Treating social relationships as a form of capital acknowledges that they are capable of changing economic and political performance, for better or worse. This simple idea has provoked an outpouring of new research in recent years. Some of the research is unrelated to development and focuses on the alleged decline in civic culture in the United States. A growing part of the research focuses on the question: is an increased density of social relations helpful to international development, and, if so, what should policymakers be doing about it?

Huge scope for research on social capital exists and it is not therefore surprising that researchers from a variety of social science disciplines have become involved from sociologists to political scientists, to anthropologists and economists. An ambition of the modern founders of social capital research was the unification of sociology and economics. Experience seems to be telling us that this is beyond our reach. Each discipline has applied its familiar methods to this new terrain. Within the methods of each discipline are embedded some basic assumptions, ways of seeing and language that keep the different disciplinary approaches distinct. Many would say that this is fair enough.

The articles in this issue are based on papers first presented (with the exception of Barr’s) at the ‘Opportunities in Africa: Micro-evidence on firms and households’ conference in April 2000 at the Centre for the Study of African Economies, University of Oxford. The research shows attempts by economists to tackle social capital analytically. They aim to give greater precision to the initial finding that, at the household and firm level, more social capital leads to greater welfare and better performance. What distinguishes them is their precise theoretical formulations in a subject area that can lend itself to ambiguity, their innovative approach to measurement, and the use of econometric tools on unusual data sets. Economists believe that this kind of rigorous analysis can underpin sound policies.

Social capital is created when people associate together for a range of different purposes. However, to calculate the benefits of social capital with any accuracy, we need to be able to distinguish what is to count as social capital and what is not. On this, opinions still differ. Haddad and Maluccio think that it should be possible to separate out benefits that accrue to individuals from simply being a member of a group and from actively influencing the group’s behaviour, from other indirect benefits at group and community level. They aim to measure all these different types of return separately, while defining only the indirect benefits as the return to social capital. This corresponds to the economist’s description of social capital as a ‘positive externality’, meaning a benefit that arises over and above the direct benefits that the group activity was devised to produce. A credit union, for example, will bring its members direct benefits by increasing the supply of credit to them, but it may additional

A more inclusive definition of social capital would count the direct benefits of association as well as the indirect and unintended ones. Here the model is of individuals who form networks of associates precisely in order to gain access to direct benefits from which they would otherwise be excluded. Such benefits can be many and varied. Barr’s study of Ghanaian entrepreneurs mentions the accessing of technologies and markets, helping to enforce contracts and supporting informal credit and insurance arrangements. If such resources are not available at arm’s length from impersonal markets, individuals will invest more of their time building networks to carry on business.

One of the most readily recognisable forms of network is the ethnic business network. The successful entrepreneurship of ethnic or religious minorities is often attributed to the ease with which they network together. Yet it is rare to be able to test how much business success is caused by ethnic networking and how much by superior business skills. Fisman’s research has tackled this conundrum, showing that ethnically based social capital does have its own independent effect.

Ethnic networks are also the focus of Isham’s research on technology adoption in rural Tanzania. He provides strong evidence against the assumption that villages in sub-Saharan Africa are socially cohesive. Ethnic cliques are likely to define the extent and channels of information flows within villages, as they do in business. Thus social assessments, despite their expense, are a vital component of rural development project investment.

Barr’s study shows that networking operates differently for entrepreneurs of different scale. As Woolcock puts it, networks can be defensive, to give a group of poor small operators some protection against risks such as debt default and opportunistic behaviour, or offensive, enabling the large-scale players to capture more distant advantages, that they can then fully internalise.

In the networking context, this asymmetry of benefit seems to be one limitation on the use of social capital as the capital of the poor. Other papers point to other limitations. If a villager has to join a group in order to increase his or her stock of social capital, then understanding the dynamics of group formation becomes crucial. The costs of maintaining a group often fall more on the rich than the poor. When this is so, the degree of income inequality will affect the type of groups that are formed. From the point of view of the poor, the outcome could be exclusion from the group, or inclusion in a group from which the rich have voluntarily excluded themselves.

In either case, the opportunities for the poor to build bridging and linking social capital are restricted. Their welfare can be diminished as a result. If, in these circumstances, income inequality is a deterrent to group formation, this adds one more argument to the growing consensus in the economics literature that greater equality of incomes, far from being a drag on development, is a positive stimulus to it.

The economic analysis of social capital is still at a relatively early stage. The studies reported here show that it is certainly possible to give the concept an empirical foundation. Further, they do not reject the basic proposition that social capital has measurable beneficial effects in aspects of the development process. Beyond that, they show that these benefits are shaped by particular contexts - household or business, rural or urban - within particular African countries. They do not yet add up, and they may never add up, to one grand generalisation. Nor is there one simple message for the policy-maker. To say ‘do everything you can to encourage the growth of social capital’ would be absurd.

A more discriminating and context-specific approach is necessary:

• The first step is to be more aware of the existence of social capital and the exact functions that it performs. Social assessments are helpful for this purpose. To fail to use them in projects for cost reasons is usually a false economy.
• Then, avoid creating formal organisations to fulfil the functions that social capital now performs, unless there is positive benefit in so doing. Social capital may be invisible, but it is valuable and should not be wantonly destroyed.
• The conditions under which social capital can be ‘the capital of the poor’ are complex. Specifically, issues of income distribution and ethnicity have been shown to be highly relevant. Further research should seek to extend the list of conditioning factors.

Source(s):
Insights 34, Editorial Full document.

Funded by: Not known

id21 Research Highlight: 14 September 2000

Further Information:
Abigail Barr
Centre for the Study of African Economies
University of Oxford
Manor Road, Oxford OX1 3UQ, UK

Tel: +44 (0)1865 271084
Fax: +44 (0)1865 281447
Contact the contributor: abigail.barr@economics.oxford.ac.uk

Centre for the Study of African Economies (CSAE), UK

John Toye
Centre for the Study of African Economies
University of Oxford
Manor Road, Oxford OX1 3UQ, UK

Tel: +44 (0)1865 271084
Fax: +44 (0)1865 281447
Contact the contributor: john.toye@economics.oxford.ac.uk

Other related links:
Search Eldis for sources on social capital