Social capital

Social capital is a term used to denote those social relationships and institutions that may be expected to affect the well-being of a community.

Definitions

There are many definitions of social capital, but a generally accepted version defines it as an “investment in social relations with expected returns in the marketplace” . This definition is consistent with interpretations by Bourdieu, Lin, Coleman, Flap, Burt, Putnam, Erickson and Portes; but among others it remains a matter of controversy, as is noted in the concluding section of this article.

The term 'social capital' was introduced by Hanifan in 1920 when he defined social capital as “those tangible assets… namely good will, fellowship, sympathy and social intercourse among the individual and families who make up a social unit” . The sociologist James Coleman credits the term to economist Glenn Loury with the concept explained social capital as a set of designated intangible resources in families and communities that help to promote the social development of young people. The sociologist Pierre Bourdieu defined the concept as “the aggregate of the actual or potential resources which are linked to possession of a durable network of more or less institutionalized relationships of mutual acquaintance or recognition” ]. He pointed out that “Social capital is the sum of the resources, actual and virtual, that accrue to an individual or a group by virtue of possessing a durable network of more or less institutionalized relationships of mutual acquaintances and recognition” . James Coleman defined social capital “as a variety of entities with two elements in common: They all consist of some aspect of social structure, and they facilitate certain action of actors-whether persons or corporate actors-within the structure” . To be capital a social structure must serve a function for individuals engaged in an activity. The actors exercise control over the resources in which they have an interest and at least partial control of others involved. Social relations are important to facilitating this action by the actors.

The concept of social capital can be related to similar concepts of civil society that are drawn from the works of James Madison (The Federalist Papers ), Alexis de Tocqueville (Democracy in America ) and John Stuart Mill (On Liberty ).

The components of social capital

The organizational components

Although they are inter-related, it is customary to distinguish the influences of the social organization of a community upon the social acts of its members from those of their individual attitudes. A community’s social capital is generally considered to be determined as much by the collective traditions, beliefs and value systems that are part of its culture, as by the cognitive characteristics and perceptions of its members. Similarly, the collectively-determined rules embodied in a community’s institutions, are considered to be as necessary to the development of social capital as the impulses and constraints created by the psychological drives that are experienced by its members. The institutions that are held to be capable of contributing to social capital range from the state apparatus of law-making and enforcement, to the patterns of mutual obligation that are created by interpersonal networks such as social clubs and residents’ associations.

The cognitive components

External influences are believed to provide the principal components of people's social attitudes but there is evidence to suggest that significant components also come from the innate or “hard-wired” characteristics of the human brain. Neuroeconomics experiments have revealed an association between the possession of a particular hormone and a propensity to trust others . Trust in the sense of believing most people to be trustworthy is referred to in the literature as "generalized trust" to distinguish it from trust in particular categories of people and trust concerning specific issues. Unsurprisingly, it has been found to be highest in communities where there are effective institutions that punish cheats; but it has also been found to be positively associated with education, civil liberties, and ease of communication (roads and telephones) and negatively associated with ethnic diversity and income inequality. Trust is generally held to be an essential component of social capital, as is willingness to conform to collectively-determined rules, but other cognitive characteristics have often been been included: notably the willingness to take actions that are for the exclusive benefit of others. Examples include charitable donations, participation in voluntary collective activities, and many other forms of philanthropy. The exercise of such social attitudes has been held to be among the main characteristics of civil society. Beyond those essentials, however, attitudes that are generally conducive to social concord such as tolerance of unfamiliar customs, practices and beliefs and a general preference for negotiation over confrontation have sometimes been included.

The measurement of social capital

Measurements of the components of social capital have been undertaken by researchers in many different countries . In the United States, the Social Community Benchmark Survey was a telephone interview survey of over 30,000 respondents conducted by a network of researchers in 40 communities in the USA in the year 2000. . It was followed up in 2006 by a further selective survey . Up to the beginning of 2008 there have been over 50 studies using the Social Benchmark Survey data . The European Union’s Active Citizen Composite Index combines 63 basic indicators, drawn mainly from the European Social Survey into a single index by an arbitrary weighting regime. Composite indexes are also produced concerning the variously-defined topics of social cohesion, civil society, community cohesion, political life , human development, and corruption perceptions. . The World Bank’s Social Capital Assessment Tool gathers information by survey and interview as source data for the assessment of social capital. .

The problem of combining measures of the various components of social capital into a single index number has been tackled by a number of researchers , but as Francis Fukuyama has noted, there is no consensus as to how it should be done . Robert Putnam combined 13 different measures into a single measure, using factor analysis – a technique that establishes weights related to evidence concerning the effects of each component upon a chosen outcome - . Other attempts have been criticized on the grounds that invalid econometrics methods were used .

Economic implications

Economists were writing about social capital before that term came into use. Writing in 1891, Alfred Marshall referred to economics as “a branch of biology, interpreted broadly” and attributed differences between successful and unsuccessful economic activity to variations in "general enlightenment ... and habits of mutual trust", and in the willingness of people to “sacrifice themselves for the common wellbeing” . Similar statements have been attributed to Thorstein Veblen, writing at about the same time. Some eighty years later the economist Kenneth Arrow remarked that much of the economic backwardness in the world could be explained as "lack of mutual confidence" . Until recently, however, social capital had been regarded as merely an exogenous factor that is necessary to a reasonable standard of economic efficiency in much the same way as a functioning monetary system; and little attention had been given to its creation or to its quantitative influence. The idea that collective action might be expected to promote economic performance had been specifically rejected in the writings of the economist Mancur Olson (whose views are summarised below under the heading objections and qualifications)

Interest in the quantitative effects of social capital was stimulated by Robert Putnam’s 1993 study of democracy in Italy, in which he attributed the higher levels of GDP per capita in the North to previously higher levels of civic engagement, his measure of which gave weight to membership of voluntary organizations (which he referred to as "horizontal ties") ; and later by his essay and best-selling book, "Bowling Alone" , in which attached importance to the decline in membership of voluntary organizations in the United States, (of which he took the decline in membership of bowling clubs to be a typical example). Apparently prompted Putnam's Italian study, several further examinations of the economic effects of various components of social capital have since been reported. A 1997 study using data collected by the World Bank for a sample of 29 market economies established a statistical association between economic performance and measures of trust and civic cooperation, but did not confirm Putnam's finding about the importance of horizontal ties. In a survey of economic growth studies by Robert Barro several components of social capital emerge as making significant contributions, notably education, the maintenance of law and the strength of democratic institutions.

The topic of the creation of social capital has since been explored at several levels. At the empirical level there have been a number of statistical analyses of the recently-collected data. One such study identified the factors affecting the development of trust as income per person, income distribution, government effectiveness, social cohesion and education . At a more abstract level, explanations of the development of mutual trust have been developed from game theory by means of experiments in the iterative application of the prisoners dilemma game. A one-shot prisoners development game is unlikely to lead to cooperation because it pays each player to defect, but computer simulations of iterated prisoners dilemma games have demonstrated that simple tactics can be devised that lead to a cooperative outcome to the benefit of both players (although when played between humans, cooperation often fails to develop because players succumb to envy). Such an outcome is similar to what biologists term an evolutionary stable strategy because once it becomes a community's established strategy, attempts to depart from it are unlikely to succeed . At a purely theoretical level a study by economic modelling has produced results that suggest that the development of mutual trust is a slow process that is best pursued gradually, and that it can be hampered by some otherwise productivity-enhancing changes of production methods (providing a possible explanation of the difficulty of successfully transferring developed countries production methods to developing countries).