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Tuesday, December 16, 2014

Social Capital & European Society

Social capital and its role in society have been defined by many different scholars and writers in different ways. Lyda Hanifan was one of the first to use the term in 1916. Her definition of social capital was, “Those tangible assets [that] count for most in the daily lives of people: namely goodwill, fellowship, sympathy, and social intercourse among the individuals and families who make up a social unit.” Other academics such as Jane Jacobs (1961), Pierre Bourdieu (1983) and James S. Coleman (1988) have done much to carry the concept further over the years. More recently, Robert Putnam has become an important writer on the topic, and is also much responsible for bringing the term into popular use after his 2000 book Bowling Alone: The Collapse and Revival of American Community. In one of his earlier publications he writes, “social capital refers to features of social organization, such as networks, norms, and trust, that facilitate coordination and cooperation for mutual benefit” (Putnam, 1993). The Organization for Economic Co-operation and Development (OECD) has written much about social capital as it relates to their work. In one of their publications, Brian Keeley (2007) writes, “We can think of social capital as the links, shared values and understandings in society that enable individuals and groups to trust each other and so work together (Keeley, 2007).” It is challenging to bring all these definitions together. For the purpose of this paper, social capital will simply refer to: the values and social norms embedded in a society that create social cohesion, encourages individuals to trust each other and facilitates cooperation.

Europe as a society has been shaped, in large part, by an abundance of social capital that has allowed it to grow and prosper economically. The shared norms and values held by Europeans throughout the centuries—values such as honesty, keeping of commitments, respect for people’s property, safety and security, goodwill, self-sacrifice and reliable performance of duties—which are largely a result of the widespread adoption of Christian tradition, have been an essential, underlying foundation upon which European peoples have cooperated. The networks of trust, or social cohesion, created by these shared norms have enabled Europeans to work together to build an advanced, civilized society that could not have been possible without this abundance. The World Bank Group writes, “social cohesion is critical for societies to prosper economically and for development to be sustainable… [it] is not just the sum of the institutions which underpin a society – it is the glue that holds them together (World Bank, 2011).” Indeed, it was this unique abundance of social capital that led this small peninsula at the tip of Asia to be called by many as simply “The Continent;” it is what has made Europe “Europe,” distinct from its eastern roots (Fountain, 2004).

A growing body of research has demonstrated how social capital contributes towards economic growth and prosperity (e.g. Whiteley, 2000; World Bank, 2011; Iyer, Kitson & Toh 2005). Central to understanding how this works is the idea that certain norms and values (such as the ones mentioned above) actually have economic value in that they foster economically beneficial relationships and cooperation—and in doing so they lower transaction costs (Fukuyama, 2001). It is no coincidence that countries where interpersonal trust is higher and social capital is stronger also have the most developed economies (Knack & Keefer, 1997; Knack, 2002).

A good way to demonstrate how trust and social capital has economic value is to use an illustration. Vishal Mangalwadi, an Indian author and philosopher, describes in one of his books (Mangalwadi, 2009) his first visit to the Netherlands during which time he realized that trust is a valuable economic asset. On this visit while staying in a rural part of the country, his host took him to buy fresh milk. They walked to a neighbouring farm and entered through an unlocked door into the facility where cows were milked. His host proceeded to fill his milk jugs from the vat, and then deposited money into a jar. They proceeded to leave with their milk, never encountering another person during the entire transaction. Mangalwadi was dumbfounded. He did not understand what prevented others from coming to steal the money in the jar, or to at least take the milk for free (not to mention the cows). This brief example shows how social capital can contribute to economic prosperity—but also how fragile it is. Because the milk farmer trusted his neighbours to pay for their milk without supervision, it lowered the transaction costs. Conversely, if the farmer at some point experienced theft, he may lose trust and take precautions by hiring someone to manage the transactions, ultimately leading to an increase in the price of milk. Taking the argument even further, if the hired worker were not himself trustworthy, and only made rational decisions based upon his own return on investment, he might begin pocketing some of the money. Continuing to lose, the milk farmer may be tempted to boost profits by watering down his milk. His customers would then be forced to create a regulatory institution that could ensure quality—further hiking up prices. This scenario shows, albeit on a very small scale, how social cohesion has economic benefit, and how the breakdown of trust in an economy can have detrimental and far-reaching effects. Mangalwadi realized what European communities had that was largely lacking in his own country, and what was responsible for the relative difference in economic prosperity: social capital.

The breakdown of the trust relationship between public transport companies and those using public transport in the Netherlands was one of the main reasons for the introduction of the OV chip card system, and serves an example of how social cohesion is deteriorating in Europe. The system, which cost a fortune to implement, was a rational response by the public transport companies in the face of profit losses due to fraud on the part of commuters who could no longer be trusted to “punch in” with their strippenkaart (Thales Group, 2011). By deviating from the social norms (namely honesty and trustworthiness), and cheating the system, the very consumers who tried to avoid costs to themselves in the short term, effectively caused the prices of public transport to increase for the entire society. Similar phenomenon can be observed throughout Europe in the corporate world and even politics. As people place less value on the social norms that have helped to shape Europe, social cohesion deteriorates and people trust each other less. As social cohesion breaks down, individuals tend to make decisions based solely on their personal rate of return rather than what is beneficial or “right” for the network in which they are embedded.

There are numerous reasons why social capital can be said to be on the decline in Europe. One of the main reasons is the diminishing role of the family in society. Increasingly more children are growing up with only one parent, or with parents that do not live together (Morgan & Zippel, 2003). Additionally it is increasingly more common that both parents work, and therefore invest less time with their children. Traditionally, the family has played the greatest role in passing on important social values and norms that constitute social capital (Putnam, 2000). Another possible reason for the decline may be decreased involvement with religious institutions. Increasingly fewer Europeans affiliate themselves with religious beliefs (Pollack, 2008). Religious institutions have been shown to play an important role in the development of social capital (Fukuyama, 2001).

The reasons why these values and social norms are disappearing are many and varied, but the results are clear: trust disappears, and transaction costs increase as problems like corruption, bribery, fraud and criminality take their place. Studies have shown that corruption raises the cost of capital and uncertainty in the economy (Gray & Kaufman, 1998), and some studies have shown that corruption is even spreading in Western Europe (Porta, 1997). On the other hand however, the same study shows that society is also becoming more concerned about problems like corruption and wants to do more to fight them. Also, while many of the traditional values that have contributed to social capital are on the decline, other values such as tolerance, environmentalism and social responsibility are on the rise in Europe. Additionally, the average economic and social well-being in much of Western Europe has been steady or on the rise.


How does one reconcile these seemingly inconsistent trends? Perhaps social capital is merely changing form. One other possibility is that Europe is not yet fully experiencing the effects of its steady decline in social capital, but is still reaping the benefits of the strong social cohesion created by prior generations. If this is the case, it is only a matter of time until Europe undergoes a painful transformation. As social capital continues to decline, it may be that Europe no longer finds itself positioned next to the United States at the forefront of the global economy.

Fountain, J. (2004). Living as people of hope (p. 53). Rotterdam: Initialmedia. 

Fukuyama, F. (2001). Social capital, civil society and development. Third world quarterly, 22(1), 7-20.

Gray, Cheryl W.; Kaufman, Daniel (1998). Corruption and Development. World Bank, Washington, DC. https://openknowledge.worldbank.org/handle/10986/11545

Hanifan, L. J. (1916). The Rural School Community Centre. Annals of the American Academy of Political and Social Sciences. 67, 130-38.

Iyer, S., Kitson, M., & Toh, B. (2005). Social capital, economic growth and regional development. Regional Studies, 39(8), 1015-1040.

Keeley, B. (2007). OECD Insights Human Capital How what you know shapes your life: How what you know shapes your life. OECD Publishing.

Knack, S. (2002). Social capital, growth and poverty: A survey of cross-country evidence. The role of social capital in development: An empirical assessment, 42-82.

Knack, S., & Keefer, P. (1997). Does social capital have an economic payoff? A cross-country investigation. The Quarterly journal of economics, 1251-1288.

Mangalwadi, V. (2009). Truth and transformation: A manifesto for ailing nations. Seattle: YWAM Publishing.

Morgan, K. J., & Zippel, K. (2003). Paid to care: The origins and effects of care leave policies in Western Europe. Social Politics: International Studies in Gender, State & Society, 10(1), 49-85.

Pollack, D. (2008). Religious change in Europe: theoretical considerations and empirical findings. Social compass, 55(2), 168-186.

Porta, D. (1997). Democracy and corruption in Europe. London: Pinter.

Putnam, R. (1993). The prosperous community: social capital and public life. The American Prospect, 13(Spring), Vol. 4.

Putnam, R. (2000). Bowling alone: The collapse and revival of American community. New York: Simon & Schuster.

Thales Group (2011). The OV-chipkaart Story: A Nationwide Interoperable Fare Collection System in the Netherlands. ThalesGroup.com. Retrieved Dec. 13, 2014, from https://www.thalesgroup.com/sites/default/files/asset/document/thales_-_the_ovchipkaart_story_-_v2.pdf

The World Bank Group. (2011). What is Social Capital. Retrieved 12 11, 2014, from World Bank: http://go.worldbank.org/K4LUMW43B0

Whiteley, P. F. (2000). Economic growth and social capital. Political Studies,48(3), 443-466.


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