Social Capital

How do the OECD and the World Bank define it?

The OECD (2001) defines social capital as networks together with shared norms, values and understandings that help people co-operate. This can be within a group or among groups.

The World Bank researcher Deepa Narayan (1999) uses a similar idea. She defines it as the norms and social relations that let people co-ordinate action and reach goals.

In both, social capital sits in the relations between people, not inside any one person.

Sources: OECD: The Well-being of Nations (2001) · World Bank: Bonds and Bridges, Narayan (1999).

Why does trust matter for co-operation?

Without trust and networks to ensure compliance, people tend not to co-operate. They cannot rely on others to act the same way. Norms of reciprocity and networks help make people keep to shared rules.

The OECD calls social capital partly a public good and partly a private good. Many people gain when one person or group adds to it. So it risks under-investment.

Sources: OECD: The Well-being of Nations (2001), PDF page 42.

What separates physical, human and social capital?

• Physical capital is the stock of buildings, roads and machines.
• Human capital is the knowledge and skills embodied in individuals.
• Social capital lives in relations. It is the level of mutual trust and co-operation in a society.

A literacy rate measures human capital. The size of the working-age population is a demographic fact, not social capital.

Sources: OECD: The Well-being of Nations (2001), PDF page 20.

What are bonding, bridging and linking ties?

The OECD, following Woolcock (1999), lists three forms of social capital:

• Bonding ties join family and ethnic groups.
• Bridging ties join distant friends, associates and colleagues.
• Linking ties join people at different levels of a hierarchy, such as people and formal institutions beyond their community.

Both bonding and bridging ties are needed to avoid social fragmentation.

Sources: OECD: The Well-being of Nations (2001), PDF page 43.

Can social capital also do harm?

Yes. The OECD warns that closely knit groups may exclude outsiders. It quotes the line that “the ties that bind may also turn into ties that blind.”

It adds that drug cartels, mafia groups and terrorist groups can have high trust inside the group.

Bridging ties matter for this reason: the OECD says strong bonding without them can serve narrow interests.

Sources: OECD: The Well-being of Nations (2001), PDF page 43&44.

What do linking ties and closed firms teach us?

Linking ties join people to formal institutions. The OECD links them to the capacity of communities to leverage resources, ideas and information from institutions beyond the immediate community radius.

Closed circles can also hurt firms. In companies, strong ties of trust and mutual obligation may, in some circumstances, block information from outside and impede innovation.

The OECD still concludes that the benefits from most types of bonding and bridging generally greatly outweigh the negative consequences.

Sources: OECD: The Well-being of Nations (2001), PDF page 43 · OECD: The Well-being of Nations (2001), PDF page 44.

What does the World Values Survey show?

The World Values Survey asks: “Would you say that most people can be trusted?”

In Norway and Sweden, more than 60% say yes. In Colombia, Brazil and Peru, fewer than 10% say yes.

The OECD adds a caution. Survey questions on trust may mean different things in different countries.

Sources: Our World in Data: Trust · OECD: The Well-being of Nations (2001).

What kinds of trust does the OECD separate?

The OECD says three types of trust need to be told apart. The first is trust among familiars: family, close colleagues and neighbours. The second is trust among strangers. The third is trust in public and private institutions.

The OECD also separates two ideas. One is whether people trust others. The other is whether people are trustworthy.

It adds that dialogue and mutual understanding, founded on tolerance of different cultures or beliefs, help to underpin social capital.

Sources: OECD (2001): types of trust and tolerance, PDF page 42.

How do we measure social capital?

Measurement is hard. The OECD says most available measures centre on trust and levels of engagement in group activities.

Robert Putnam used an index of five things: community and organisational life, public engagement such as voting, volunteering, informal sociability and trust. These are proxies, not social capital itself.

Sources: OECD: The Well-being of Nations (2001), PDF page 44.

How have researchers measured it on the ground?

The World Bank built measures of social capital from the ground up. It used specially designed surveys, or modules added to existing surveys.

Narayan and Pritchett (1998) built one such measure in rural Tanzania. Their survey asked about associational activity and trust in institutions and individuals.

Another approach is indirect. Fukuyama tracks changes in social capital through changes in crime, family breakdown and trust.

Sources: OECD (2001): measuring social capital in practice, PDF page 44.