Capital gains

David Halpern argues that social capital – the foundation for an economy of regard – is a better measure of national wealth than conventional economic indicators

Ask yourself this question: do you think most people can be trusted? Don’t dwell on it for too long – just offer a general sense. Would you say ‘yes’, or would you say ‘no, you can’t be too careful’? The chances are that, if you are from a professional background, relatively politically engaged and with a university degree – a typical RSA Fellow – you would answer ‘yes’. If so, you would be among a minority of Britons today.

This wasn’t always the case. In the late 1950s, about 60 percent of Britons said they thought most other people could be trusted. The figure had fallen to 43 percent by the early 1980s and to 29 percent by the mid- to late 1990s. This question helps measure what sociologists and political scientists call ‘social capital’. It gives a sense of the extent to which individuals and communities trust each other, reciprocate helpfully and are connected to other people.

Robert Putnam first brought this declining trend to wider public attention using US data in the mid-1990s and subsequently published his findings in Bowling Alone (2000). He found that Americans seemed to have become less engaged with one another from the late 1960s – as demonstrated by falling memberships in Parent-Teacher Associations, fewer family picnics, a decline in churchgoing, less political engagement and less social trust.

Yet Putnam – a friend and colleague with whom I have worked for more than a decade – got his initial account wrong in one important respect. The story he told so comprehensively using US data turned out not to be true for all countries. While a broadly similar decline occurred in the UK and some other Anglo-Saxon countries, as well as in France, subsequent analysis has shown that this was not the case in all countries. Evidence suggests that in the already high-trust Scandinavian nations, social trust has actually increased over the past two decades. The World Values Survey for 1981-2005 put it at 59 percent in Finland, 68 percent in Sweden and 74 percent in Norway.

Certain ‘traditional’ forms of social capital, such as church-going, Women’s Institutes, party membership and trade union memberships, have almost universally declined. But while in the US and the UK this seems to have been associated with a trend towards privatisation and disengagement, in other countries it was associated with the rise of ‘solidaristic individualism’, to use a phrase coined by Swedish sociologist Bo Rothstein.
 
In essence, we Anglo-Saxons have spent the past few decades using our growing personal wealth to escape from the inconvenience of other people. To use an everyday example, we buy several TVs so that even our own children don’t have to negotiate with each other about what to watch. We use our wealth to ensure that we can do what we want, when we want to. In contrast, our Scandinavian neighbours seem to have used their wealth to see more of one another – to go out with friends, to join more reading groups and so on.

It is not just a matter of idle curiosity that nations, regions and individuals have such different levels of social capital. National economic growth rates have been shown to be strongly affected by levels of social trust. Econometric models suggest that social trust has an effect on economic growth that is as significant as that of economic catch-up (the tendency of less developed countries to catch up economically with their more developed counterparts) and larger than that of human capital (levels of education and skills).

Markets work more effectively when oiled by high levels of trust, enabling transactions to occur at lower cost – that is, without lawyers and insurance for every deal done or purchase made – and when information can flow rapidly through extended and interconnected social networks. Hence, Scandinavian economies benefit greatly from the high levels of trust between their citizens, while nations such as Brazil, whose level of social trust is well below 10 percent, are held back.

Reaping the benefits

There is now a huge amount of documentation of other benefits that flow to both individuals and societies from higher social capital. For example, social networks have been shown in both longitudinal and laboratory-based studies to offer powerful health benefits. In a series of laboratory-based studies spanning more than three decades, Ader Cohen found that the best protective factor against developing a cold after being exposed to the virus was being able to answer ‘yes’ to questions such as ‘do you have someone to talk to about your problems?’. Having supportive social relationships doesn’t just feel nice – it boosts the functioning and effectiveness of your immune system too, helping to keep you physically well and healthy. Perhaps an unintended consequence of the campaign against swine flu, in the form of ‘flu-buddies’, will be a net gain to population health through the boost we receive to our immune systems of knowing we have someone we can rely on. If only the Department of Health were always so canny.

Crime levels are also related to levels of social capital. Communities with high levels of what the criminologist Robert Sampson calls ‘collective efficacy’ – the confidence among residents to intervene in the precursors of crime and feel their neighbours would do the same – have significantly lower crime rates. We see the same pattern in the UK: high-crime neighbourhoods are not necessarily poor, but are characterised by low social capital, including rich neighbourhoods filled with affluent but single professionals. Similarly, at the individual level, those with smaller social networks are more likely both to fear and to fall victim to crime.

Social capital also affects educational attainment, although the relationship is more complex. In communities and schools where not just the children but also the parents know one another, educational attainment is raised. But the exact effect also depends on the attitudes within that community to education. If your child goes to a school where very few of the parents themselves went to university, your child’s educational attainment will be higher if you choose not to hang out with the other parents.

Even the effectiveness of government is related to levels of social capital. From micro-government such as tenants’ associations to regional and national government, a higher level of trust among citizens is associated with better outcomes. Again, this isn’t so surprising when you reflect on it. Citizens who feel interconnected tend to be more willing to pay their taxes and to follow the social norms and laws of the community, while public servants and politicians – being drawn from the same population – are more likely to display the habits of cooperation and reciprocity that help make governments and parliaments work effectively.

The discovery that educational outcomes are not always boosted by higher social capital but are dependent on the values of the community concerned illustrates an important point: social capital isn’t always a good thing. Like all forms of capital, social capital helps communities and individuals to get things done. Generally this is for the benefit of all, but not always. The Mafia is a classic example of social capital, but most people wouldn’t see it in a positive light – although it does help those within it be more effective criminals by facilitating illegal trades, intimidating others and enabling larger criminal activities.

Strong forms of social capital can also lead to conflict and disadvantage when rival networks and groups rub against one another. Northern Ireland, for example, has tended to show levels of social trust around 10 percentage points higher than the rest of the UK, and on many measures looks like a region high in social capital. But of course, much of this social capital has been historically locked in conflict between rival groups.

The ‘old boy network’ is also a form of social capital: a well-connected social network of individuals who help and trust one another for personal advantage, but not necessarily for the advantage of the wider community. This is not a new phenomenon. Adam Smith warned against merchants conspiring among themselves to hold up prices to their own advantage – and, inevitably, to the detriment of everybody else. This issue is often discussed in social capital literature in terms of a distinction between ‘bridging’ and ‘bonding’ social capital. The latter refers to connections within a social or ethnic group, whereas the former refers to connections that ‘bridge’ social divides. For most wider social outcomes, bridging social capital is to be preferred, though is arguably harder to foster.

None of this darker potential is unique to social capital. Individuals and societies with high levels of education (human capital) or financial capital can use these assets either for positive gain – to build healthcare and welfare systems – or to endanger society, for example by building armies and weapons of mass destruction.

Pioneering approaches

One issue that has attracted attention over the past five years is the relationship between social capital and ethnic diversity. Once again, it was Robert Putnam’s analysis of US data that led the way, albeit sometimes to his obvious discomfort. His Harvard research team found that states and communities with higher levels of ethnic diversity had significantly lower levels of trust both among and within racial groups. Part of this effect reflected levels of poverty and disadvantage, but even controlling for these factors, the negative impact of diversity could not be eliminated. Similar analyses have now been conducted in the UK, notably by Ed Fieldhouse and his colleagues at Manchester. These show that a similar diversity effect is found within the UK, though its absolute size is relatively modest. Further analyses have shown that roughly three-quarters of the diversity effect in the UK is the result of poverty and social class rather than racial differences.

In the US, interest has moved on to the relationship between religion and social capital. Within the American context, this is not surprising. One can forcibly argue that American churches have been factories of American social capital for at least a century, taking in waves of immigrants and forging them into hard-working American citizens.

On the face of it, this story might seem equally relevant to Britain and the rest of Europe. Despite popular and secular media portrayals, religious belief is remarkably robust across Europe and has changed very little in the past 25 years. Even church-going, which had been falling steadily for decades, has had something of a revival, partly as a esult of an influx of more religiously active immigrants from Eastern Europe and beyond.

But scratching below the surface, this is an area where Europe and the Americas are on fundamentally different tracks. If we look less at absolute levels of religious beliefs, such as ‘do you believe in God?’ (which hasn’t changed much), and more at how consequential these beliefs are for what else people believe in or do, a remarkable story emerges.

Within every European country, the strength of the relationship between religious beliefs and other beliefs has weakened over the past two decades. In contrast, this relationship has steadily strengthened in the US and Canada. Secular Americans have leapfrogged their secular cousins in Europe in their progressive and tolerant attitudes, while religious Americans have become even more socially conservative. And the tentative conclusion is that this must be driven by social capital, with emerging beliefs and cleavages reflecting patterns of social interaction.

Finally, in the current recession, attention is refocusing on the relationship between employment and social capital. It has for a long time been established that individuals’ social networks have an impact on their career and salary opportunities. In crude terms, the thickness of your filofax – or size of your Facebook or LinkedIn page – is a good indicator of your employment prospects. But analyses in both the UK and the US have rediscovered, using current statistical tools, the powerful causal links between employment and social capital. Surveys show that the unemployed, despite seemingly having more time on their hands, have lower levels of volunteering, trust and engagement. Higher levels of unemployment seem to harm not only those directly affected but also, indirectly, those who are not unemployed.

The classic and still powerful example of the negative effects of unemployment on both individuals and the wider community is Marie Jahoda’s study of the Austrian town of Marienthal, carried out in the wake of the closure of its textile factory and main source of employment. The impact went far beyond the loss of income, causing people to withdraw from society and interaction.

New analyses of current data suggest that the young may be particularly affected by unemployment, suffering a lifelong penalty that later employment does not erase. The negative effects are now thought to be at least partly mediated by changes to social capital – a sort of invisible scarring from which the individual can never completely recover. And the communities and individuals that are worst affected are those with the lowest levels of social capital to start with. In UK regions, this implies a much bumpier ride for the low social capital North East, for example, than the relatively high social capital South East.

Analyses of time-budget (or diary) studies are also casting new light on the subtle relationship between work and social capital. A forthcoming study by Matt Barnes of the National Centre for Social Research has turned up the remarkable finding that only about one in three British workers actually now work ‘normal hours’. A consequence of our modern service economy appears to be that the majority of people now work part-time or do shift work, leading to a ‘de-synchronisation’ of our leisure and social activities. Barnes and his team find that, even controlling for levels of working hours, those who do shift work end up spending substantially less time in social and participative activities.

The economy of regard

It is not all bad news. Tucked away in the latest Citizenship Survey (April 2007–March 2008, England and Wales) is the finding that there has been a marked increase in feelings of neighbourhood belonging; the proportion of people who feel they ‘very strongly’ belong rose from 27 percent to 37 percent between 2003 and 2008-09. There is even evidence of a slight increase in social trust.

But many questions remain. Will new forms of connection address the problems of social desynchronisation that the service economy has brought? Will the deeper knowledge that we now have about the relationship between unemployment and social capital strengthen our resolve and effectiveness in dealing with the current recession better than we did in the 1980s and 1990s?

For me, a key insight from the past decade of research is that our economies and quality of life are hugely affected – and indeed largely driven – by the simple habits and reciprocities of everyday life. Policymakers and commentators are prone to view this largely invisible ‘economy of regard’ – as the economic historian Avner Offer has called it – as a soft and largely irrelevant shadow of the ‘real’ economy. This is fundamentally wrong. The economy of regard, and the fabric of social capital in which it is enmeshed, is worth more than the real economy in monetary terms (consider, for example, the value of social care) and, perhaps more importantly, matters far more to most of us in our everyday lives than the focus of conventional economics.

David Halpern is director of research at the Institute for Government, and his book The Hidden Wealth of Nations is published by Polity in October 2009.

Find out more

For more information, email the Connected Communities team or visit the Connected Communities page.