Association for Studies in Public Economics 1 Association for Studies in Public Economics ANTI-MODERN AND MODERN EFFECTS OF SOCIAL CAPITAL Professor RICHARD ROSE FBA Director, Centre for the Study of Public Policy U. of Strathclyde, Glasgow email: prof_r_rose@yahoo.co.uk GRADUATE SCHOOL OF MANAGEMENT ST. PETERSBURG UNIVERSITY 11 November 2011

2 MODERN AND ANTI-MODERN ACTIVITIES COMPARED Modern Anti-modern Rule of law Yes, bureaucratic Arbitrary, political Openness Transparent Opaque Signals Prices, laws False accounts, bribes, personal contacts Cause and effect Predictable Uncertain Output Efficient Inefficient

3 SOCIAL CAPITAL DEFINED Networks that produce goods and services in a society. ♦Networks are relational (James Coleman, Granovetter) ♦Networks can be informal, personal between individuals ♦Networks can be formal, organisational, bureaucratic ♦Can combine informal links within and between formal organisations

4 SOCIAL CAPITAL IS NOT ♦Attitudes of trust. Trust is a by product of interaction in social networks. So is distrust. Contra Putnam, interpersonal trust does not readily spill over into trust in formal organizations or political institutions. ♦Formal organisations. Significant--but only as one partner in a network e.g. Between individual and government agency e.g. Between public and private organisations providing financial services ♦BUT social capital networks are based on expectations and reputations of how others in a network will react

DIFFERENT USES OF SOCIAL CAPITAL 5 DIFFERENT USES OF SOCIAL CAPITAL ♦Exchanges can involve cash payments (bribe) or non-pecuniary forms of blat. ♦Outputs produced are observable, e.g. health care, University admission ♦National income accounts can include outputs from modern social capital networks but exclude outputs form anti-modern networks.

DIFFERENT FORMS AND USES OF SOCIAL CAPITAL 6 DIFFERENT FORMS AND USES OF SOCIAL CAPITAL Positive MODERN ORGANIZATIONS WORK Public sector allocates by law Police will help protect house from burglary 43% Social security office will pay entitlement if you claim 35% Market allocates to paying customers Buy a flat if it is needed 30% Can borrow a week's wage from bank 16% INFORMAL ALTERNATIVES Non‑monetized production Growing food 81% Can borrow a week's wage from a friend 66% PERSONALIZE Beg or cajole officials controlling allocation Keep demanding action at social security office to get paid 32% Beg officials to admit person to hospital 22% ANTI‑MODERN Re‑allocate in contravention of the rules Use connections to get a subsidized flat 24% Pay cash toa doctor on the side 23% PASSIVE, SOCIALLY EXCLUDED Nothing I can do to: Get into hospital quickly Gets pension paid on time (pensioners only)

7 NETWORKING STRATEGIES IN DEALING WITH PUBLIC SERVICES Q. What would you do if you had difficulty in getting a public service? Bureaucratic: Write a letter of complaint, push officials to act Market: Buy in the private sector Anti-modern: Offer a bribe, use connections, make up a story

8 MODERN AND ANTI-MODERN WAYS TO GET HEALTH CARE Getting treatment for a painful disease when hospital says one must wait for months Strategy Anti-modern connections Personal Market Passive Russia 57 13 11 19 Ukraine 39 12 34 15 Czech Republic 24 31 14 Sources: Russia Social Capital Survey. New Europe Barometer Survey V.

9 SOCIAL CAPITAL AFFECTS INDIVIDUALS: ♦COPING with costs of system failure, transformation e.g. growing food at dacha ♦SUPPLEMENT to goods and services obtained in official economy. ♦COST: Buying nominally free services Effort, anxiety from storming, unpredictability of bureaucratic services ♦DETERIORATION in human capital from inefficiencies in health, education

10 MACRO EFFECTS OF ANTI-MODERN SOCIAL CAPITAL ♦INEFFICIENCY Raises transaction costs ♦ENCOURAGES PROFITS FROM TRADING (especially off the books) ♦DISCOURAGES FIXED DOMESTIC INVESTMENT

POTENTIAL RISKS OF ANTI-MODERN SOCIAL CAPITAL 11 POTENTIAL RISKS OF ANTI-MODERN SOCIAL CAPITAL ♦EQUILIBRIUM TRAP. Persistence of current conditions .Loss of potential output through inefficiency, under-investment .Reduction in potential human capital ♦NEGATIVE DISEQUILIBRIA .Oil prices and revenue fall below equilibrium point .Social and political protests against unfairness, inefficiencies, corruption

12 By Richard Rose Understanding Post-Communist Transformation: A Bottom Up Approach. London: Routledge, paperback, 2009. "Social Shocks, Social Confidence and Health". In Judyth Twigg and Kate Schecter, eds., Social Capital and Social Cohesion in Post-Soviet Russia. Armonk, NY: M.E. Sharpe, 2003, 98-117. "Uses of Social Capital in Russia: Modern, Pre-Modern, and Anti-Modern", Post-Soviet Affairs, 16,1, 2000, 33-57. "How Much Does Social Capital Add to Individual Health? A Survey Study of Russians", Social Science and Medicine, 51, 9, 2000, 1421-35. "Getting Things Done in an Anti-Modern Society: Social Capital Networks in Russia". In Partha Dasgupta and Ismail Serageldin, eds., Social Capital: A Multifaceted Perspective. Washington, DC: The World Bank, 1999, 147-171. plus James S. Coleman 1990. Foundations of Social Theory. Cambridge, MA: Harvard University Press.