AN INTRODUCTION TO SOCIAL CAPITAL
(NOT TO BE QUOTED. FOR IBD STUDENTS USE ONLY)
These notes focus on social capital. Their aim is not to give an organic treatment of this
important theoretical concept and of their use in various disciplines. This task would be very
difficult to accomplish because social capital is a very controversial concept. It has been
defined in several ways (*see note below), not always compatible each other. It has been used
in different disciplines within different theoretical frameworks. It has been measured in
empirical researches by means of very different proxies.
My aims are then less ambitious. First, to introduce the key words in the social capital
literature. This will allow you to read literature on social capital knowing the technical
language. Second, to give you an idea of the main issues in the debate on social capital. Keep in
mind that these issues refer to different disciplines since social capital is a truly
interdisciplinary concept. It was born within the sociological discipline, but it has been used,
adapted and modified by political scientists, psychologists, economists and biologists. This is
of course one of the merits of this concept: to facilitate the dialogue between scholars of
different disciplines But it is also the cause of the many difficulties found in reaching a
consensus among scholars on the theoretical definition of the concept and on its empirical
application.
These notes have been organized around three key concepts: network, trust and institutions.
Consider however that various topics could be placed indifferently under one or the other of
these three concepts. This because network, trust and institutions are concepts strongly
interlinked in the social capital literature.
(* )Compare the three definitions of social capital proposed by the three founder fathers of
social capital theory
Bourdieu: “social capital is the sum of resources, actual or virtual, that accrue to an individual
or a group by virtue of possessing a durable network of more or less institutionalised
relationships of mutual acquaintance and recognition”
Coleman: “social capital is defined by its function. It is not a single entity, but a variety of
different entities having two characteristics in common: they all consist of some aspects of a
social structure and they facilitate certain actions of individuals who are within the structure
Putnam: “features of social organization such as networks, norms and social trust that facilitate
coordination and cooperation for mutual benefit”
NETWORKS
VARIOUS TYPES OF NETWORK
Networks are sets of social relations. Each individual lives and acts within different sets of
relationships. There are various kinds of networks. The most basic form of social network is
the family: a small group of people linked by strong natural bonds, sharing resources and
helping one another in case of need. A slightly larger social network is composed by relatives
and closed friends. In this case too, the bonds linking various members of network are strong
even if slightly less strong than in the restricted family. There are many other kinds of
network. A club, a volunteer organization, a professional association, a church, a
neighbourhood, a local community are all networks where the members share common
values or common interests. They may feel a sense of belonging to these networks and
develop a sense of common identity. (Keep in mind that since each individual belongs to
more than one network, we talk of multiple identities. See Amartya Sen, Identity and violence)
STRONG AND WEAK TIES
It is clear however that ties linking people in a family network or in relatives’ and close
friends’ networks are generally less strong and less binding than in the case of networks
composed by members of a club or of a professional association. At a first stage, it is possible
to analyse networks by the extension of its linkages, by the strength of ties among members
and by the similarity of resources brought in the network by individual members. For
instance a family network is characterized by a reduced extension, by similarity of resources
and by very strong ties among members. Facebook on the other extreme is a network
characterized by an enormous extension, by diversity of resources and by very weak ties
among members.
COMMON VALUES
The actual working of a network may produce a set of common beliefs, values and
expectations among members of the network. For instance, members of a family network hold
the expectation of a reciprocal help in case of need. The same may occur in some territorial
communities where people help each other in the case of negative events hitting some of their
members. Members of professional associations may share common values of honesty and
trustworthiness. Feeling of loyalty, solidarity and fairness may characterize different types of
networks. Networks then are not only a set of interactions among members but include these
cultural and moral elements.
SANCTIONS
Networks may impose a penalty to members who violate these common values and norms or
do not behave as socially expected. These penalties can be formal sanctions if contained in
legally binding documents. But these penalties can also be informal. A member of a
professional network who behaved dishonestly may simply be cut off from future interactions
and transactions. The sanction is the actual exclusion or marginalization from the network.
This can result in an economic loss but also in a psychological sufferance.
NETWORKS AS A FORM OF CAPITAL
Why belonging to a social network matters? The social capital literature considers networks
as a source of resources from which individuals can draw for improving their own activity.
Networks are “capital” in two senses. They may be the result of past investments to the extent
that individuals invest in social relations and they can be used to increase the rate or return of
present and future activity.
LIN DEFINITION OF SOCIAL CAPITAL
To understand the utility of networks, we may follow Nan Lin contribution to the theory of
social capital.
Social capital is defined by Lin as “resources embedded in one’s social network, resources that
can be accessed or mobilized through ties in the network. Through social networks an actor may
borrow or capture other actors’ resources which can then generate a return for the actor.“ (But
remind that alternative definitions do exist)
NETWORKS AS A SOURCE OF SOCIAL CAPITAL
Within Lin’s approach social capital and social networks are not equivalent or
interchangeable terms. Networks provide the necessary conditions for access and use of
embedded resources representing individual’s social capital. The quantity and quality of
resources one can draw from networks depend on the specific features of the network itself.
Dense and close networks may increase the sharing of resources among participants. Sparse
and open networks may facilitate access to better or more varied resources or information,
control or influence.
Lin for instance identifies three layers of social network, an innermost layer composed by
people with very strong ties that share sentiment and provide mutual support, the family
being the clearest example; an intermediate layer made of people that share information and
resources but with less binding ties; an outer layer characterized by shared membership and
identity even though the members may or may not interact among themselves, typical
examples are clubs, church or communities.
The utility of each of these three levels of layers depends on the purpose of action. For some
actions the inner layers are more important because what matters is the strength of ties and
the obligation of reciprocity. It is easier for instance to borrow money from a member of your
family than from a member of your club. For some other actions, the outer layers are more
important because what matters is the diversity of resources that one can access. Your family
or your closed friends connections may not be sufficient for instance to get a better job. It is
more likely in this case to get help from people belonging to a larger and richer network
SOCIAL CAPITAL AS A PRIVATE RESOURCE VERSUS SOCIAL CAPITAL AS A COLLECTIVE
GOOD
Some scholars have focused on social capital as individual’s resource while other scholars
have focused on social capital as a collective resource.
A single individual can “use” the resources embedded in a social network (social capital) to
achieve goals that otherwise he would not be able to reach (or that he could reach with a
greater effort or more costly). For instance many individuals use networks to search and get a
job. Statistical studies overall the world have found that the majority of people get jobs
mobilizing his personal contacts, relatives and friends first of all. Politicians mobilize the
resources of their party to win the elections. A young entrepreneur may use the resources of
his professional association to get credit for starting up a new firm. The networks used and
the way in which they are used depend of course on the purpose you are pursuing. As we have
seen, sometimes binding and bonding networks are more useful but other times you can find
the resources you need in more open and sparse networks. At any rate, social capital in all
these situations takes the form of a private good. Social capital is used by an individual to get
personal benefits. Other members of network are not touched by the individual’s actions.
Social capital however can be examined from a different perspective. It may emerge as a
collective good rather than a private good. Think for instance to a territorial community
(which is a network) made of people with a long historical traditional of cooperation, with a
strong sense of identity, with shared value of honesty, industriousness and fairness, with very
effective public services. To live and to work in this social environment offer many benefits
for its residents. Individuals can exploit these positive features of the community to reach
their goals. Citizens can benefit from public services of good quality, employers and workers
can benefit from collaborative labour relations and so on. The combination of these features is
the social capital of that community. What is relevant however is that social capital in this
sense cannot be considered a private good. The fact that an individual benefits of such a
favourable environment is not an obstacle for another individual living in the same
community to benefit as well of the same resources. Social capital is therefore a public good:
non rival and non excludable for residents. ((In some cases, social capital is a club good non
rival but excludable for non members of the group). (Keep in mind the distinction between
private goods (excludable and rival), public goods (non excludable and not rival), club goods
(excludable and not rival) and commons (not excludable and rival))
RELATIONAL AND SYSTEM CAPITAL
Some scholars (see Harmut Esser) have emphasized this dual nature of social capital minting
two different names: relational capital and system capital.
Relational capital can be seen as the resources an actor can employ and use through direct
and indirect personal relations with other actors who control those resources to get
intentionally a personal benefit. Relational capital can be the result of an explicit individual
investment in personal relations and can be used as a private good.
System capital can be considered alternatively as a set of characteristics of an entire network
such as a fair and effective system of social control, generalized trust, shared moral values,
aptitude towards mutual help. Everybody can benefit from system capital but it is not the
property of any of the persons who benefit from it. And it does not emerge directly from
intentional individual efforts. All actors profit from system capital independently of whether
they have invested in it.
TRUST
WHAT IS TRUST
A central concept in social capital theory is that of trust. Some scholars consider trust as a
basic component of social capital; others regard it rather as a product of social capital. At any
rate the concept has always an important place in social capital theories.
Trust is an actor’s belief or expectation that when interacting or cooperating with another
person he will not be exploited or defrauded. Technically we call “truster” the person who
places trust on someone else, who is called “trustee”. The aptitude of the trustee of being
worth of trust is said “trustworthiness”. The action of placing trust on someone is called
“entrusting”. When the trustee confirms with his behaviour his trustworthiness is said to
reciprocate (or to cooperate) while when the trustee turns out to be untrustworthy is said to
exploit (or to defect, not to cooperate)
WHY TRUST MATTERS A LOT
Trust is important in practically all relationships one engages with other people. It would be
almost impossible to interact one another in any aspect of our lives without a minimum level
of reciprocal trust. Trust makes cooperation easier or even possible. It makes transactions
less costly, specially economic transactions. Trust and trustworthiness have been compared in
this sense to a lubricant, oiling the wheels of a variety of social and economic transactions
which might otherwise prove extremely costly, bureaucratic and time consuming. Let us focus
on economic transactions. Economic transactions are normally carried out through formal
contracts containing the reciprocal engagements of the parts and the sanctions for not
meeting the agreed requirements. But all contracts are incomplete for the simple reason that
it is impossible to foresee and formalize all the possible contingencies. This implies that all
economic transactions are based on some degree of trust. In absence of a sufficient level of
trust, the transaction will simply not take place.
NETWORKS AND TRUST
Networks can differ one another, among other things, for the level of trust between its
members. Networks characterized by a high level of trust are generally beneficial for single
individuals and for the network as a whole. For single individuals it is easier and safer to
achieve their own objectives if one can entrust other people being relatively sure of a
cooperative answer. For the network as a whole it is easier to achieve collective goals such as
economic growth, social cohesion, quality of public services in an environment characterized
by a high level of generalized trust.
THE SOURCES OF TRUST: DIFFERENT VIEWS
What are the sources of trust? Why some networks are characterized by an high level of trust
among members while others display a very low level?
Scholars do not hold the same view on the original sources of trust. We may divide the field in
a simplistic way between those who think that trust is the result of an actor’s rational strategy
aimed at maximizing personal benefits and those who believe that trust is, at least partly, a
characteristic of individual’s preferences.
STRATEGIC TRUST
The first approach is consistent with a more traditional neoclassical economics viewpoint.
Perfectly rational economic actors pursue exclusively their personal interest. They do not
have altruistic preferences. However they find useful to cooperate in a context of repeated
interactions and of networks. Cooperation is not the result of an altruistic attitude but of a self
interested strategy. Self interested actors sustain cooperation not because they care about
others but because they try to maximize their own gains over time. This view is clearly
expressed for instance by Hardin “ It is the high level of trustworthiness of people in my
network that generates this benefit from mutual cooperation. Moreover, their trustworthiness is,
on the encapsulated-interest account, the result of their having an interest in being trustworthy
toward those with whom they have ongoing interactions that are beneficial and are likely to
continue to be….”
REPUTATION
The potential benefits of cooperation at individual level within a network may depend on the
necessity to maintain a good reputation among the members of a network. It may be possible
that a single member- a trustee- in a specific situation could get advantage from a non
cooperative behaviour. But his defection could ruin his reputation of trustworthiness. Other
members could retaliate by isolating and marginalizing him. The result would be an overall
economic and personal loss. This is the reason why a member of a network is more likely to
cooperate than to defect in several occasions. Being embedded in a network, the trustee
knows that it is in his interest not to exploit but to reciprocate and to keep the relationship
going. Confirming his trustworthiness, he will improve his reputation within the network and
other members will be willing to interact more frequently with him. A cooperative behaviour
in this case may have nothing to do with altruistic aptitudes but it may result entirely from
rational and egoistic calculations
REPEATED INTERACTIONS
This line of reasoning is confirmed for instance by the theory of games in the case of repeated
interactions. When the trustee has to decide whether to reciprocate or not, must take into
account the expected relative benefits of cooperation not of only “one shot game” but of an
entire, possibly indefinite, sequence of games. He could then discover that the greater profits
of “exploitation” (non cooperation) in one shot game would be more than offset by the losses
in the successive games. The advantage of cooperation in repeated games emerges for
instance from the famous experiment led by Axelrod which finds that the Tit-for-tat strategy
(the player cooperates in the first game; after that, he/she does what the opponent did in
their previous move) is the one which maximizes the profits of the players.
IMPORTANCE OF HISTORY
Cooperation is also more likely to prevail in communities or societies that have a long
tradition of collective action whose members have learnt to appreciate the benefits of
cooperation. On the basis of this experience, they show a strong propensity to cooperate
entrusting other people and they have formed the expectation that other people will
reciprocate. When most members of this community share this feeling, the prophecy becomes
self-fulfilling: since most people entrust other people, most people will reciprocate. This will
produce the success of a collective action and will reinforce people propensity to entrust and
to reciprocate, creating the premises for new successful collective actions. From this
background of historical accumulated experience of cooperation, a set of shared moral values
including honesty, fairness, trustworthiness and reciprocation may grow and become a
characterizing feature of that community. Experience as a source of trust is not incompatible
with a strategic approach to trust. At the roots of trust it is possible to find a rational calculus
on private benefits of cooperation. Accumulated experience makes the act of entrusting more
automatic and less risky; the emergence of a collective moral based on trustworthiness
reinforces the cooperative behaviour; nevertheless cooperation would break and moral
values collapse if the individual’s advantages of defection permanently exceeded the
individual’s benefits of cooperation.
TRUST AS A MORAL VALUE OR AN INDIVIDUAL APTITUDE
A second view on trust has been held by Elinor Ostrom, among others, within the framework
of the so called second generation theories of collective action. These theories assume that
economic actors may have altruistic attitudes. Trustworthiness is a characteristic of people
preferences. Actors then may reciprocate even in absence of a selfish interest. In Ostrom’s
words: “Trustworthiness refers to the characteristics of individual preferences that facilitates
individual cooperative behaviour in social dilemmas even in the absence of structural and
institutional incentives to do so”. Cooperation therefore is the result of a more complex mix of
motivations, which includes self interest but also personal aptitudes, social norms and moral
values.
A similar view has been put forward by Uslaner. For him, trust is essentially a moral value. In
Uslaner’s words: “moralistic trust is a moral commandment to treat people as if they were
trustworthy. The central idea behind moralistic trust is the belief that most people share your
fundamental moral values. Moralistic trust is based upon some sort of belief in the goodwill of
the other”. He opposes moralistic trust to strategic trust. “Strategic trust depends on
information and experience…it reflects our expectations about how people will behave…while
moralistic trust is a statement about how people should behave”.
TRUST AS INNATE IN THE HUMAN NATURE
Many recent findings in experimental economics, in evolutionary biology, in psychological
and neurological research support the view that trust, specially generalized trust, and
altruistic behaviour can be the result of personal and social aptitudes, rather than of rational
and selfish calculations. This research demonstrates that people’s preferences, priorities and
strategies are crucially dependent on features of the social context such as norms, identity,
status, reputation, social structure. Further, it has shown that cooperative and altruistic
behaviours may depend on neurological and biological factors, that they are in some sense
rooted in human nature. (see Woolcock and Radin) (See Akerlof and Kranton). This does not
imply that trust is not the result of private calculations. But it demonstrates that the
motivations behind individual’s choices are complex and include a variety of elements,
including private benefits, altruistic feelings, fear of losing reputation, historical tradition of
cooperation.
GENERALIZED AND PARTICULARIZED TRUST
Uslaner makes a further distinction between particularized trust and generalized trust.
Particularized trust is faith only in people like yourself, of your own kind. Generalized trust
refers to faith in both your own kind and people who are different from you.
Generalized trust depends at micro level on education (education broadens one’s perspective
on the world and brings one into contact with a wider variety of people), group identity
(people who abjure contact with outsiders are less trustworthy, like members of minority
groups), collective memory of big events (Vietnam war destroyed trust), family life (to have
truster parents is important), early experiences in life (to have a friend of opposite race), an
optimistic aptitude to life, a feeling of control of own life. At macro level, the most important
determinant of trust is economic equality. It makes the less well off more optimistic in the
possibility to improve their own situation and makes easier social relationships all over the
society narrowing the distance between different social groups
Particularized trust rather is most prevalent among people who: are more pessimistic about
the future and their ability to determine their own fate; fear being the victims of crime; are
loners with small support networks; have less education; are religious fundamentalists; who
did not have warm relations with their parents when they were young; whose parents were
not generalized trusters and who warned them not to trust others; and who are members of
minority groups
Generalized trust, whatever its source, has been found very important in determining the
performance of a society and of an economy. Trusting societies have more effective
governments, higher growth rates, less corruption and crime, and are more likely to
redistribute resources from the rich to the poor.
NETWORKS, TRUST AND CIVIC ENGAGEMENT
Several authors identify the formation of trust and social capital in civic commitment. The
endowment of social capital of a given community depends very much on the amount and
quality of civic engagement of its citizens. Putnam, one of the founder fathers of social capital
theory, put forward this theory in two famous researches, one on Italy and one on the United
Stes. His first contribution to social capital theory was a study on regional government in
Italy. Putnam in that study sought to explain regional differences in institutional performance
between northern and southern regions of the country with reference to the different level of
civic engagement in the two parts of the country. He traced the origins of the beneficial civic
virtue back to the activities of the early medieval guilds in the largely autonomous, selfregulating city-states of the north. By contrast, he believed that the origins of the stand-off
between state and civil society in the southern regions lay in the period of Norman autocracy
which created a culture of mutual suspicion and fear which had stood repeatedly in the way of
institutional reform and renewal. A second major contribution by Putnam focused on the
United States. In his famous book entitled “Bowling alone”, Putnam supports the thesis of a
long run decline in the endowment of social capital in the US, the main manifestation of which
was the waning of citizens’ participation to social networks. League bowling served here as a
metaphor of a type of associational activity that brings relative strangers together on a
routine and frequent basis, helping to build and sustain a wider set of networks and values
that foster general reciprocity and trust and in turn facilitates mutual collaboration. At the
core of the explanations of different regional performances in Italy and of the decline of social
capital in the U.S. , Putnam places “civic engagement”. Civic engagement can take a great
variety of forms. It includes participation to different types of networks such as clubs,
volunteer organizations, political parties, churches, professional associations, local
institutions, neighbourhood organizations and so on. Putnam holds the view that people who
actively participate to these different networks develop positive features of sociability: they
tend to be more tolerant, informed, trustworthy, open, skilled. These qualities transfer from
the individual level to the collective level. A dense network of secondary associations not only
produces better citizens but it produces more efficient and democratic governments as well. It
emerges here again the dual (micro and macro) nature of social capital. At an individual level,
members of voluntary associations behave in a more trusty, democratic and participatory
mode. At the societal level, better citizens engaged in dense networks of secondary
associations, produce more responsive, fair, democratic and efficient governments.
CIVIC ENGAGEMENTS AND DEMOCRACY
The concept of civic engagement represents a sort of link between social capital and
democracy. Most (but not all) scholars of social capital have supported the thesis of a positive
correlation between democracy and social capital. The endowment of social capital has been
found richer in countries with democratic governments rather than in authoritarian. Less
clear is the direction of causality between these two variables. It is not clear whether
democratic regimes favour the growth of social capital or, viceversa, a civil society rich of
social capital favours the birth and consolidation of democratic regimes. Very important
differences in the endowment of social capital have been however found also between the
same democratic regimes. This implies that what makes the difference for social capital is not
only the establishment of a democratic regime but how the democracy actually works. For
social capital is important citizens’ participation at all levels of social and political life. This is
the reason for a strong preference of social capital theorists for participatory democracies (or
deliberative democracies). This type of democracies are based on deliberative decision-making
processes that provide for a strong institutional involvement of citizens, and hence are more
suitable for the production of social capital. The literature on the merits and on the
shortcomings of participatory democracies is very wide and fascinating. The issues raised are
of great relevance for economic development and specially for local economic development.
The design of local policies is normally based on the introduction of decision making
processes entailing participation at the bottom level and cooperation between social and
institutional actors. Big international organizations, like OECD and World Bank, have
embodied the principles of the deliberative democracy in the conception of their polical
action.
INSTITUTIONS
SOCIETY AND INSTITUTION CENTRED APPROACHES TO SOCIAL CAPITAL
One of the criticisms moved to Putnam’s approach of social capital is of being “societycentred”. Social capital is born and grows in the civil society mainly through people
participation to associations at the grassroots level. It then can affect politics, governments
and institutions. But the direction of causality goes from civil society to institutions and not
the other way around. His approach is mainly bottom-up. The top-down influence on social
capital of politics and institutions is completely overlooked in his approach.
In contrast to that, the institution-centred approach of social capital theory (see Rothstein
and Stolle) claim that for social capital to flourish, it needs to be embedded in and linked to a
special set of formal political, administrative and legal institutions. According to this
approach, social capital is produced by factors in politics or government and not primarily in
the realm of civil society. The central idea of this approach is that government policies and
political institutions create, channel and influence the amount and type of social capital in
their respective societies. The capacity of citizens to develop broad-based and out-reaching
cooperative ties and establish social trust is in this account heavily influenced by the effects of
government institutions and policies.
INSTITUTIONS AS RULES OF THE GAME AND AS POLITICAL ACTORS
To grasp the mechanisms through which institutions produce social capital, it is the case to
give a proper definition of institutions. You can find various and not always compatible
definitions of institution in the literature. A popular definition has been put forward by the
historian economist Douglas North who focuses on the regulatory role of institutions
represented as “humanly devised constraints that structure political, economic and social
interactions.” Constraints, as North describes, are devised as formal rules (constitutions, laws,
property rights) and informal restraints (sanctions, taboos, customs, traditions, code of
conduct), which usually contribute to the perpetuation of order and safety within a market or
society. Social capital is certainly the product of social interactions but, in turn, social
interactions do not take place in a vacuum but within a system of rules, given by the
institutional architecture of the State, and are heavily affected by the nature, fairness and
efficacy of these rules.
While North and others have identified the institutions as “the rules of the game”, other
scholars have emphasized the agency role of institutions. Institutions are political and
economic actors who interact among themselves and with private actors, intervene in the civil
society, promote and manage policies and projects to change things and can operate at
national or at local level.
Few examples may illustrate the mechanisms through which the actual working of
institutions affect the production of social capital.
INSTITUTIONS AT WORK IN PRODUCING SOCIAL CAPITAL
Effectiveness in the application of law
An effective court system transmits to the people the information that non-cooperative
behaviours will be sanctioned. This will discourage citizens from exploitative courses of
action. On the contrary, non-effective and corrupt institutions transmit the information that
semi-legal or illegal conducts would be tolerated favouring the diffusion of opportunistic and
improper behaviours. The same role of the courts could be played by informal rules of
behaviour inspired to moral values of honesty and integrity prevailing in a group, in an
association, in a club. Sanctions in this case would take the form of exclusion or
marginalization from the group. Fear of sanctions would favour the diffusion of behaviours
congruent with the shared moral values of the group.
Fairness in the design and implementation of policies
Institutions that design and implement public policies –in fields such as health, education,
safety, taxes, other public services- according to principles of impartiality, equality before the
law, respect for human rights, equality of opportunity will create a general environment of
trust. First of all, citizens will trust institutions guided, in the conception of the rules and in
their operative procedures, by such ideals. Secondly, people’s trust towards institutions is
very likely to become trust among people themselves, or “generalized” trust. People
experiencing on themselves a fair and correct treatment by institutions- the argument runswill have a greater propensity to behave correctly with other people. On the contrary, if
citizens systematically experience partial or corrupt behaviour from bureaucrats
representing local or national institutions, they are likely to conclude that if these people
cannot be trusted, then nor can one trust most other people in society. Further, when
institutions behave correctly and efficiently, there is also no need for individuals to resort to
unfair practices to access public goods. People know that and know that other people know.
People then will avoid to be engaged in practices such as patronages, discrimination and
clientelism and will be confident that also other people will behave in the same way
Efficiency and skills in coordinating collective actions
Institutions play an important role in facilitating collective actions, discouraging and
sanctioning free riding behaviours and creating an environment of generalized trust. But they
can engage directly in the promotion and management of collective actions. They can, in so
doing, reduce the coordination costs that private actors would incur in the promotion of
collective goods. The focus is here on institutions as actors with particular skills, experiences
and interests. Institutions may give first of all a crucial contribution in identifying the
optimum solution of collective actions. Failures of collective actions depend not only on the
possibility of free riding but also on the difficulties by private actors to align their preferences
and to find the correct solution among various alternatives. Institutions in some cases bear
information and skills that private actors do not possess and that can facilitate the emergence
and the success of a collective action. Institutions can give incentives to private actors for the
start up of a cooperation project and can discourage their early defection ensuring a long term
perspective to collective actions. In Communities where institutions are very active and very
successful in promoting collective actions, people have learnt the advantages of cooperation
and have embodied the values of trust and reciprocity. They are communities, in other words,
rich in social capital.
SOCIAL CAPITAL AND POLICY
The introduction of institutions in the picture, makes possible to deal with an important issue
in the debate on social capital: can social capital as a public good be produced by means of
policies? Up to now we have focused on social capital as an important input of an hypothetical
production function where the output could be many things: from low crime rate, to better
institutional performance, to higher economic growth and so on and so forth. But if social
capital is so important in producing better output on a wide variety of variables, then it is also
important to find ways in which we can improve our endowment of social capital.
Nobody in the debate has denied explicitly the possibility to produce social capital by proper
policies. However, some approaches are clearly more suitable to take into account the
possibility to produce social capital by means of public policies
The rational approach by Coleman sees individual actors undertaking social interactions for
their own interest and certainly not to build social capital. In Coleman’s view then: “social
capital arises not because actors make a calculating choice to invest in it, but as a “by product
of activities engaged for other purposes”. In Putnam’s view, social capital as a collective goods
is mainly the result of individual social interactions at the grass-roots level, its main source
lying in people’s participation in voluntary organizations. But civic engagement as such is not
aimed to build social capital. Further, in Putnam’s view social capital has a strong pathdependency element. The endowment of social capital of a community depends on long run
social and political processes and it proves to be unresponsive to short run changes, unless
the occurrence of big events. In Coleman’s and Putnam’s approaches then, social capital is
the result of human actions aimed at different ends, (heterogenesis of ends) taken at
grassroots level. Under these circumstances it is not clear how public policies can affect the
formation of social capital.
The insertion in our picture of institutions makes easier to give account of the role of public
policies in building social capital. Institutions can be seen as political actors who play an
active role in shaping the framework within which citizens decide whether to engage in public
sphere and how to do it. As we have seen, institutions may affect the level of generalized trust
through fair and clear rules of the game, correct and honest behaviours and an effective
system of sanctioning and may contribute to the success of collective actions through their
own skills, experience and long run perspective.
POLICIES FOR SOCIAL CAPITAL
There are a wide range of possible policies for the exploitation and strengthening of social
capital. Some policies are national in scope, as they are centrally designed and run and their
effects are felt all over the country. They encourage a national context of confidence in the
legal system and public institutions. Such policies include measures for strengthening the
independence and quality of the legal and law enforcement systems, increasing the
transparency and accountability of the public sector, reinforcing the democratic control of the
media, and introducing anti corruption measures. The confidence in institutions engendered
by this type of policies should translate into generalized trust.
Other policies, which can be implemented at regional and local level aim to strengthen the
networks between local institutions as well as between local institutions and associations
representing civil society or the private sector. Similar policies have the goal of widening the
basis of economic development by facilitating local participation in strategic decisions, project
implementation and policy monitoring. Other complementary policies aim at facilitating the
transmission of information and the sharing of knowledge between local actors for a better
design and implementation of local projects. All these policies boil down to the introduction of
elements of deliberative democracy in the decision-making processes at local level.
Finally some policies with a potential impact on social capital are addressed to private firms.
These are policies to promote horizontal relationships between firms of the same sector or
vertical relationships along the productive chain, to favour the joint production of services, to
encourage participation in professional associations.
THE DARK SIDE OF SOCIAL CAPITAL
Up to now, we have implicitly assumed that social capital is a collective good benefitting all
members of a given network and all people outside that network (or at least being neutral for
other people). This assumption is clearly untenable. In principle and as a matter of fact, social
capital can be a “social bad” rather than a social good. There are many cases where social
capital of a given network benefits people belonging to that network but negative effects on
people outside the network; we can say in this case that social capital is associated with
negative externalities. There are also cases where social capital springing from a given
network produces negative effects even for people belonging to that network. In both cases,
we can talk of the “dark side” of social capital.
This should not be surprising. Social capital foster mutual cooperation to pursue ends shared
by members of the network. But we do not know at the outset if these ends are shared also
from people outside the network and we do not know if the achievement of those ends
ultimately benefit them. Not only. We can also imagine that common values of a network may
damage people belonging to a network. This occurs for instance when the values of a network
can be an obstacle to the aspirations and free choices of some of its members
A similar problem arises with trust. It is difficult to distinguish between organizations that
produce generalized trust, that is trust without exclusionary group boundaries, and those that
produce the opposite, namely distrust between groups or strong in-group trust only.
Many voluntary organizations and networks are actually built to instil distrust in other people
in general and of members of other organizations in particular. Many of these associations
and groups are of religious, political, ethnic and gender-based nature and their existence is
partially justified on logic of separation or division, i.e. establishing distance bordering on
distrust vis a vis competing associations, networks or societal groups. Their raison d’étre is
the preservation of a rigid social status, professional and interest groups closure, ethnic and
religious divisions and outright criminality.
SOCIAL CAPITAL AND INEQUALITY
An important line of thought has associated social capital with inequality. The first and most
important scholar in this tradition has been Bourdieu, another founder father of social capital
theory, with Coleman and Putnam. Bourdieu thesis is very straightforward: social capital can
promote inequality in large part because access to different types of networks is very
unequally distributed. Everyone can use their connections as a way of advancing their
interests, but some people’s connections are more valuable than others’.
Social capital can be seen as an asset that is unevenly distributed and as a mechanism that can
promote further inequality. Social capital is unevenly distributed because what matters is not
the number in itself of social connections but their value. Being of a higher social class, having
greater personal income and having more educational qualifications entail the access to more
valuable social relationships. What we find then is a strong positive correlation between
financial capital, cultural capital and social capital. Social capital then reinforces the position
of people with an already strong position in the social structure. But social capital is also a
mechanism to perpetuate inequalities. Those who have the most valuable connections tend to
use them to maintain and advance their interests, and this in turn is a cause of further
inequality. The least privileged also tend to form their networks, but they are made up of
people in a similar situation to themselves who are therefore of only limited use in accessing
new resources. In particular, people facing tough circumstances can and do find their social
capital a useful resource. Adversity can help strengthen bonds, particularly among those who
face similar experiences of exclusion or danger. Yet while dense and localised networks may
well be very homogeneous and close, they do not include many people who come from
different background and could give access to new resources that are situated or controlled
outside the community. For instance, Zhao, in a study of laid-off workers in China, found that
typically they had distinctive networks, which were stronger on kinship ties than those of the
population at large, but were also lower on the range of resources that were accessible.
TYPES OF SOCIAL CAPITAL
Are perverse results the outcome of a particular type of social capital?
Several authors (see Woolcock abd Radin) have advanced an analytical distinction between
three types of social capital: bonding, bridging and linking social capital. Bonding social
capital can be found in networks characterized by strong social ties, feelings of solidarity,
obligations of reciprocity, fears of marginalization, cultural homogeneity, closure to the
outside world. This type of social capital is often associated with particularized trust, that is
trust for specific people for doing specific things. It is more likely to prevail within families,
kinship or small communities. Bridging social capital can be more often found in wider
networks characterized by weak ties, less strong feelings of solidarity and obligations of
reciprocation, openness to new relationships and knowledge, wider diffusion of information.
It prevails in larger groups and more modern and innovative communities. Finally linking
social capital refers to properties of an entire region or nation. Its main manifestations are
people’s perception of living in a well-ruled country, confidence in public institutions,
generalized trust. It tends to prevail in countries were the state treats citizens equally, the
decision making procedures are highly democratic, the court system is effective, there is a
long accumulated history of successful collective action. (This distinction recalls the “three
layers” distinction put forward by Nan Lin).
Most scholars have associated perverse effects of social capital with particular forms of
bonding social capital or with the absence of bridging social capital. Groups or communities
characterized by strong internal ties but weak external links are those that more likely pursue
interests of their members at the expense of ignoring other people’s interest and that develop
feelings of hostility and aversion for outsiders.
It may be useful to insert here a brief note on the concept of identity, which has been widely
used in the context of local development policies. As in the case of social capital, the concept of
identity is double sided. A strong identity of a network’s members, let assume a Community,
has always been seen as a positive value associated with social cohesion, attachment to the
territory’s historical heritage, respect and love for the homeland. All these elements have
generally been considered as functional for a community driven development. But a strong
identity can also be a synonymous of closure, intolerance and conservatism that represent
powerful obstacles to any form of economic and human development.
SOCIAL CAPITAL AND ECONOMICS
SOCIAL CAPITAL AND TRANSACTION COSTS
Economists were quite suspicious and reluctant to use the concept of social capital when it
was first introduced. They were also annoyed by the use of term “capital” drawn from the
economic discipline but used improperly according to some eminent economists. Economists
are accustomed to work with very precise concepts and with quantitative variables exactly
measurable. They do not appreciate vague or flexible concepts and qualitative variables that
make difficult to build and use formal mathematical models. It took time then before
mainstream economists (few of them up to now) began to use social capital in economic
analysis. The most convincing economic backdrop for using this concept in economics is
probably the theory of transaction costs and incomplete contracts.
Generally speaking, social capital intervenes in the economy when the market fails. Its role is
to help to remove the causes of market failure and allow trade which would otherwise not be
able to take place. The theory of transaction costs and incomplete contracts states that
stipulating a contract involves costs, and that all contracts are necessarily incomplete. There
is a trade off between level of completion and cost of contracts. The more complete is a
contract, the less risk it presents, but the more it costs. The less complete a contract is, the less
it costs, but the more risk is present. So transactions may be hindered because contracts
governing them involve excessive transaction costs or because they are too risky in the
absence of contractual safeguards. Social capital plays a role in this trade off by reducing the
costs and risks of transactions, increasing the opportunities for trade and leading to greater
economic efficiency.
AGAIN ON COLLECTIVE ACTION
Remaining in the field of economics, there is an important set of situations in which social
capital is presumed to play an important role: the production of public goods through
collective action. Collective action, we remind, is required when for the production of certain
goods different subjects need to coordinate their action. This is often the case with public
goods which cannot be produced at all or in the sufficient quantity by normal market
functioning.
Having introduced networks, institutions and social capital, we can come back to the problem
of collective action in a more formalized way highlighting the respective role of networks,
social capital, institutions and private interest.
The typical trust situation in a collective action problem with only two actors represents a
version of the prisoner’s dilemma:
 Subject A must decide whether entrust a subject B or not without having the possibility
of finding a formal and binding agreement
 If A decides not to entrust B, there will not be interactions between A and B and the
payoff for both will be nil (0,0)
 If A decides to entrust B, the transaction starts and B must in his turn to decide
whether reciprocate A or exploit A
 If B decides to reciprocate, the transaction ends with A and B getting a positive payoff
equal to f
 If B decides to exploit, the transaction ends with A getting a negative payoff equals to –
n and B getting a positive payoff equals to f + n
The essence of a collective action problem arise from the inherent conflict between B’s private
interest of exploiting and the collective interest of cooperation. In one shot game with rational
and selfish players, the exit of the game is the failure of the collective action. A knows that if he
choses to entrust B, the interest of B will be to exploit and that in this case he will get a loss
equals to –n. Then A will choose not to entrust B from the beginning and no transactions will
take place. The payoff for both players will be nil, lower than the payoff of cooperation for
both players.
Is there any way out from this situation of impasse? There are various possibilities which can
make possible a cooperative solution:
a) A and B know that they are bound to interact in the future an indefinite number of
times because they belong to the same network. B knows that if A entrusts him and he
exploits, then A will not entrust him in the future. The short run profit of exploitation
will fall short of the long run losses from missed transactions in the future. A knows
that B is aware of that and will entrust B and B will reciprocate
b) If the non cooperative behaviour is forbidden by formal rules and if the court system is
effective, B will reciprocate for fear of being sanctioned. A knows that and will entrust
B in the first place.
c) Even in absence of formal rules, shared values, in the network to which A and B belong,
of trust and reciprocity may convince B to cooperate for fears of informal sanctions as
ostracism or marginalization from the network. In this case the gain from exploitation
would be more than offset by relational and psychological losses and not necessarily
by economic losses. These shared values may be the result of a long and successful
tradition of collective action
d) A may chose to entrust B and B to reciprocate because both have a component of
altruism in the preference function. They trust each other because they share trust as a
moral value. This may depend on individual propensities or may be the result of A and
B living in a society characterized by an high degree of generalized trust.
The cooperative solution in the case of a) depends entirely on a rational calculus. We do not
need either social capital or institutions. The cooperative solution in b) depends crucially on
the role of institutions in establishing the rules of the game and enforce them. The solution in
c) calls into question, institutions in the form of informal rules and social capital in the form
of moral values shared by the community. Finally the possibility of d) depends crucially on the
degree of personal and generalized trust prevailing in the society. These various possibilities
do not imply that a positive solution of a collective action is easy and straightforward but only
that positive solutions are possible. Finally, one should remark that positive solutions of
collective actions in most cases of real life come from a combination of private interest, fear of
formal and informal sanctions, shared values in the network and altruistic propensity, id est,
from a joint evaluation of all factors examined in the four solutions displayed above.
SOCIAL CAPITAL AND ECONOMIC DEVELOPMENT
Social capital matters for economic development. There are a lot of studies that confirm this
thesis. At community level, social capital is associated with higher household incomes in
Tanzania villages, with higher levels of household welfare in Indonesia, with development
performance in villages of North India. At national level, economic growth is higher overall in
countries where trust and social capital are higher.
National economic growth benefits from generalized trust in potential trade partners which in
turn is linked to confidence in public institutions. Citizens ‘ perceptions that they live in a
country where the state treats citizens equally, where justice is impartial and penalties for
lawbreakers are effective, are elements that, in theory, facilitate the spread of trust in the
widest sense. To use Serageldin and Grootaert words “formalized institutional relationships
and structures such as governments, political regimes, the rule of law, court systems and civil
and political liberties” can make a difference for national economic performance. They help
the economy to function because create a framework of certainties regarding the availability
of high-quality public goods and the behaviour of trade partners, reducing the risk of
economic choices. The relevant social capital is linking social capital in the form of confidence
in the correct and equitable functioning of institutions and more generally the honesty of
individual economic actors.
Local economic growth is supposed to benefit from both bonding and bridging social capital.
Bonding social capital consists of the close ties in small cohesive communities. Opportunistic
behaviour is very unlikely with this type of group because the stronger is the cultural
conditioning engendering cooperation between members, the easier it is to identify and
punish deviation. In this context trust has an almost primitive connotation. But bonding social
capital can also hinder economic development (the dark side of social capital). In the first
place, group interests may not coincide with overall community interests. Secondly, group
cohesion may lead to closure to outside stimuli and conservative behaviour. Bridging social
capital and weak ties allow group closure to be opened up to new relationships and
knowledge and the wider dissemination of information. Trust in people is no longer a result of
generational bonds, but comes to depend on actual knowledge of others, past experience and
the specific characteristics of the network.
References
In writing these notes, I have drawn freely from the book Social Capital by John Field ,
Routledge, 2003 and from various chapters of the book: Handbook of social capital, edited by
Castiglione, Van Deth and Wolleb, Oxford University Press, 2008. More exactly from:
The two meanings of social capital, by Harmut Esser, chapter 1
A network theory of social capital, by Nan Lin, chapter 2
Social capital and collective action, by T.K. Ahn and Elinor Ostrom, chapter 3
Trust as a moral value, by Eric M. Uslaner, chapter 4
The nature and logic of bad social capital by Mark Warren, chapter 5
Social capital and civic engagement. A comparative perspective by Sigrfid Rossteutscher,
chapter 8
Political institutions and generalized trust by Bo Rothstein and Dietlind Stolle, chapter 10
Introduction to Part 3. Social capital and economic development by Guglielmo Wolleb
Social capital in economics by Domenico Cersosimo and Rosanna Nisticò, chapter 14
A relational approach to the theory and practices of economic development by Michael
Woolcock and Elizabeth Radin, chapter 15
Social capital and economic development by Anirudh Krishna, chapter 16
Social capital and microfinance by Laura Foschi, chapter 17
Social capital, institutions and collective action between firms by Alessandro Arrighetti,
Gilberto Seravalli and Guglielmo Wolleb, chapter 19