The Well-being of Nations Chapter 3 The Evidence on Social Capital

Different Between Social, Human and Physical Capital It is relational rather than being the exclusive property of any one individual it is mainly a public good in that it is shared by a group It is produced by societal investments of time and effort, but in a less direct fashion than is human or physical capital. Social capital is the product of inherited culture and norms of behavior. Hence, social capital has “social” and “capital” dimensions since it resides in relations rather than individuals being also a resource that can generate a steam of benefits for society over time.

Definition of Social Capital The anthropological literature is the source for the notion that humans have natural instincts for association. The sociological literature describes social norms and the sources of human motivation. It emphasizes features of social organization such as trust, norms of reciprocity and networks of civic engagement. The economic literature draws on the assumption that people will maximize their personal utility, deciding to interact with others and draw on social capital resources to conduct various types of group activities. In this approach, the focus is on the investment strategies of individuals faced with alternative uses of time. A strand in the political science literature emphasizes the role of institutions, political and social norms in shaping human behavior. Recent work at the World Bank on the role of social capital in reducing poverty and promoting sustainable development has emphasized the role of institutions, social arrangements, trust and networks.

Trust as a source and an outcome of social capital Social capital allows individuals, groups and communities to resolve collective problems more easily. Norms ensure compliance with collectively desirable behavior. In the absence of trust and networks ensuring compliance, individuals tend not to co-operate because others cannot be relied on to act in a similar way. As with the case of human capital, social capital has “positive externalities” such that many people benefit from the contributions of one individual or group to social capital.

How do we measure social capital? (1) Measurement of social capital is difficult. Typically, most available measures of social capital center around trust and levels of engagement or interaction in social or group activities. Putnam (2000) measures of social capital are typically based on a composite index containing the following elements: intensity of involvement in community and organizational life public engagement (e.g. voting) community and volunteering Informal sociability (e.g. visiting friends) reported levels of inter-personal trust.

How do we measure social capital? (2) Various waves of the World Values Study have been used to test the willingness of respondents to trust others. Respondents were asked “Generally speaking, would you say that most people can be trusted, or that you can’t be too careful in dealing with people?”. Their responses show large differences in reported levels of trust across OECD Members; with cross-country differences relatively stable over time; and with neighboring countries tending to be clustered suggesting strong cultural and regional antecedents of trust.

The sources of social capital Social capital is built up by social groups ranging from the family to the nation. Families are primary building blocks for social capital Schools and institutions of learning can also sustain social capital Local communities Firms Other associations and voluntary organizations

Gender and Social Engagement Levels of trust, social engagement and types of engagement (formal, informal) can vary between men and women as they face different social networks and levels of access to information. In some cases, men’s networks tend to be more formal since men are more often involved in formal employment, whereas women’s networks tend to be more informal and include more kin. The capacity of children to trust has roots in the relationship of children with mothers although the quality of father-child relationship is also important. Social capital can also be built through active civic, labour market and political participation of women. Discrimination based on gender can therefore have negative effects on the formation of particular forms of social capital.

What is the impact of social capital on well-being? A variety of benefits flow from higher levels of social connectedness. Social capital is correlated with better Health Social isolation is linked to unhappiness and illness. Social capital improves child welfare and lowers rates of child abuse Social capital facilitates the transition to adult life Social capital is correlated with lower Crime Social capital is an important link to a better Government Social capital is more important than human capital in improving well-being.

Impact of social capital on economic well-being Micro-economic benefits Increases productivity in firms and organizations Increases productivity in regions and neighborhoods Social capital is a valuable resource for finding employment Macro-economic benefits trust toward institutions may be central to many economic and social activities trust can stimulate savings, risk-taking and investment Much recent work has been concerned with the short-term determinants of economic growth. Some research suggests that countries tend to achieve higher long-term levels of output per worker if they combine high rates of investment in physical and human capital with a high-quality “social infrastructure

Conclusion Social capital is likely to have positive economic, social and personal benefits based on a wide range of empirical studies in a number of countries. There is a two-way relationship between social capital and human capital. There is a positive association even at a cross-country level, for example, between civic engagement and trust on the one hand, and levels of education on the other It is difficult to demonstrate a clear link between social capital and economic growth. As in the case of human capital, the evidence is affected by the quality and breadth of proxy measures, the complexity of inter-relationships between different conditioning factors and the difficulty in comparing countries with widely differing cultural, institutional and historical traditions.