Social Capital and Development: The Coming Agenda

This article addresses the concept of social capital: in particular, where social capital stands today, how it interacts with other factors in international development, and how it will contribute to economic growth and poverty alleviation in the future.

The term "social capital" reentered the social science lexicon in the 1980s. According to sociologist James Coleman, social capital refers to people's ability to work together in groups. I prefer to define the concept more broadly to include any instance in which people cooperate for common ends on the basis of shared informal norms and values. Furthermore, many now regard social capital as a key ingredient in both economic development and stable liberal democracy.

Over the past decade, most research on social capital and its relationship with economic development has been conceptual, focusing on its definition, where it comes from, and how it functions. Future research, however, should move away from historical cases to a more pragmatic agenda, examining issues such as where social capital has successfully been created; the legal and institutional conditions that underpin its growth; its correlation to political corruption; and the impact of cultural changes (such as religious conversions) on social capital. First, we need to understand how social capital fits into the broader development agenda.

Rethinking of Development

A major rethinking of the problem of development took place during the latter part of the 1990s, including a new appreciation for the importance of incorporating cultural factors into economic growth and development models. Social capital, after all, is simply a means of understanding the role that values and norms play in economic life.

The 1990s began, in a sense, with the so-called "Washington consensus" as the dominant approach to the discourse on developing and transitional economies. Applied primarily by international financial institutions, the Washington consensus was a series of economic policies that sought to free developing and transitional economies from the dead hand of the state. These were applied with varying degrees of success to countries in Eastern Europe and the former Soviet Union, Latin America, Asia, South Asia, and elsewhere in the developing world.

In many cases these policies failed to produce sustained economic growth, prompting a backlash against what is derisively called "neoliberalism." Nowhere is this more apparent than in Latin America. The charge that the Washington consensus has been an across-the-board failure is nevertheless inaccurate; there were, in fact, some key successes in countries like Poland, Estonia, Mexico, and, before the Washington consensus was formulated, Chile. The failure of the Washington consensus was one of omission, rather than of policy. Privatization of inefficient nationalized assets, reduction of trade and investment barriers, phasing out of subsidies that distort market prices, industry deregulation, and market integration into the global economy are all unexceptionable policies that, in the long run, are necessary for economic growth. Any rethinking of the development problem should not reject these policies as long-run objectives.

The problem with the Washington consensus was not that it was misdirected, but rather that it was incomplete. One of the ways in which it was incomplete was its failure to take account of social capital. The ability to implement liberalizing policies presumed the existence of a competent, strong, and effective state, a series of institutions within which policy change could occur, and the proper cultural predispositions on the part of economic and political actors. Nevertheless, the Washington consensus was implemented as a blueprint for development in many countries lacking the proper political, institutional, and cultural preconditions to make liberalization effective. Eliminating capital controls, for example, can lead to serious financial instability if implemented, as in the case of Thailand and Korea, in countries without adequate regulation of the banking sector. Similarly, privatization of state assets can delegitimize the entire reform process if carried out by state agencies that are corrupt and prone to cronyism.

What we have learned over the past decade, then, is not that liberalization does not work, but that economic policy...