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		Issue #34
		It's not what you know - it's who you know! Economic analysis of social capital

		Friends in high places? An overview of Social Capital

		Pathways of influence in South Africa

		Preferential credit for ethnic firms?

		Choosing better technology. Does social capital help?

		Networking for success and survival in Ghana?

		Unequal access to social capital in Tanzania

		Sites for Sore Eyes: Online Sources on Social Capital

September 2000 Insights Issue #34

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Pathways of influence
Social capital and household welfare in South Africa

Social capital is a difficult concept to define, particularly at the empirical level. At a conceptual level, how much social capital one has can be thought of as the number and strength of social relations that an individual or household can call on. These networks of relationships may improve welfare by increasing information flows, reducing transactions costs (due to greater trust), increasing consultative decision making, and helping to insure against crisis.

To date, economists have combined empirical measures regarding the extent of membership of groups and their effectiveness - as reported by the members - to construct indices for social capital. Findings from Tanzania, Indonesia, South Africa, Burkina Faso and Bolivia show that social capital indices are positively associated with household welfare. However, the empirically significant pathways by which social capital works remain unclear. Based on a survey of approximately 1200 households and 69 communities in the South African province of KwaZulu-Natal in 1993 and again in 1998, collaborative research by the International Food Policy Research Institute, the University of Natal, and the University of Wisconsin asked the following:

To what extent do the returns accrue to membership in groups per se?

How important is the type of group- financial (e.g. a savings group) or non-financial (e.g. religious)?

Does it matter if a member is more or less active in the group?

What difference does it make if the group members are characterized by high trust? (high trust groups are those that trust their neighbours more than their community leaders.)

Is it enough just to live in a community characterized by high trust, even if not a member of a group?

Findings in general indicated that returns to group membership vary by type of group, level of participation, and degree of trust. Specifically:

Financial and non-financial group membership both yield returns.

Greater participation by a household reduces the marginal return to financial groups, perhaps reflecting increased costs, but enhances the return to non-financial groups.

Increased trust provides large benefits for households with high participation in non-financial groups, but does nothing for those in financial groups (likely to have explicit rules and regulations with no need for greater trust to yield benefits).

Except for those with low levels of participation and trust, the returns for non-financial groups are everywhere higher than for financial groups.

Living in a community with high levels of trust does not result in increased per capita expenditure (the measure of welfare used in this study).

The effects of group membership appear to operate through social capital since, at least for non-financial groups, groups with higher trust are associated with higher per capita expenditure. Only active participants, however, benefit: simply being a member is not enough. It is the interaction of the household level behavior and the group’s trust level that leads to improved benefits.

Belonging to a community with high levels of trust does not lead to higher levels of per capita expenditure: it is crucial to be part of a group to benefit from social capital. For a non-financial group, with a specific kind of trust and active household participants, the returns will be far greater.

Policy thus needs to:

Foster the creation of financial and non-financial groups, for example through information campaigns to increase demand, or incentives to increase supply, perhaps delivered via the tax system or the rules for the tendering of new development projects. At the very least, public policy should not legislate against the formation of and participation in groups.

Promote transparent, responsive, inclusive and accountable governmental structures, processes and policies to help build up trust within a community. This can be achieved by local government 'scaling down' and working directly in partnership with local groups and NGOs.

Contributor(s): Lawrence Haddad and John Maluccio

Further information:
Lawrence Haddad
International Food Policy Research Institute (IFPRI)
2033 K Street NW
Washington DC 20006
USA

Tel: +1 (202) 862 8179/5693
Fax: + 1 (202) 467 4439/4439.
Email: l.haddad@cgiar.org
International Food Policy Research Institute (IFPRI), USA

John Maluccio
International Food Policy Research Institute (IFPRI)
2033 K Street NW
Washington DC 20006
USA

Tel: 00 1 (202) 862 8179/5693
Fax: 00 1 (202) 467 4439/4439.
Email: j.maluccio@cgiar.org

See Also:
Social Capital and Household Welfare in South Africa: What are the Pathways of Influence?, paper presented at the CSAE conference, 'Opportunities in Africa: Micro-evidence on firms and households', Oxford by Lawrence Haddad and John Maluccio (April 2000). More information

Other related links:
Search Eldis for sources on social capital

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September 2000 Insights Issue #34

Pathways of influence Social capital and household welfare in South Africa

Pathways of influence
Social capital and household welfare in South Africa