Social capital, social norms and the new institutional economics

Intense research effort into social capital has yielded important contributions to the new institutional economics. First, levels of trust and trustworthiness are widely divergent across societies. Second, these differences are partly attributable to differences in formal institutions and reputational mechanisms that are of great concern in other literatures. Third, however, the strength of social norms underlying trust and trustworthiness also appears to vary dramatically, with important implications for government effectiveness, growth in incomes, and other development outcomes. A concern for policy implications is an important characteristic of the New Institutional Economics, and is present as well in the literature on social capital. Research into the origins of formal institutions conducive to development (to credible commitment, for example) suggests that such institutions are difficult to develop de novo. This research has shown that political institutions matter tremendously for whether political promises are credible and whether public policy is less or more divergent from the socially optimal. However, the research is equally clear that progress in the development of formal institutions is difficult to accelerate and far from guaranteed.

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In the same way, the evidence suggests that social norms that prescribe cooperation at the level of entire societies are also difficult to instill.²⁸ Such broad and intractable features of a society as its social heterogeneity can stand in the way of the development of trust and civic cooperation. Woolcock (1998:186) writes that

However, as Keefer and Shirley (2000) argue, in societies where formal and informal institutions of wide “radius” are missing it may be possible in the short and medium-term to improve just the reach and functioning of informal norms that operate only within family, religious or ethnic groups, despite the risks that this poses for inter-group transactions and cohabitation.

At the same time, the evidence is fairly clear that income equality and education are linked to trust and other development-promoting norms; education and income distribution are two characteristics of countries that are much more amenable to intervention. Similarly, the importance of trust and trustworthiness are sufficiently well-documented, and ways to measure them are sufficiently well-developed, that efforts to assess them are amply justified. Such assessments are particularly necessary prior to undertaking activities that appear to be development-promoting, but have a clear potential to disrupt the bases for social norms. The assessments actually could provide an additional rationale for certain projects; for example, a land tax or the construction of

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Questions of how social norms emerge and evolve over time in response to changes in technology,

rational (Coleman, 1990; Elster, 1989), are beyond the scope of this chapter.

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rural roads could disrupt feudal social relations that discourage the development of more socially-efficient norms and networks. On the other hand, dislocation due to dam-building or other massive infrastructure development is almost surely destructive of social norms and networks on which trust and trustworthiness depend; the costs of that destruction would need to be weighed against the benefits of the infrastructure project itself.

The difficulties of formulating robust policy recommendations are directly related to inadequacies in our knowledge base regarding the sources of social capital, whether norms, networks or trust. Opportunities for future research immediately suggest themselves, however, and do so with some urgency. High priorities for future research include documenting institutional mechanisms for defusing tensions among groups with few common norms or networks to unite them; describing the conditions under which the distrust associated with ethnic heterogeneity can be alleviated; and identifying ways in which governments or donors can support bottom-up production of norms and networks

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in non-distorting ways. Such research would have been premature ten years ago; now, however, the wealth of evidence showing the pervasive and significant effects of social norms provides a strong impetus to such work.

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