"Civil Society, Social Capital and Economic Development"
David Skidmore
Introduction
In recent decades, debates over the determinants of economic development have routinely turned on disagreements over the proper boundaries between the state and the market. Statists argue that the imperfect and immature markets of most developing countries require the guidance of a strong, autonomous, Weberian state. Neoliberals champion the efficiency of free markets in allocating resources toward their most productive uses and decry the distortions accompanying many forms of state intervention. Neither perspective places primary emphasis on the role of civil society - those intermediate forms of social organization that stand between, and partially independent of, both state and market.
When statists and neoliberals do sometimes focus on the role that civil society plays in economic development, they find common ground around a negative assessment of the economic impact of associationalism. Statists fear that a vigorous civil society will press multiplied demands upon the state. These external pressures undermine the bureaucratic autonomy that serves as the central prerequisite to neutral, technocratic management of the development process. At the extreme, a constantly agitated civil society threatens to overwhelm fragile political institutions and lead to ungovernability in the face of fractious and contradictory demands from below (Huntington, 1968).
Neoliberals see matters in similar terms. Societal mobilization usually entails collusion among rent seeking agents who seek to transfer income from other segments of society by manipulating markets or state policies. These distributive coalitions reward the organized at the expense of the unorganized in a zero sum game. Widespread rent seeking adds nothing to overall economic development and in fact interferes with the growth process by distorting incentives and impeding innovation (Olsen, 1982).
In the last decade, a growing number of sociologists, economists and political scientists have sought to overturn this negative portrayal of the economic consequences of associationalism. The notion of social capital has served as the driving wedge of this effort to define a "third way" along the path to development. Social capital consists of the economic potential embodied in social organizations and the norms of trust and reciprocity that animate them. In this view, the self organization of civil society is a necessary element of successful economic development, complementing the roles played by the state and the market.
This promising, yet still immature, rethinking about the economic role of civil society holds the potential to inspire important changes in traditional development policies and practices. At a time when statist prescriptions are in retreat almost everywhere and yet widespread skepticism persists about neoliberal alternatives, a vision of development centered around grassroots communalism holds obvious appeal.
Yet the insights offered by the growing literature on civil society and economic development do not entirely negate the objections shared by statists and neo-liberals toward some forms of associationalism. Not all forms of organization in civil society are the same. Organizations built around strong vertical ties - such as patron-client relationships, drug cartels, and predatory networks of corruption encompassing both state and non-state actors - rest upon relations of exploitation and coercion. Distributive coalitions take advantage of exclusive collective control over socially valuable assets to drive up returns to those inside the group. Both of these particular forms of associationalism stand in a zero sum relationship to the remainder of society and both tend to resist wealth-producing innovations (Portes and Landolt, 1996). Socially productive associations, by contrast, tend to take the form of voluntary, horizontal, non-exclusive networks that serve to resolve collective action problems or to reduce transaction costs.
Fortunately, globalization and democratization, both of which have made strong inroads in the developing world over the past two decades, each have the effect of disrupting pernicious forms of associationalism. Democracy tends to undermine vertical associations that rest upon coercion and corruption. Globalization erodes the bases for nationally-organized distributive coalitions by exposing previously sheltered producers to renewed market competition at the international level.
Neither democratization nor globalization, however, insure the growth of positive forms of associationalism. Social capital accretes slowly. Thus nations that, for complex historical and cultural reasons, have large pre-existing stocks of social capital hold greater potential for growth and social welfare than those which possess only meager stocks of social capital. Whether the state or other actors can purposefully intervene to stimulate the accumulation of positive forms of social capital in civil society is an important but largely unanswered question at this point.
This paper offers an overview of the recent literature on the role that civil society plays in development and draws critical comparisons to existing statist and neoliberal theories. Since the discussion is pitched at the level of basic concepts, it does not, admittedly, begin to reflect the vast diversity of experience across the developing world.
Civil Society, Social Capital and Development
Defining Civil Society
Civil society has been defined in many different ways (Fisher, 1998, 11-12). Most commonly, the term refers to the varied forms of social organization that lie between the individual and the state. Civil society manifests itself in an almost infinite variety of social groups ranging from sports clubs to political parties. Civil society is an expression of the basic human desire to socialize with others through voluntary association.
In some formulations, the concept of civil society is narrowed to exclude profit-seeking enterprises, i.e., business firms. This approach makes sense for our purposes, because it allows us to explore the relationships among the state, the market and civil society in economic development. It can also be justified on the grounds that each of these three realms of social life is based upon a different central ordering principle: the state is built upon coercion, the market upon competition and civil society upon (voluntary) cooperation.
Yet it is clear that these three spheres overlap and interpenetrate one another in myriad ways and that the abovementioned ordering principles are not exclusive to one realm of social life alone. Indeed, it is important to inquire whether the process of economic development benefits from tight linkages and close interdependence among state, market and civil society or if development requires that one or more of these distinct realms operate in relative autonomy from the others.
As suggested above, much of the literature on development until recent years has suggested that either the state or the market should take the lead in guiding economic decisions and that both function best if freed of the potentially corrupting influence of civil society.
Consider, for instance, neo-classical economic theory. Perfect markets, from a neo-classical point of view, resemble auctions in which a large number of anonymous bidders engage in impersonal, arms-length exchanges. Yet in the real world the associationalism that animates civil society also influences the character of many market relationships. Business firms form trade associations or build enduring networks with related firms. Workers organize into labor unions. Even consumers sometimes join or contribute to organizations that advocate their interests.
These expressions of associationalism among firms, workers and consumers take us beyond the sort of fleeting and narrowly utilitarian relationships depicted in the auction model of the market. Many forms of economic association are not direct and impersonal responses to market signals, even if members expect that their participation will hold economic value over the long term. Economic life is often characterized by expressions of sociability that are not strictly driven by market logic. This constitutes a gray zone where markets and civil society overlap and interrelate.
The degree to which markets are "embedded" in civil society, however, does vary - from one society to another, in the same society over time, and across different sorts of market activity within a society at a given point in time. The relationship between the market and civil society can be placed along a spectrum. At one extreme lie fully embedded markets which extensively overlap with civil society and are pervaded by various forms of associationalism. At the other extreme are "disembedded" or fully autonomous markets that resemble the impersonal auction model described above. Most real economies, of course, will lie somewhere in between these ideal-types, but closer to one end of the spectrum or the other.
Neoliberal theories of economic development assert that economic development proceeds most rapidly when market activity lies near the auction end of the spectrum. Markets function most efficiently when drained of social content and encumbrances. Simply put, the arguments assessed in this paper largely reject this claim. Civil society and associationalism are viewed as positive and perhaps even necessary complements to market activity. Markets function best if deeply embedded in civil society and certain types of cooperative associationalism (Moore, 1997).
The literature surveyed below offers a similar critique of statist claims that successful development requires the leadership of strong, autonomous states. Instead, states that are embedded in civil society (and the market) are more likely to play a constructive role in the development process. The ideal that emerges from this critique of traditional development theories is an image of state, market and civil society as mutually embedded, each playing complementary roles in enabling the economic and social development of a society.
The Role of Social Capital
One way to explore the effects of civil society on economic performance is by reference to the concept of social capital. Economists define capital as any wealth producing asset. Commonly recognized forms of capital include natural, physical and human capital. The latter refers to the skills, knowledge and creativity that individuals contribute to economic life. Social capital, by contrast, inheres in the organizational features of social and economic life. It refers, in other words, to the wealth producing potential that flows from various forms of collective association.
The World Bank defines social capital as "the institutions, relationships, and norms that shape the quality and quantity of a societyís social interactions (World Bank, 2000)." Social capital is explicitly relational. It cannot be produced by individuals acting in isolation from one another. In sum, social capital reflects the value of cooperative social activity.
Families, communities and nations differ in their endowments of social capital. In some, the social networks that give rise to social capital are dense and efficiently organized. In others, levels of associationalism are low and the stock of social capital is meager. Recent theory suggests that communities possessing relatively high levels of social capital will experience higher levels of economic performance and social welfare (other things being equal).
A better sense of the economic role of social capital can be gained by considering a few examples of recent empirical studies on the relationship between associationalism and economic performance:
How Social Capital Stimulates Growth
Based upon examples such as these, scholars have identified four principal pathways through which social networks enhance economic performance:
·Heightened levels of social trust and strong traditions of generalized reciprocity reduce transaction costs (Fukuyama, 1994, Putnam, 1993b: 37, Narayan and Pritchett, 1999: 873). Societies with high levels of trust and reciprocity relay less heavily upon formal institutions for enforcing contracts and thus pay less for the overhead costs such institutions generate.
·By providing individual members with sources of support during times of trouble, social networks spread risk and allow the group as a whole to engage in overall higher levels of innovation and risk-taking (Narayan and Pritchett, 1999: 873-74).
·Social networks facilitate the rapid dissemination of information and innovation among members and reduce the asymmetries of information that can otherwise discourage profitable transactions (Narayan and Pritchett, 1999: 873).
·Social networks allow members to solve collective action problems more easily with less fear of defection and free riding (Putnam, 1993b: 37).
Illustrating the Logic of Social Capital
We can illustrate the logic of social capital by considering the advantages that it offers to states and to business firms. For states, social capital provides the practical, local knowledge that official planners often lack. For business firms, social capital in the form of networking allows producers to enjoy the advantages of scale without sacrificing flexibility.
As James Scott (1998) has eloquently argued, "seeing like a state" means adopting a synoptic view of the development process. States cope with complexity by attempting to impose greater simplicity and order. Progress is measured according to a few key indicators, which themselves fail to register the multidimensionality of social life. State attempts to impose standardized recipes for development from above can lead to the sort of catastrophic and tragic failures documented by Scott. Successful development requires that planners give attention to the day-to-day realities of social life in particular communities.
This sort of "practical knowledge" is not easily available to states but can be found in the concrete networks of civil society. The need to tailor development planning to the particulars of specific communities provides one of the most powerful rationales for creating development partnerships that stretch across the boundaries of state and society. Just as local communities need the resources and expertise provided by agents of the state, public officials need the knowledge and cooperation of local interlocutors.
The significance of social capital for economic development may be heightened by the rise of network capitalism, which refers to the tendency for once independent firms to build dense and enduring sets of cooperative ties among themselves and with other public and private partners. Networking is a response to problems of size and scale. Large firms enjoy scale economies and may reduce transaction costs through vertical integration. Yet massive size may also hinder flexibility, particularly under rapidly changing market conditions. Smaller firms can respond to changing conditions more quickly but forego economies of scale.
This dilemma can be partially resolved through the construction of informal but dense networks of relationships among small to medium sized firms, sometimes encompassing public agencies or educational institutions as well. The decentralization of ownership and decision-making allows for flexibility and decreased response time. Yet the network as a whole serves individual members well by spreading risk and creating the potential for economies of scale.
A key element in the success of corporate networking is the development of relations characterized by high levels of trust and diffuse reciprocity. These emerge from expectations of continued collaboration as the shadow of the future and reputational concerns reduce incentives for cheating and backstabbing. Once high and sustainable levels of trust have been established, transactions costs, which present the chief obstacles to networking arrangements, subside to manageable levels (Granovetter, 1985 Hamilton and Biggart, 1988 Fountain, 1993).
Social Capital and Rent Seeking
While the concept of social capital has most often been invoked in relationship to positive and beneficial forms of cooperation, associationalism can, as neoliberals contend, also give rise to rent seeking coalitions that benefit members at the expense of non-members. Rents produce deadweight losses to overall economic welfare. Examples include oligopolistic behavior in concentrated industries to push up prices and profits, labor unions which use their bargaining power to demand wages increases beyond rises in productivity, and conspiracies among public officials and private contractors to extract excessive profits from state coffers (Olsen, 1982 Schamis, 1999 Portes and Landolt, 1996). Numerous recent revelations about the pervasiveness of "crony capitalism" in some Asian countries point to the costs of this sort of phenomenon.
There are sound reasons, however, to expect a declining role for rent seeking coalitions in many developing countries over time. Considerable research suggests that forms of rent seeking involving public officials are less pervasive under democratic as compared with authoritarian regimes (Brawley, 1998). Democracy permits greater transparency in public business and the free flow of information. As a result, corruption is more easily exposed and contained. Also, democracy allows interests that are harmed by the behavior of rent seeking coalitions to organize their own counter-coalitions which then lobby against rent producing public policies. Democratic transitions in many Third World countries should thus reduce overall levels of rent seeking behavior.
Globalization is a second force working to curtail rent seeking. Local oligopolists find their positions undermined by increased competition as the removal of trade and investment restrictions lower barriers to entry (Olsen, 1982).
Finally, rents often arise as byproducts of extensive government regulation and rationing of vital resources such as credit, hard currencies or raw materials. As governments everywhere remove various controls on economic life under the influence of neo-liberal doctrine, opportunities for rent seeking dwindle.
The Organization of Civil Society
Nevertheless, the neoliberal focus on rent seeking, which is present in all societies and a serious problem in some, serves to remind us that not all forms of associationalism are positive in their impact on society as a whole. Criminal networks, street gangs and intolerant ethnic groups all draw upon forms of social capital to sustain themselves and realize group interests. Mauricio Rubio refers to such negative forms of associationalism as "perverse" social capital, in contrast with the "productive" forms of social capital discussed earlier in this paper (Rubio, 1997: 805). Whether perverse or productive forms of social capital predominate in a particular case will depend upon the organizational features of civil society. Not just the degree of societal organization, but its character also effect economic performance. Recent research suggests the following conclusions:
·Horizontal associations among relatively equal partners are more favorable to development than vertical associations that join actors unequal in power and status. The latter often take the form of patronage networks in which disadvantaged individuals and groups are dependent upon favors from more powerful actors who provide such rewards in compensation for political and other kinds of support. Patron-client relationships are typically status-quo oriented and seldom welcome or tolerate innovation (Putnam, 1993). Other kinds of vertical associations, such as criminal gangs, rest explicitly upon coercion. The sorts of groups produce little or nothing and impose severe costs, both social and economic, upon society.
·Relatively encompassing associations are more likely to identify with broad public interests than narrowly-based and fragmented patterns of association. Encompassing associations of labor or capital, for instance, are less tempted to engage in free riding or rent seeking because they will be more directly affected by the negative externalities such behavior creates for the economy as a whole. At higher levels of aggregation, myopic and narrowly self-seeking interests are subordinated to broader interests of class, community, industry or nation (Olsen, 1982 Swank, 1996).
·Social networks that are open to new entrants are less likely to produce negative externalities for other groups than those which are organized around exclusive forms of identity, such as ethnicity.
·High trust societies are likely to produce denser and more productive forms of associationalism than low trust societies. Trust also influences the potential scale of economic enterprises. Societies where relationships of trust do not easily extend beyond the family will find it difficult to more from first and second generation family firms to larger and more enduring corporate forms in which management and ownership extend beyond the boundaries of the founding family (Fukuyama, 1994).
·Societies where the principal social cleavages are cross-cutting, rather than reinforcing, are more likely to avoid extreme forms of social polarization and the political instabilities that often result.
These points suggest that civil society is best poised to play a positive role in the development process where horizontal ties among social groups are strong, functional groups are organized into relatively encompassing associations, social networks are open to new entrants, a culture of social trust is pervasive and cleavages are cross-cutting. These are stringent requirements. Few societies will enjoy all of these conditions in full. Many will be deficient in several or even all categories. These considerations should temper somewhat enthusiastic appraisals of the potential for civil society to promote development and welfare. Yet the potential exists to gradually transform civil society in positive directions and to create conditions more conducive to social cooperation and economic growth.
Critiquing Neo-liberal and Statist Perspectives on Civil Society and Development
These propositions about the crucial role of civil society in economic development challenge existing perspectives. Neo-liberal doctrine views markets as free-standing mechanisms for efficient resource allocation. The neo-liberal critique of associationalism stresses the negative effects of rent seeking coalitions on economic growth. This concern is valid but exaggerated. Moreover, neo-liberals ignore the many and varied ways in which some kinds of dense social networks can produce positive economic outcomes.
Just as neo-liberals argue for market autonomy, so statists view strong autonomous states as the key enablers of economic development. A strong society threatens to undermine state autonomy and produce ungovernability. Once again, this perspective is not so much wrong as it is one-sided and incomplete. States can and have played essential roles in economic development. The Weberian ideal of a skilled, professional, honest bureaucracy has much to recommend it. But statist perspectives err in assuming that the relationship between state and society is zero-sum.
Strong states need strong societies, particularly at later stages of economic development. A well organized society provides the state with crucial feedback on its policies and insures greater public accountability. Healthy social networks can multiply the efficacy of state intervention by serving as partners in the development process. States are limited in their ability to effect economic transformation through vertical, top down ties to society. Horizontal linkages across societal groups are necessary to spread information and innovation. Statist theories exaggerate the importance of state autonomy and fail to account for changes over time in both the constraints states face and the need for concentrated state control over the development process. The following sections explore the limitations of neo-liberal and statist perspectives, emphasizing the ways in which civil society can complement the roles of markets and states in fostering development.
The Limits of Neo-liberalism
Following a long period in which statist perspectives dominated thinking about development, neo-liberal strategies have lately taken center stage. Yet development that relies almost solely upon market mechanisms is deeply flawed. Unmediated by strong civil societies and active states, markets produce growing inequality, social polarization and political instability. Moreover, markets - financial markets in particular - are given to erratic swings that are inconsistent with steady development in fragile Southern societies. Finally, structural conditions of life in the developing world often produce extensive market failure that can only be corrected or compensated for by non-market mechanisms. Karl Polanyi's warnings earlier in this century about the dangers of reliance upon the notion of the "self regulating" market remains as valid today as ever (Polanyi, 1944).
Post-communist Russia offers a striking example of the degree to which functioning markets are dependent upon a healthy civil society. During seven decades of communist rule, civil society was deliberately repressed. Russians came to depend upon the state for virtually all social and economic needs. The collapse of communism destroyed this system and led to efforts to introduce markets as the primary mechanisms for allocating resources in the new economy. Economists expected that markets would arise spontaneously as state control over economic activity receded. Price signals, competition and the profit motive would suffice to redirect economic behavior in more efficient and rationale directions.
While markets have emerged, they have been hobbled by the absence of crucial institutional and social supports. These include formal institutions, such as the rule of law and clear property rights. Just as devastating, however, has been the weakness of civil society and a pervasive culture of distrust and dependence among average Russians. In the absence of a strong civil society, "uncivil" forces have come to dominate economic and social life, including criminal networks and concentrated rent seeking coalitions (Yavlinsky, 1998). Russia thus suffers from two problems: the absence or weakness of positive associationalism across much of the society and the growth of negative forms of associationalism among concentrated groups.
Poland offers a revealing contrast. Market reforms have proven more successful there than in Russia, in part because civil society suffered less disruption under communist rule in Poland. Polandís communist experiment was in place for a shorter period of time than in Russia. Moreover, the Catholic Church was permitted greater independence and leeway in Poland and small scale private enterprise survived there, especially in agriculture. A strong sense of nationalism and the widespread resentment toward external domination also contributed to the persistence of social identities independent of the prevailing state ideology. Finally, Polandís transition from a command to a market economy took place only after a decade of grassroots efforts to carve out an autonomous civil society through the efforts of the Solidarity labor movement. Russiaís transition, by contrast, was initiated from the top by Mikhail Gorbachev without the advantage of strong supporting social coalitions.
This contrast between the fate of market reforms in Russia and Poland serve to underscore the point that the role of a healthy civil society is not to substitute for market mechanisms but to help markets function more successfully in producing economic and social welfare. Civil society provides the bedrock of trust, reciprocity and sociability without which markets cannot work effectively. The right kind of social networks reduce transaction costs and solve collective action problems. They compensate for instances of market failure. And they buffer the sometimes harsh, inequitable and unfair outcomes of market competition.
The Limits of Statism
Across much of the developing world, the decades following World War II brought a new consensus on the proper roles of state, society and market. The statist doctrines then in vogue prescribed strong, autonomous states, weak, dependent societies and guided markets.
This formula was dictated in large part by the circumstances of late development (Gershenkron, 1962). As late developers, Third World countries occupied a subordinate role in a world economy dominated by Northern interests. The international role of Third World states was to renegotiate the terms of developing country insertion into the world economy and shield their societies from the more exploitative forms of Northern penetration.
Internally, strong Southern states played two roles. State elites often presided over poorly integrated national societies. They therefore set about to mobilize and unite various social groups around a national project of rapid industrialization. States in the Third World were often authoritarian and experimented with various top down corporatist schemes for channeling societal demands through state-controlled institutions.
A second domestic challenge was to compensate for the weakness or even lack of a dynamic, modernizing capitalist class. Both traditional culture and colonial legacies often conspired against the natural emergence of entrepreneurial commercial and industrial elites. States sought to compensate for this weakness, either by directly assuming the role of collective capitalist themselves or by cultivating and nurturing the rise of local capitalists under the state's protective umbrella. The particular forms of state economic guidance varied considerably: comprehensive economic planning and direct state ownership in the socialist bloc import substitution in Latin America and state-allocation of credit toward growing export industries in East Asia.
State-led development formulas enjoyed considerable success during their heyday of the fifties, sixties and seventies. Rates of economic growth and industrialization exceeded all previous experience in many developing countries and compared favorably with the performance of Northern countries at similar stages in their historical development. Yet by the eighties and nineties, state-led development had fallen into disrepute and states almost everywhere ceded power to the market.
In Latin America, ISI led to massive international debt problems and economic stagnation during the eighties. Socialist bloc countries experienced economic stagnation in the seventies followed by political upheaval in the late eighties and early nineties, culminating in the overthrow of communist regimes in Europe. Even politically stable communist governments in China and Vietnam adopted far-reaching market reforms. Even the much admired developmental state model that propelled East Asia toward First World status over the past several decades experienced its own day of reckoning with the onset of the Asian financial crisis in the late nineties.
In retrospect, it appears that statist development strategies, while successful for a time, were self limiting in two respects. Statist strategies failed in fostering the transition from extensive to intensive economic development. Also, state-led modernization contributed to the growth of newly empowered social groups which eventually challenged the dominant role played by the state in the development process.
A pattern common to most state-led development efforts is the onset of exhaustion following an initially successful burst of growth and development. It appears that state-led strategies are capable of producing extensive growth but find it difficult to make the successful transition to intensive growth. Extensive growth is based upon the mobilization of new inputs to the economy in the form of higher savings rates, increased labor force participation, opening new land to cultivation and increased exploitation of natural resources. Increased inputs lead to rising output. While extensive development can produce economic growth and rising living standards, its long term potential is constrained by eventual limits on the mobilization of new inputs. As some point, savings rates peak, work force participation levels out, all arable land has already been placed into production and resource flows have reached their sustainable limit. The economy stagnates, albeit at a higher level of output than before.
Intensive development, by contrast, rests upon the discovery and implementation of methods for producing continuing rising output from static inputs. This requires steady enhancements to productivity and efficiency. While extensive development suffers from clear limits, intensive development can, in principle, proceed indefinitely.
State-led development strategies appear to succeed best at producing extensive development. The state can manipulate a combination of coercion and material incentives to mobilize a growing share of societal resources toward the development process. Centralized decision-making systems featuring tight control over information flows are less conducive to efficiency-producing innovations. Intensive development works best under decentralized decision-making systems where competition among independent firms leads to constant innovation near the site of production
It is perhaps for this reason that researchers have found that state-led development in the former Soviet bloc and in many East Asian countries has depended heavily upon extensive patterns of growth (Krugman, 1994). In the Soviet case, the state-led economy reached a point of stagnation and crisis when opportunities for extensive growth were finally exhausted and the system proved incapable of making the transition to intensive patterns of growth.
The successful transition from extensive to intensive growth requires a willingness to place growing reliance upon market mechanisms. Market competition is an essential driving force in producing efficiency-enhancing innovation. Yet markets alone cannot complete the transition to intensive development. The supportive organization of civil society matters as well. Innovation is often a product of partnerships among industry, educational institutions and government agencies. Capital and labor must collaborate over the terms and conditions of innovation if workers are to be persuaded to cooperate with productivity-enhancing improvements. Social networks must serve as channels for disseminating information and ideas.
In sum, state dominated strategies of development are effective in producing extensive growth but poorly suited to the task of fostering intensive growth. To make this transition successfully, states must redefine their roles in relation to markets and society. Vertical linkages between the state and other social forces and institutions must be supplemented with horizontal ties across participants in both the market and civil society.
There is a second important respect in which state-led development is a self-limiting process. The more states succeed in fostering modernization, the stronger become the social forces unleashed by this process. Outside of socialist command economies, development leads to the accumulation of economic resources in the hands of larger and more numerous private business concerns. As they grow, local firms become less dependent upon the state for key resources, such as credit or information. Large firms gain access to alternative sources of financing, such as retained earnings or international banking and capital markets. Over time, the business sector as a whole is likely to become better organized through industry-level and peak associations (Durand and Silva, 1998). These developments eventually render the private business sector less subject to state guidance and increasingly capable of acting on an autonomous basis.
The same is true of other social forces. The proletarianization of labor creates larger and more powerful unions. A growing middle class finds expression in professional associations and new forms of political organization. The growing complexity of civil society brought on by modernization gives rise to autonomous social actors which increasingly chafe under strict forms of state oversight. In time, these forces often coalesce into movements for democratic reform. Paradoxically, the strong, modernizing state creates the very conditions that eventually undermine its own power and autonomy (Evans, 1995).
In some ways, the growth of civil society is an indirect product of successful state modernization strategies. Yet it is tempting for state elites to interpret the growing power of increasingly independent social groups as a threat to the power and relevance of the state itself. This can easily prompt defensive efforts to reign in civil society and reassert state dominance.
The likely result of such moves will be to stifle the natural processes of social transformation that serve to promote economic development. During the early stages of development, when civil society is weak and disorganized, state leadership may play a necessary role in jumpstarting economic growth. At a later stage, once modernization has created the basis for a stronger and more complex civil society, state dominance not only becomes less needed, but may act as a fetter on further progress.
The key is for state elites to recognize that the growth of civil society requires a renegotiation and restructuring of state-society relations. This process may force the state to share power to a greater degree than in the past, but it does not necessarily entail a net loss of state capacity. Productive partnerships with societal groups can in fact empower the state to act more effectively than was possible through policies implemented in a top down fashion.
Although a more highly organized civil society may serve to constrain state autonomy,
particularly in democratic settings, the relationship is not necessarily zero sum. In sacrificing a degree of autonomy in relation to domestic social actors, for instance, the state may regain a greater measure of autonomy in its dealing with international actors. As an example, strong political constraints at home can provide state officials with leverage in negotiating with Northern banks and international financial institutions over the terms of debt renegotiation. In such "two level games," the ability of developing country negotiators to make credible claims about the dire political consequences of unilateral concessions can compel external actors to offer better terms out of fear that tougher tactics will undermine the domestic authority of the government upon whom international actors depend to implement any agreement (Putnam, 1988).
Can Social Capital and a Strong Civil Society Be Cultivated?
If, as a growing number of observers have argued, social capital is a crucial ingredient in the development process, what can be done to strengthen civil society in communities and nations where it is weak or divided? Can civil society be shaped through purposive design? Or is the organization of civil society something that necessarily emerges organically, in an unplanned and bottom up process of development?
The answers to these questions are not yet clear. Any efforts to capitalize on the latent potential contributions of civil society to development must begin, however, at the intellectual level. Development theories must acknowledge and explore the roles that civil society and social capital play in producing economic growth and social welfare. Until recently, existing theories did not allow for such a possibility. Theoretical and empirical work over the past decade has begun to open space for such questions. But much thought and research remains to be done.
As James Coleman (1988) and Robert Putnam (1993b: 38) have each pointed out, one distinctive feature of social capital is that it often takes the form of a public good. Social capital generates large positive externalities. In many cases, the benefits of social capital cannot be fully appropriated by the producers. The possessors of natural, physical and human capital, by contrast, can more easily internalize returns.
One piece of evidence for the public goods character of social capital comes from a study of associationalism in Tanzanian village-life. Deepa Narayan and Lant Pritchett (1999: 881) found that high levels of village-level social capital lead to higher incomes not only for those households heavily invested in social networks but also for those in the same village who did not directly participate in such networks. This suggests that the benefits of social capital in these cases were generalized and non-excludable, tending to spill-over beyond the producers themselves.
The public good character of much social capital means that individual incentives to engage in behaviors that create or sustain social capital are relatively weak. The temptation to free ride on the social contributions of others is strong. As a result, social capital is often underproduced relative to the value of its potential contributions to social welfare and economic growth, or, where it is abundant, social capital often arises as a by-product of non-economic factors (e.g., in association with kinship networks). The public good character of social capital and its tendency to be underproduced both create a strong rationale for public policies designed to encourage, stimulate and even subsidize the formation of social capital.
Once we better understand how civil society and social capital affect development, strategies for giving practical expression to such findings must be devised. Three potential agents of change present themselves: states and local governments, international organizations and transnational social networks.
Developing country governments can seek out partnerships with societal groups in prioritizing and providing public services more effectively. Local governments are particularly well placed to devise more democratic mechanisms for allowing popular involvement in setting budgetary priorities. An interesting example arises from Brazil, where municipal governments controlled by the Partido dos Trabalhadores (Workerís Party) in a number of cities have launched experimental Participatory Budgets. In this case, popular assemblies of citizens allocate a portion of city funds to various programs through a process of deliberative democracy (Kingstone and Power, 2000: 134-137). One detailed study of the city of Porto Alegre attributed the explosion of popular mobilization brought about though the participatory budgeting process in part to municipal policies that lowered the costs of participation while increasing the benefits. An altered political opportunity structure and enhanced government responsiveness encouraged even the poor and low paid workers to become active participants in deliberations that allocated money toward neighborhood improvement projects (Abers, 2000: 135-153).
International development agencies can shift lending priorities, funnel a larger share of funds through non-governmental organizations and insure greater participation on the part of recipients in both planning and implementation. The World Bank, for example, has begun to build conceptions of social capital into the design of some of its lending projects. The Bank is currently conducting a survey of social capital in twenty development countries as a means for creating a database that will allow researchers to test various hypotheses related to the economic impact of variations in social capital. The World Bankís "Social Capital Initiative" has supported research into the linkages between social capital and development in particular sectors. The Bank has also supported "Participatory Poverty Assessments" in over 50 countries as a means of both assessing and building levels of social capital in target societies (World Bank, 2000).
Transnational social networks can create linkages among groups with similar concerns across national boundaries (Keck and Sikkink, 1998). Doing so can provide non-governmental organizations that are part of such networks with better information and models of successful social change from elsewhere. Transnational social networks can also serve to balance the growing power of internationally mobile capital, perhaps also strengthening the bargaining position of states in the process. The North American Free Trade Agreement, for instance, has spurred heightened levels of cooperation among labor unions across the United States-Mexican border (Kidder and McGinn, 1995).
Another example of this phenomenon is the micro-credit movement. Inspired by the success of the Grameen Bank in Bangladesh, international development agencies and transnational non-governmental organizations have combined to replicate variations on micro-credit institutions in dozens of poor countries around the world. Significantly, the micro-credit model typically relies upon explicit norms of associationalism, as borrowers are required to form cooperative clusters in order to qualify for loans and are held collectively responsible for repayment.
Better theory, research and experience will all be necessary before we can evaluate the conditions under which external intervention by states, international organizations or transnational networks can effectively serve to cultivate social capital where it is weak or non-existent (Warner, 1999).
Ambiguities and Puzzles
Although the literature on civil society and social capital has already begun to enrich our understanding of economic development, important gaps in existing research remain. Three such areas of deficiency merit comment here. First, discussions of social capital often ignore distributional issues. Second, it remains unclear the degree to which social capital is fungible across various types of uses. Third, there remains uncertainty about whether the accumulation (or lack thereof) of social capital is primarily a function of the cultural traits common to given societies or of the incentives produced by particular institutional arrangements.
Much of the existing literature examines absolute levels of social capital, whether the focus is on the society as a whole or a particular community. This ignores the fact that relative levels of associationalism can differ significantly among groups within a given society or community. Such disparities in organizational capacity among sometimes competing social groups can have enormous distributional consequences.
Differential degrees of social cooperation within distinct groups can translate into varying political and economic power. As Robert Putnam notes: "Social inequalities may be embedded in social capital (Putnam, 1993b: 42)." It makes a difference to the distribution of economic resources if business is better organized than labor, if producers are better organized than consumers, or if urban-dwellers are better organized than rural folk. Not only can social cleavages of this sort spur efforts by specific groups to enhance their own level of social organization, but they can also motivate efforts by some groups to disrupt, disorganize, or divide the existing social networks formed by competing groups - sometimes employing the state itself as an instrument for such purposes. Research into the economic consequences of social capital should therefore give more attention to the relative distribution of associationalism.
A second significant gap in the present literature concerns the fungibility of social capital. The literature contains many references to types of social networks created for one purpose that also come to serve quite different purposes as well. A sports club, for instance, might also serve as a source of business contacts for its members. Students enter a university to gain an education, but also make friendships that may prove valuable in their later professional lives. Farmers ban together to manage an irrigation system, but subsequently decide to expand the scope of their cooperation to encompass joint arrangements for marketing crops.
Anecdotal evidence thus suggests that social capital can sometimes be fungible. But there has been little research about the conditions under which social capital can be put to multiple purposes or the economic consequences of doing so. Are some types of social capital more fungible than others? Do there exist declining marginal returns as a given organizational network takes on additional functions? Are "dedicated" social networks more efficient than general or multi-purpose networks? Can we rely upon aggregate measures of social capital in a society if, in fact, social capital is highly context dependent (Edward and Foley, 1998)? These questions point toward a rich vein of research for scholars to mine.
A third unresolved question is whether social capital is a product of underlying cultural traits or a function of institutional design. Those who rely upon cultural explanations for the surfeit or lack of social capital in given societies tend to view socialization as the principal mechanism by which people learn to cooperate or not (Swank, 1996). An institutional approach, by contrast, looks to the structure of material incentives as the chief explanation for why people cooperate or fail to do so (Kenworthy, 1997). Which approach is correct makes a significant difference. If culture is key, then we would expect patterns of social cooperation to change only slowly. Since cultural values and beliefs persist over long time spans, a society either enjoys a culture that supports a healthy stock of social capital or it does not. Either way, inhabitants can do little to alter these circumstances over the short run. If, on the other hand, associationalism responds primarily to changes in institutional incentive structures, then deficiencies in social capital can be corrected (or surpluses squandered) relatively quickly with institutional reform. The key sorts of institutional changes necessary to spur the growth of social capital would be those that lower the costs of associationalism while enhancing the benefits.
Conclusion
Although not all forms of associationalism are beneficial, a growing body of theoretical and empirical literature suggests that some types of social capital can enhance economic growth and social welfare. Social capital complements the economic roles played by states and markets while filling important functional gaps left by these other two major social institutions.
Strong states need strong societies. State economic planners and bureaucrats lack the practical knowledge of local conditions that is often necessary to plan effective economic intervention. Such detailed local knowledge can be had only in partnership with organized societal groups. An organized civil society also plays an important function in monitoring state performance and, especially in democratic settings, exerting pressure to enhance state responsiveness to social needs. State-led development strategies can succeed in drafting unused resources into the development process, but may lack the capacity to engineer the shift from extensive to intensive growth at the appropriate stage. Intensive development rests upon the rich flow of information across horizontal networks in civil society. As the development process unfolds, finally, heavy-handed forms of state leadership that were necessary at earlier stages when groups and institutions outside of the state were weak become less necessary and possibly counterproductive once the business firms and other societal actors acquire the maturity and resources to act with greater independence.
Markets are also limited in their capacity to produce growth in the absence of a healthy civil society. Markets everywhere, but especially in developing societies, are frequently given to predictable failures and distortions. Non-market forms of associationalism can correct or compensate for these deficiencies by providing collective goods, reducing transaction costs and facilitating information flows. A healthy stock of social capital can also buffer some of the harsher side effects of market behavior, such as instability and inequality. Strong associational networks can provide a source of social insurance for those who find themselves on the losing end of market competition.
The debate between statists and neoliberals over the proper path to development has grown stale and unproductive. While states remain important actors, the heyday of top down, state dominated development has clearly passed. Globalization has eroded state autonomy from without while democratization and the strengthening of civil society are forcing developing country states to redefine their roles at home. Even in East Asia, that last bastion of the powerful development state, financial crises have weakened state control.
While neoliberalism is currently ascendant across much of the developing world, market-led strategies have tended to create sharp divisions between winners and losers. The resulting social polarization is incompatible with long term political and economic stability. Dissatisfaction with the results of neoliberal reforms is widespread and promises to simulate the continued search for alternative paths to development.
Given this stalemate, recent work on the role of civil society in economic life is a welcome and refreshing addition to development studies. As of yet, this literature remains in its infancy. We do not yet have a coherent theory that might demonstrate the feasibility of a "third way" along the path to development. But the ideas discussed in this paper do allow us to glimpse a more democratic grassroots approach to development that emphasizes the construction of a strong and vigorous civil society as a complement to the state and the market. Sharpening this vision and bringing it to fruition is a worthy intellectual and practical endeavor.
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