _How Can We Increase the Stock of Social Capital?_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#V)
Figure
* _Figure I. Networks of Trust_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#figI)
____________________________________
Social capital is important to the efficient functioning of modern
economies, and is the sine qua non of stable liberal democracy. It
constitutes
the cultural component of modern societies, which in other respects have
been organized since the Enlightenment on the basis of formal institutions,
the rule of law, and rationality. Building social capital has typically been
seen as a task for "second generation" economic reform; but unlike economic
policies or even economic institutions, social capital cannot be so easily
created or shaped by public policy. This paper will define social capital,
explore its economic and political functions, as well as its origins, and
make some suggestions for how it can be cultivated. I. What is Social
Capital?
While social capital has been given a number of different definitions,
many of them refer to manifestations of social capital rather than to social
capital itself. The definition I will use in this paper is: social capital
is an instantiated informal norm that promotes cooperation between two or
more individuals. The norms that constitute social capital can range from a
norm of reciprocity between two friends, all the way up to complex and
elaborately articulated doctrines like Christianity or Confucianism. They must
be instantiated in an actual human relationship: the norm of reciprocity
exists in potentia in my dealings with all people, but is actualized only in
my dealings with my friends. By this definition, trust, networks, civil
society, and the like which have been associated with social capital are all
epiphenominal, arising as a result of social capital but not constituting
social capital itself.
Not just any set of instantiated norms constitutes social capital; they
must lead to cooperation in groups and therefore are related to traditional
virtues like honesty, the keeping of commitments, reliable performance of
duties, reciprocity, and the like. A norm like the one described by Edward
Banfield as characterizing southern Italy, which enjoins individuals to
trust members of their immediate nuclear family but to take advantage of
everyone else, is clearly not the basis of social capital outside the
family._1_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#1)
James Coleman, who was responsible for bringing the term social capital
into wider use in recent years, once argued that it was a public good and
therefore would be underproduced by private agents interacting in markets._2_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#2)
This is clearly wrong: since cooperation is necessary to virtually all
individuals as a means of achieving their selfish ends, it stands to reason
that they will produce it as a private good (see Section IV below). In Partha
Dasgupta's phrase, social capital is a private good that is nonetheless
pervaded by externalities, both positive and negative._3_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#3) An
example of a
positive externality is Puritanism's injunction, described by Max Weber, to
treat all people morally, and not just members of the sib or family._4_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#4) The
potential for cooperation thus spreads beyond the immediate group of people
sharing Puritan norms. Negative externalities abound, as well. Many groups
achieve internal cohesion at the expense of outsiders, who can be treated
with suspicion, hostility, or outright hatred. Both the Ku Klux Klan and the
Mafia achieve cooperative ends on the basis of shared norms, and therefore
have social capital, but they also produce abundant negative externalities
for the larger society in which they are embedded.
It is sometimes argued that social capital differs from other forms of
capital because it leads to bad results like hate groups or inbred
bureaucracies. This does not disqualify it as a form of capital; physical
capital can
take the form of assault rifles or tasteless entertainment, while human
capital can be used to devise new ways of torturing people. Since societies
have laws to prevent the production of many social "bads," we can presume
that most legal forms of social capital are no less "goods" than the other
forms of capital insofar as they help people achieve their aims.
Perhaps the reason that that social capital seems less obviously a social
good than physical or human capital is because it tends to produce more in
the way of negative externalities than either of the other two forms. This
is because group solidarity in human communities is often purchased at the
price of hostility towards out-group members. There appears to be a
natural human proclivity for dividing the world into friends and enemies that
is
the basis of all politics._5_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#5) It
is thus very important when measuring
social capital to consider its true utility net of its externalities.
Another way of approaching this question is through the concept of the
"radius of trust."_6_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#6) All
groups embodying social capital have a certain
radius of trust, that is, the circle of people among whom cooperative norms
are
operative. If a group's social capital produces positive externalities,
the radius of trust can be larger than the group itself. It is also possible
for the radius of trust to be smaller than the membership of the group, as
in large organiza-tions that foster cooperative norms only among the
group's leadership or permanent staff. A modern society may be thought of as a
series of concentric and overlapping radii of trust (see _Figure I_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#figI)
).
These can range from friends and cliques up through NGOs and religious groups.
Virtually all forms of traditional culture-social groups like tribes,
clans, village associations, religious sects, etc.-are based on shared norms
and use these norms to achieve cooperative ends. The literature on
development has not, as a general rule, found social capital in this form to
be an
asset; it is much more typically regarded as a liability. Economic
modernization was seen as antithetical to traditional culture and social
organizations, and would either wipe them away or else be itself blocked by
forces of
traditionalism. Why should this be so, if social capital is genuinely a
form of capital?
The reason, in my view, has to do with the fact that such groups have a
narrow radius of trust. In-group solidarity reduces the ability of group
members to cooperate with outsiders, and often imposes negative externalities
on the latter. For example, in the Chinese parts of East Asia and much of
Latin America, social capital resides largely in families and a rather
narrow circle of personal friends._7_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#7) It
is difficult for people to trust those
outside of these narrow circles. Strangers fall into a different category
than kin; a lower standard of moral behavior applies when one becomes, for
example, a public officials. This provides cultural reinforcement for
corruption: in such societies, one feels entitled to steal on behalf of one's
family.
Traditional social groups are also afflicted with an absence of what Mark
Granovetter calls "weak ties,"_8_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#8)
that is, heterodox individuals at the
periphery of the society's various social networks who are able to move
between groups and thereby become bearers of new ideas and information.
Traditional societies are often segmentary, that is, they are composed of a
large
number of identical, self-contained social units like villages or tribes.
Modern societies, by contrast, consist of a large number of overlapping
social groups that permit multiple memberships and identities. Traditional
societies have fewer opportunities for weak ties among the segments that make
it
up, and therefore pass on information, innovation, and human resources
less easily. II. What Functions Does Social Capital Play in a Free-Market
Liberal Democracy?
The economic function of social capital is to reduce the transaction costs
associated with formal coordination mechanisms like contracts,
hierarchies, bureaucratic rules, and the like. It is of course possible to
achieve
coordinated action among a group of people possessing no social capital, but
this would presumably entail additional transaction costs of monitoring,
negotiating, litigating, and enforcing formal agreements. No contract can
possibly specify every contingency that may arise between the parties; most
presuppose a certain amount of goodwill that prevents the parties from taking
advantage of unforeseen loopholes. Contracts that do seek to try to
specify all contingencies-like the job-control labor pacts negotiated in the
auto
industry that were as thick as telephone books-end up being very
inflexible and costly to enforce.
There was a period when social scientists assumed that modernization
necessarily entailed the progressive replacement of informal coordination
mechanisms with formal ones. There was presumably a period in human history in
which formal law and organizations scarcely existed, and in which social
capital was the only means of achieving coordinated action; Max Weber argued
that, by contrast, rational bureaucracy constituted the essence of
modernity.
The fact of the matter is that coordination based on informal norms
remains an important part of modern economies, and arguably becomes more
important as the nature of economic activity becomes more complex and
technologically sophisticated._9_ (https://www.imf.org
/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#9) Many complex services
are very costly to monitor and
are better controlled through internalized professional standards than
through formal monitoring mechanisms. A highly educated software engineer
often
knows much more about his or her own productivity than his or her
supervisor; procurement is often more efficient when left to the judgment of
an
experienced procurement officer, rather than being done "by the book" as in
the case of a good deal of government procurement. A number of empirical
studies suggest that high-tech R&D is often dependent on the informal exchange
of intellectual property rights, simply because formal exchange would
entail excessive transaction costs and slow down the speed of interchange._10_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#10)
Even in non-hi-tech environments, social capital often leads to greater
efficiency than purely formal coordination techniques. Classical Taylorism,
which organized workplaces in a highly centralized, bureaucratized manner,
created many inefficiencies as decisions were delayed and information
distorted while moving up and down hierarchical chains of command. In many
manufacturing facilities, Taylorism has been replaced by much flatter
management
structures which in effect push responsibility down to the factory floor
itself. Workers who are much closer to the sources of local knowledge are
authorized to make decisions on their own, rather than referring them up a
managerial hierarchy. This often leads to great gains in efficiency,_11_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#11)
but
is totally dependent on the social capital of the workforce. If there is
distrust between workers and managers, or widespread opportunism, then the
delegation of authority required in a typical "lean" manufacturing system
will lead to instant paralysis. This is in effect what happened to General
Motors during the strikes of 1996 and 1998, when a single dissident local
(angry, in the first instance, over the outsourcing of brake parts) was able
to shut down the company's entire North American operations._12_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#12)
The political function of social capital in a modern democracy was best
elucidated by Alexis de Tocqueville in Democracy in America, who used the
phrase the "art of association" to describe Americans' propensity for civil
association. According to Tocqueville, a modern democracy tends to wipe away
most forms of social class or inherited status that bind people together
in aristocratic societies. Men are left equally free, but weak in their
equality since they are born with no conventional attachments. The vice of
modern democracy is to promote excessive individualism, that is, a
preoccupation with one's private life and family, and an unwillingness to
engage in
public affairs. Americans combated this tendency towards excessive
individualism by their propensity for voluntary association, which led them to
form
groups both trivial and important for all aspects of their lives. This stood
in sharp contrast to his native France, which was beset by a much more
thoroughgoing individualism than the United States. As Tocqueville explained
in
The Old Regime and the French Revolution, on the eve of the Revolution
"there were not ten Frenchmen who could come together for a common cause." It
was only by coming together in civil associations that weak individuals
became strong; the associations they formed could either participate directly
in political life (as in the case of a political party or interest group)
or could serve as "schools of citizenship" where individuals learned the
habits of cooperation that would eventually carry over into public life.
An abundant stock of social capital is presumably what produces a dense
civil society, which in turn has been almost universally seen as a necessary
condition for modern liberal democracy (in Ernest Gellner's phrase, "no
civil society, no democracy")._13_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#13) If
a democracy is in fact liberal, it
maintains a protected sphere of individual liberty where the state is
constrained from interfering. If such a political system is not to degenerate
into
anarchy, the society that subsists in that protected sphere must be capable
of organizing itself. Civil society serves to balance the power of the
state and to protect individuals from the state's power.
In the absence of civil society, the state often needs to step in to
organize individuals who are incapable of organizing themselves. The result of
excessive individualism is therefore not freedom, but rather the tyranny of
what Tocqueville saw as a large and benevolent state that hovered over
society and, like a father, saw to all of its needs. Low levels of social
capital lead to a number of political dysfunctions, which have been
extensively
documented. Following Tocqueville's analysis of France, many observers
have noted how administrative centralization has led to an excessively rigid
and unresponsive political system, one that can be changed only through
anti-systemic upsurges such as the évenements of 1968._14_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#14)
Low levels of social
capital have been linked to inefficient local government in southern
Italy, as well as to the region's pervasive corruption._15_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#15) In
many Latin
American societies, a narrow radius of trust produces a two-tier moral system,
with good behavior reserved for family and personal friends, and a decidedly
lower standard of behavior in the public sphere. This serves as a cultural
foundation for corruption, which is often regarded as a legitimate way of
looking after one's family.
It is of course also possible to have too much of a good thing. One
person's civic engagement is another's rent-seeking; much of what constitutes
civil society can be described as interest groups trying to divert public
resources to their favored causes, whether sugar-beet farming, women's health
care, or the protection of biodiversity. The public choice literature has
analyzed the baleful consequences of rent-seeking for modern democracies at
great length; Mancur Olson has argued that Britain's long-term economic
decline was due to the long-term buildup of entrenched interest groups
there._16_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#16)
There is no guarantee that self-styled public interest NGOs actually
represent real public interests. It is entirely possible that too active an
NGO sector may represent an excessive politicization of public life, which
can either distort public policy or lead to deadlock._17_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#17)
Despite the possibility that a society has have too much social capital,
it is doubtless worse to have too little. For in addition to being a source
of spontaneously-organized groups, social capital is vital to the proper
functioning of formal public institutions. It is sometimes argued that it is
more useful to compare societies in institutional rather than cultural
terms. Chalmers Johnson, for example, argues that differences in Japanese and
American economic policy is not culturally based, but simply the result of
the fact that Japan had MITI and the United States did not._18_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#18)
The
implication is that were the US to create an equivalent of MITI in Washington,
it
would have similar consequences. But there are any number of reasons for
thinking that different societies have different cultural capacities for
institution-building. Japan's deployment of an economic planning agency with
enormous power over credit allocation did not lead to the same levels of
rent-seeking and outright corruption that comparable agencies have brought
about in Latin America or Africa (or indeed the US, were it to follow Japan's
example). This is testimony to a number of Japanese cultural
characteristics: the respect given bureaucrats, their high level of training
and
professionalism, the general deference to authority in Japanese society, etc.,
and
it suggests that some institutions cannot be readily transferred to other
societies lacking social capital. III. How Do We Measure Social Capital?
One of the greatest weaknesses of the social capital concept is the
absence of consensus on how to measure it. At least two broad approaches have
been taken: the first, to conduct a census of groups and group memberships in
a given society, and the second, to use survey data on levels of trust and
civic engagement. At the end of this section, I will suggest a third
metric that may point to a measure of social capital within private firms.
Robert Putnam has tried to measure social capital by counting groups in civil
society, using a number n to track size of memberships in sports clubs,
bowling leagues, literary societies, political clubs, and the like as they
vary
over time and across different geographical regions. There are, in fact, a
large number of n's in any given society, n1..t. Hence the first measure
for the total social capital (SC) in a society is the sum of the membership
of all groups,
(1) SC = n1..t.
Both n and t are important measures of civil society. A small value for n
may limit the kinds of ends a group can achieve; families, for example, are
good at socializing children and running family restaurants, but not very
good at exerting political influence or manufacturing semiconductors. The
variable t itself constitutes a separate of measure of civil society;
unfortunately, limitations in the data prohibit our knowing what t is for a
given society, or how many missing or undercounted data elements there are
between n1 and nt. A number of attempts have been made to produce censuses of
groups and associations in the United States. One was done by the US
Department of Commerce in 1949, which estimated that there were 201,000
nonprofit
voluntary trade and business organizations, women's groups, labor unions,
civic service groups, luncheon clubs, and professional groups at all levels
of American society._19_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#19)
Lester Salamon estimates that by 1989 there were
1.14 million nonprofits in the US, indicating an overall rate of growth
much higher than that of the population as a whole._20_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#20)
The
near-impossibility of producing a complete census that catalogues the whole
range of
informal networks and cliques in a modern society is suggested by the Yankee
City
study, which counted some 22,000 different groups in a community of 17,000
people._21_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#21)
Changing technology changes forms of association: how do we
account for the proliferation of on-line discussion groups, chat rooms, and
e-mail conversations that have exploded with the spread of personal
computers in the 1990s?_22_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#22)
N and t may also be inversely correlated (that is, the larger the average
size of groups, the fewer there are); on the other hand, because
individuals can hold overlapping memberships in multiple groups, they need not
be.
It is clear that each of these n1..t groups is characterized by a
different level of internal cohesion and therefore collective action. Bowling
leagues are not capable of storming beaches or lobbying Congress, so some
qualitative coefficient must be added to provide some measure of cohesion. Let
us call this coefficient c. Unfortunately, there is no accepted method for
measuring the internal cohesiveness of groups; each one of the c
coefficients would have to be determined subjectively by an outside observer
who would
note the types of activities the group could undertake and their
difficulty, its cohesion under stressful circumstances, and other factors.
Despite
the subjective nature of its derivation, it is clear that c varies across
groups and is a critical qualitative measure of social capital. Hence a
society's total stock of social capital would be expressed as (2) SC =
(cn)1..t.
As noted above, social capital is more heavily pervaded by externalities
than other forms of capital, so measurement of a nation's stock of social
capital must take these externalities into account. The radius of trust can
be thought of as a type of positive externality (which we will therefore
designate as rp) because it is a benefit that accrues to the group
independently of the collective action that the group formally seeks to
achieve. For
example, a sect that encourages its members to be honest and reliable will
foster better business relationships when they deal with each other
economically, in addition to the sect's religious objectives.
For many groups, the radius of trust would extend to the whole group; this
is true of most families, for example. The rp coefficient in this case is
1, and the total amount of social capital in the society would therefore be
expressed as
(3) SC = (rpcn)1..t.
Certain groups, particularly larger ones, are characterized by internal
hierarchy, a division of labor, status and functional distinctions, etc.
While the group may be united around some common interest or passion, the
degree to which individual members are capable of collective action on the
basis
of mutual trust depends on their relative position within the
organization. Putnam rightly distinguishes between what he calls a "membership
organization" like the American Association of Retired People (AARP), which,
at
more than 33 million members, is second only to the Catholic Church in size.
Such a group has a very large n-value, but most of its members simply
contribute yearly dues, receive a newsletter, and would have little reason for
cooperating with one another on any issue not related to pensions or health
benefits. For such an organization, the rp coefficient may be very small,
limited to (for example) those people who work full-time in its national
headquarters (though even there, there are presumably many employees who are
simply wage-earners and not part of the trust network).
On the other hand, it is possible for a group to have an rp coefficient
larger than 1. To take the earlier example of the religious sect that
encourages honesty and reliability, if these traits are demanded of its
members in
their dealings not just with other members of the sect but generally in
their dealings with other people, then there will be a positive spillover
effect into the larger society. Again, Weber argued in effect that sectarian
Puritans had an rp value greater than 1.
The final factor affecting a society's supply of social capital concerns
not the internal cohesiveness of groups, but rather the way in which they
relate to outsiders. Strong moral bonds within a group in some cases may
actually serve to decrease the degree to which members of that group are able
to trust outsiders and work effectively with them. A highly disciplined,
well-organized group sharing strong common values may be capable of highly
coordinated collective action, and yet may nonetheless be a social liability.
I earlier noted the fact that strongly familistic societies like China and
central-southern Italy were characterized by an absence of a broader,
generalized social trust outside the family. At best, this prevents the group
from receiving beneficial influences from the outside environment; at worst,
it may actively breed distrust, intolerance, or even hatred for and
violence toward outsiders. Certain groups may be actively harmful to other
parts
of society-criminal organizations like the Mafia or the Crips and Bloods
come to mind. A society made up of the Ku Klux Klan, the Nation of Islam, the
Michigan Militia, and various self-regarding ethnic and racial
organizations may score very high in terms of last three of the four variables
given
in expression (3), and each group may have an rp of 1, and yet overall it
would be hard to say that such a society had a large stock of social capital.
Group affiliation can therefore produce a negative externality which we
can think of as the radius of distrust, or rn. The larger the rn value, the
greater the liability that group represents to the surrounding society;
hence the measure for a single group's social capital, rpcn, needs to be
multiplied by the reciprocal of rn. (All rn values, we assume, must be 1 or
greater.) The final value for a society's total stock of social capital would
then be:
(1.4) SC = ((1/rn)rpcn)1..t.
To some extent, we could expect that c and rn might be positively
correlated with one another. That is, internal cohesiveness is often based on
strongly shared norms and values within a group: both the Marines and the
Mormon Church are examples. But the very strength of those internal bonds
creates something of a gulf between members of the group and those on the
outside. Latitudinarian organizations like most contemporary mainline
Protestant
denominations in the United States, by contrast, easily coexist with other
groups in the society, and yet are capable of a much lower level of
collective action. Ideally, one would like to maximize the c and and minimize
the
rn values: such would be the case, for example, in a professional
organization that socializes its members into the values of its particular
profession, while not at the same time breeding distrust of other professions
or
being closed to influences from them.
As this exercise indicates, producing anything like a believable census of
a society's stock of social capital is a nearly impossible task, since it
involves multiplying numbers that are either subjectively estimated or
simply nonexistent. This leads us to the other source of data that has been
used as a proxy for social capital, survey data on trust and civic
engagement. There are a number of data sources that are useful here, such as
the
National Opinion Research Council's General Social Survey (for the US) and the
University of Michigan's World Values Survey (for international data). Each
of these surveys asks a series of question concerning trust in various
political and social institutions, as well as others probing the respondents'
level of participation in voluntary organizations. There are manifold
problems with survey data, of course, beginning with the fact that responses
will vary according to the way the question is phrased and who is asking it,
to the absence of consistent data for many countries and many time periods.
A general question such as "Generally speaking, would you say that most
people can be trusted or that you can't be too careful in dealing with
people?" (asked on both the General Social Survey and World Values Survey)
won't
give you very much precise information about the radius of trust among the
respondents, or their relative propensities to cooperate with family,
co-ethnics, co-religionists, complete strangers, and the like.
A third possible way of measuring social capital in specific organizations
may be to look at changes in market valuations of a company before and
after takeover offers. The market capitalization of any company represents
the sum of both tangible and intangible assets; among the latter is,
presumably, the social capital embodied in the firm's workers and management.
There
is no accepted methodology for separating out the social capital component
of the intangible assets, which include other things like brand names,
good will, expectations of future market conditions, and the like. Firms being
taken over by other firms, however, are usually bought at a premium to
their pre-takeover price. In such a situation, we can assume that part of the
premium being offered is a measure of the degree to which the new owners
believe that they can manage the new firm better than the old owners, with
all other factors like tangible assets, expectations about market conditions,
etc. being held constant. In many cases, part of the premium being offered
represents the cost savings that the new owners expect to achieve through
realization of economies of scale and scope; one would have to deduct this
from the actual premium to get a measure of the net value of the new
management alone. This management premium is not a pure measure of social
capital; it may consist partly of human capital rather than social capital.
But
social capital must constitute a significant part of the residual, since
effective management is, after all, nothing more than efficient coordination
of
the firm's activities._23_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#23)
IV. Where Does Social Capital Come From?
If we define social capital as instantiated, informal norms that produce
cooperation, economists have a straightforward explanation of where it
comes from: social capital arises spontaneously as a product of iterated
Prisoners Dilemma (PD) games. A one-shot PD game does not lead to a
cooperative
outcome because defection constitutes a Nash equilibrium for both players;
if the game is iterated, however, a simple strategy like tit-for-tat
(playing cooperation for cooperation and defection for defection) leads both
players to a cooperative outcome. In non-game theoretic turns, if individuals
interact with each other repeatedly over time, they develop a stake in a
reputation for honesty and reliability. Market interactions in a commercial
society leads, as Adam Smith observed, to the development of bourgeois social
virtues like honesty, industriousness, and prudence._24_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#24) A
society
composed entirely of Kant's "rational devils" will develop social capital over
time, simply as a matter of the devils' long-term self-interest.
Social capital is clearly spontaneously generated all the time through the
playing of iterated PD games. Both Robert Ellickson_25_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#25)
and Elinor
Ostrom_26_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#26)
have catalogued many empirical cases of cooperative norms arising as
a result of repeated community interaction. The latter's database of
instances in which communities have successfully dealt with common pool
resource
problems is particularly interesting because this class of problems
constitutes an n-sided PD game which should theoretically be much harder to
solve
through iteration than a two-player game.
The economists' approach to understanding how social capital is generated
is ultimately very limited, however. The problem is that social capital
more often than not is produced by hierarchical sources of authority, which
lay down norms and expect obedience to them for totally a-rational reasons.
The world's major religions like Buddhism, Hinduism, Christianity, or
Islam, or large cultural systems like Confucianism, are examples. Not only do
norms from such sources not come about through decentralized bargaining; they
are transmitted from one generation to the next through a process of
socialization that involves much more habit than reason. Path
dependence-another
word for tradition-means that norms that are clearly socially suboptimal
can persist for very long periods of time.
It is, of course, possible to try to give economic or rational
explanations for religious and cultural phenomena, and thus to try to fit them
into
some larger theory of social behavior based on rational choice. There was
for some time a school of "functionalist" sociology and anthropology that
tried to find rational utilitarian reasons for the most bizarre social rules.
The Hindu ban on eating cows was ascribed, for example, to the fact that
cows were resources that had to be protected for other uses like plowing and
dairy-farming. Similarly, one could try to explain the Protestant
Reformation in terms of the economic conditions prevailing in central Europe
in the
sixteenth century that led people to respond to religious reformers like
Luther, Calvin, and Melanchthon. But ultimately, these accounts prove to be
unsatisfying because they are too reductionist; all such historical
developments usually incorporate a substantial measure of chance, genius,
accident,
or creativity that cannot be explained in terms of prior conditions. Max
Weber stood Marx on his head by arguing that the cultural "superstructure"
actually produced the economic "substructure": it was the moral values
inculcated by Puritanism, and particularly the fact that virtues like honesty
and reciprocity now had to be practiced beyond the family, that made the
modern capitalist world possible in the first place. In Weber's account,
culture was the uncaused cause, the product of "charisma."
Religion continues to be a factor in economic development. One of the most
important and underrated cultural revolutions going on in the world today
is the conversion of Catholics to Protestantism by (largely) American
evangelicals and Mormons. This process, which has now been under empirical
observation for nearly two generations, has produced social effects in the
poor
communities where it has occurred not unlike those ascribed to Puritanism
by Weber: converts to Protestantism find their incomes, education levels,
hygiene, and social networks expanding._27_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#27)
Apart from religion, shared historical experience can shape informal norms
and produce social capital. Both Germany and Japan experienced
considerable labor unrest and conflict between workers, managers, and the
state in the
1920s and 30s. The Nazis and Japan's military rulers ultimately suppressed
independent labor unions and replaced them with "yellow" ones. After their
defeat in World War II, the democratic successor regimes opted for a much
more consensual approach to management-labor relations that produced
Germany's postwarSozialmarktwirtschaft and Japan's lifetime employment system.
Whatever their current dysfunctions, these institutions played a critical
role in allowing the two societies to return to growth after the war, and
constituted a form of social capital. V. How Can We Increase the Stock of
Social Capital?
The discussion of where social capital comes from should be informative to
policymakers who want to increase the stock of social capital in a given
country. States can both do some positive things to create social capital,
and forebear from doing others that deplete a society's stock. We can make
four observations.
First, states do not have many obvious levers for creating many forms of
social capital. Social capital is frequently a byproduct of religion,
tradition, shared historical experience, and other factors that lie outside
the
control of any government. Public policy can be aware of already existing
forms of social capital-for example, the social networks used to develop
information for microlending-but it cannot duplicate the effect of religion as
a source of shared values. Policymakers also need to be aware that social
capital, particularly when associated with groups that have a narrow radius
of trust-can produce negative externalities and be detrimental to the
larger society.
Second, the area where governments probably have the greatest direct
ability to generate social capital is education. Educational institutions do
not
simply transmit human capital, they also pass on social capital in the
form of social rules and norms. This is true not just in primary and
secondary education, but in higher and professional education as well. Doctors
learn not just medicine but the Hippocratic oath; one of the greatest
safeguards against corruption is to give senior bureaucrats high-quality
professional training and to create an esprit de corps among this elite.
Third, states indirectly foster the creation of social capital by
efficiently providing necessary public goods, particularly property rights and
public safety. Diego Gambetta has shown that the Sicilian Mafia can be
understood as a private protector of property rights in a part of Italy where
the
state has historically failed to perform this function._28_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#28)
Something
similar to this has sprung up in Russia during the 1990s. Private property
rights protection is very inferior to the state-supplied version, since there
is
nothing to prevent these private providers from getting into a host of
other illegal activities as well. There are also economies of scale in the
deployment of coercive force used to enforce property rights. People cannot
associate, volunteer, vote, or take care of one another if they have to fear
for their lives when walking down the street. Given a stable and safe
environment for public interaction and property rights, it is more likely that
trust will arise spontaneously as a result of iterated interactions of
rational individuals.
Fourth, states can have a serious negative impact on social capital when
they start to undertake activities that are better left to the private
sector or to civil society. The ability to cooperate is based on habit and
practice; if the state gets into the business of organizing everything, people
will become dependent on it and lose their spontaneous ability to work with
one another. France had a rich civil society at the end of the Middle
Ages, but horizontal trust between individuals weakened as a result of a
centralizing state that set Frenchmen at each other through a system of petty
privileges and status distinctions. The same thing occurred in the former
Soviet Union after the Bolshevik Revolution, where the Communist Party
consciously sought to undermine all forms of horizontal association in favor
of
vertical ties between Party-State and individual. This has left post-Soviet
society bereft of both trust and a durable civil society. There are, of
course, good reasons why countries should restrict the size of their state
sectors for economic reasons. On top of this, one can add a cultural motive of
preserving a sphere for individual action and initiative in building civil
associations.
If we look beyond the role of the state, there remain at least two
additional sources of social capital. The first is religion. General social
science theories about the inevitability of secularization appear to apply
primarily to Western Europe; there is little evidence that religion is losing
its grip elsewhere, including the United States._29_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#29)
Religiously-inspired
cultural change remains a live option in many parts of the world; the Islamic
world and Latin America have both seen the growth of new forms of
religiosity in recent decades. Obviously, not all forms of religion are
positive
from the standpoint of social capital; sectarianism can breed intolerance,
hatred, and violence. But religion has also historically been one of the most
important sources of culture, and is likely to remain so in the future.
The second source of social capital in developing countries is
globalization. Globalization has been the bearer not just of capital but of
ideas and
culture as well. Everyone is well aware of the ways in which globalization
injures indigenous cultures and threatens longstanding traditions. But it
also leaves new ideas, habits, and practices in its wake, from accounting
standards to management practices to NGO activities. It is not just
investment bankers who can take advantage of the global communications and
information revolution; activists of all sorts from environmentalists to labor
organizers can now operate transnationally to a much greater extent than
before._30_
(https://www.imf.org/external/pubs/ft/seminar/1999/reforms/fukuyama.htm#30)
The issue, for most societies, is whether they are net losers or
gainers from this process, that is, whether globalization breaks down
traditional cultural communities without leaving anything positive in its
wake, or
rather, is an external shock that breaks apart dysfunctional traditionals
and social groups and becomes the entering wedge for modernity.
____________________________________
1Edward Banfield, The Moral Basis of a Backward Society (Glencoe, IL:
Free Press, 1958).
2James S. Coleman, "Social Capital in the Creation of Human Capital,"
American Journal of Sociology Supplement 94 (1988): S95-S120.
3Partha Dasgupta, "Economic Development and the Idea of Social Capital,"
unpublished paper, March 1997.
4According to Weber, "The great achievement of ethical religions, above
all of the ethical and asceticist sects of Protestantism, was to shatter the
fetters of the sib." The Religion of China (New York: Free Press, 1951),
p. 237.
5See Francis Fukuyama, Trust: The Social Virtues and the Creation of
Prosperity (New York: Free Press, 1995), chapter 9.
6To my knowledge, the first person to use this term was Lawrence Harrison
in Underdevelopment is a State of Mind: The Latin American Case (New York:
Madison Books, 1985), pp. 7-8.
7Fukuyama (1999).
8Mark S. Granovetter, "The Strength of Weak Ties," American Journal of
Sociology 78 (1973): 1360-80.
9For a fuller treatment of this issue, see Francis Fukuyama, The Great
Disruption: Human Nature and the Reconstitution of Social Order (New York:
Free Press, 1999), chapter 12.
10See, for example, Annalee Saxenian, Regional Advantage: Culture and
Competition in Silicon Valley and Route 128 (Cambridge, MA: Harvard University
Press, 1994), which gives numerous examples of informal intellectual
property exchange in Silicon Valley.
11See James P. Womack and D. Jones, The Machine that Changed the World:
The Story of Lean Production(New York: Harper Perennial, 1991).
12See Fukuyama (1999), chapter 13.
13Ernest Gellner in Conditions of Liberty: Civil Society and Its Rivals
(London: Hamish Hamilton, 1994).
14See, for example, Michel Crozier, The Bureaucratic Phenomenon (Chicago,
IL: University of Chicago Press, 1964); Stanley Hoffmann, Decline or
Renewal? France since the 1930s (New York: Viking Press, 1974); Stanley
Hoffmann and Charles Kindleberger, In Search of France (Cambridge, MA: Harvard
University Press, 1963).
15 Edward Banfield in The Moral Basis of a Backward Society (Glencoe, IL:
Free Press, 1958); Robert D. Putnam, Making Democracy Work : Civic
Traditions in Modern Italy (Princeton, NJ: Princeton University Press, 1993).
16Mancur Olson, The Rise and Decline of Nations (New Haven, CT: Yale
University Press, 1982).
17Larry Diamond, "Rethinking Civil Society," Journal of Democracy 5 (1994):
5-17.
18Johnson, Chalmers, MITI and the Japanese Miracle (Stanford, Ca.:
Stanford University Press, 1982).
19Calvert J. Judkins, National Associations of the United States
(Washington, DC: US Dept. of Commerce, 1949). I am very grateful to Marcella
Rey for
this and other references concerning measures of group memberships.
20Lester M. Salamon, America's Nonprofit Sector (New York: The
Foundation Center, 1992).
21W. Lloyd Warner, J. O. Low, Paul S. Lunt, and Leo Srole, Yankee City
(New Haven, CT: Yale University Press, 1963).
22Apart from the difficulty in counting the number of such groups, there
are a number of complex issues in assessing the quality of the relationships
engendered by them. Ladd contests Putnam's dismissal of many new advocacy
groups as mere "membership groups." He shows that not only have memberships
in large environmental organizations like the Nature Conservancy or the
World Wildlife Fund grown substantially, but the quality of the relationships
formed among these groups' members goes well beyond writing a yearly dues
check. He points to one study that shows how a single local chapter of a
single environmental organization sponsored countless hikes, bike trips,
backpacking classes, and the like, all of which presumably fostered personal
relationships and had spillover effects on social capital.
23The case could probably be made that social capital is the most
intangible of all intangible assets, and tends to be consistently undervalued
by
markets because it is so difficult to measure. Many mergers and acquisitions
have involved radical downsizing of company work forces. This achieved cost
savings in terms of current wages, but undermined trust and therefore
social capital among the firm's remaining workers-a process popularly known as
"dumbsizing." Wall Street is obviously better able to measure the
immediate labor cost savings than the longer-term impacts of such actions on
the
firm's social capital.
24Adam Smith, The Theory of Moral Sentiments (Indianapolis, IN: Liberty
Classics, 1982), Part One, I.4.7; Part Seven, IV.25
25Robert C. Ellickson, Order Without Law: How Neighbors Settle Disputes
(Cambridge, MA: Harvard University Press 1991).
26Elinor Ostrom, Governing the Commons: The Evolution of Institutions for
Collective Action (Cambridge: Cambridge University Press, 1990).
27David Martin, Tongues of Fire. The Explosion of Protestantism in Latin
America (Oxford: Basil Blackwell, 1990); David Stoll, Is Latin America
Turning Protestant? The Politics of Evangelical Growth (Berkeley, CA:
University
of California Press, 1990).
28Diego Gambetta, The Sicilian Mafia: the business of private protection
(Cambridge: Harvard University Press, 1993).
29David Martin, A General Theory of Secularization (Oxford: Blackwell,
1978); Peter L. Berger, "Secularism in Retreat," National Interest no. 46
(1996): 3-12.
30Jessica Matthews, "Power Shift," Foreign Affairs 76 (1997): 50-66.
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[RC] Social Capital and Civil Society / Francis Fukuyama
BILROJ via Centroids: The Center of the Radical Centrist Community Tue, 15 Nov 2016 11:01:47 -0800
