Social Capital

... Harvard political scientist Robert Putnam’s social capital is best represented as the grease or lubricant (norms and trust) which facilitates the flow of information, goods, or collective action (Fukuyama, 1996). In his comparative analysis of democracy in northern and southern Italy, Putnam emphasized the collective value of social capital to the community as a whole. Furthering Coleman’s work, Putnam defined social capital as the “features of social organization, such as trust, norms, and networks that can improve the efficiency of society by facilitating coordinated actions” (Putnam, 1993, pp.167). “Social capital is thus a collectively held resource, such as generalized trust or norms of reciprocity, that provides benefits for the community” (Wetterberg, 2004, pp.3). In other words, social capital is the resource and the by-product is collective action (Farr, 2004). The quantity of social capital within a network, then, is a function of reciprocity expressed through norms and trust. These norms and trust, arising from regular, honest interaction, aid in forming new, additional connections.

Social Capital Primer

The central premise of social capital is that social networks have value. Social capital refers to the collective value of all “social networks” [who people know] and the inclinations that arise from these networks to do things for each other [“norms of reciprocity”].

How does social capital work?

The term social capital emphasizes not just warm and cuddly feelings, but a wide variety of quite specific benefits that flow from the trust, reciprocity, information, and cooperation associated with social networks. Social capital creates value for the people who are connected and – at least sometimes – for bystanders as well.

Social capital works through multiple channels:

– Information flows (e.g. learning about jobs, learning about candidates running for office, exchanging ideas at college, etc.) depend on social capital.

– Norms of reciprocity (mutual aid) rely on social networks. Bonding networks that connect folks who are similar sustain particularized (in-group) reciprocity. Bridging networks that connect individuals who are diverse sustain generalized reciprocity.

– Collective action depends upon social networks (e.g., the role that the black church played in the Civil Rights movement) although collective action also can foster new networks.

– Broader identities and solidarity are encouraged by social networks that help translate an “I” mentality into a “we” mentality.

What are some examples of social capital?

When a group of neighbors informally keep an eye on one another’s homes, that’s social capital in action. When a tightly knit community of Hassidic Jews trade diamonds without having to test each gem for purity, that’s social capital in action. Barn-raising on the frontier was social capital in action, and so too are e-mail exchanges among members of a cancer support group. Social capital can be found in friendship networks, neighborhoods, churches, schools, bridge clubs, civic associations, and even bars. The motto in Cheers “where everybody knows your name” captures one important aspect of social capital.

• Social capital — the use of social networks, trust, and reciprocity to enable cooperation among citizens beyond that required by law or employment — can lead to higher levels of economic and civic success.
• Informal associations such as choral societies or soccer clubs can increase levels of cooperation among citizens and enhance the ability of opposing factions to compromise. Dense networks of social and cultural civic association lower transaction costs in economic and political spheres.
• Fabrics of trust enable civic communities to solve social dilemmas by raising the potential cost of defection and risking loss of future benefits by defectors, enhance the flow of information about who can be trusted, foster norms of reciprocity that are reinforced by the flow of reputational information, capture strategies and institutions that worked in the past and keep them available as templates for future collaboration.
• Trust tends to be an emergent property of the social system — individuals are able to trust because of the social norms and networks in which their actions play out.
• Trust and reciprocity, built up through numerous informal interactions in different settings, can lead to a virtuous circle that increases the stocks of trust and reciprocity that enable more formal institutions to function more effectively; mistrust and the lack of reciprocation can lead to a vicious circle in which authoritarian and vertical relationships prevent the formation of social capital.
• Stocks of social capital such as trust, norms and networks, tend to be self-reinforcing and cumulative and are public goods owned by the group rather than individuals.

... To understand the possibilities of creating social conditions for overcoming social dilemmas, Elinor Ostrom turns to norms of cooperation and reciprocity. According to Ostrom, “Reciprocity is viewed by sociologists, social psychologists, and philosophers as one of the basic norms taught in all societies” (E. Ostrom 2003, 42). From an evolutionary perspective, reciprocity enhances one’s “fitness” by promoting better outcomes and has been utilized as a strategy to overcome social dilemmas long before mutual obligations could be enforced by external authorities (E. Ostrom 1998, 10). For this reason, it could even be said that reciprocity has the tendency to be people’s dominant norm or default position. This hypothesis is supported by numerous laboratory experiments in which people use reciprocity norms in one-shot, no-communication games and other short-term experimental environments (E. Ostrom 2003, 47-9).28 Despite this general tendency, Ostrom emphasizes that reciprocity is not biologically inherited. Instead,

“[i]ndividuals inherit a capacity to learn and value algorithms that enhance their capacity to increase their own long-term benefits when confronting multiple social-dilemma situations with others who have learned and value similar norms, even though each situation involves different people, payoffs, and levels of uncertainty” (ibid., 44).

We will discuss the question of reciprocity and human nature in more detail later, but for the time being, it is important to emphasize that because reciprocity is learnt through processes of socialization, individuals can develop diverse strategies to deal with different social dilemmas. While some people learn strategies of reciprocity to overcome these problems in a variety of situations, others learn norms of behavior that are less “nice” (ibid.). This can include either individual or group egotistical behavior. In this sense, reciprocity norms can also have a dark side. In reference to this problematic finding, Ostrom argues:

“Tight circles of individuals who trust one another [and cooperate; LP] may discriminate against others of a different color, religion, or ethnicity to keep them from access to productive opportunities. The focus on the return of favors for favors can also be the foundation of corrupt practices whereby those in official positions do favors for wealthy friends who then return the favors with various forms of financial enrichments” (ibid.: 45).

For this reason, reciprocity norms and practices that are inclusive and that support basic moral standards must be differentiated from those that are highly exclusive, restrictive and repressive (ibid.).

According to Elinor Ostrom, central endogenous variables in human interactions that enable and strengthen reciprocal interactions are those of trust and reputation. She defines trust as “ that affects the first person’s choice, when an action must be taken before the actions of the others are known” (E. Ostrom 1998, 12). The existing level of trust is therefore central in determining the first action in a social dilemma because it “affects whether an individual is willing to initiate cooperation in the expectation that it will be reciprocated” (ibid.). The hope or expectation that one’s cooperation will be returned is not based on naïve altruism but rather on one’s own previous experiences and social norms, on the one hand, and on the reputation of the other person, on the other. Reputations are, in turn, important for trust and reciprocity because they give information about an individual’s history of overcoming social dilemmas. Or, in other words, reputations tell other people whether someone has been “keeping promises and performing actions with short-term costs but long-term benefits” (E. Ostrom 2003, 43). This, in turn, enables people to “estimate of the risk of extending trust [to the other person; LP], given the structure of the particular situation” (ibid., 49). A good reputation makes a person trustworthy, implicating that one can expect that they will reciprocate cooperative behavior in the future.

For this reason, Elinor Ostrom places the relationship between reciprocity, trust and reputation at the center of her understanding of how bounded rational agents overcome social dilemmas: “[A]t the core of a behavioral explanation are the links between the trust that an individual has in others, the investment others make in trustworthy reputations, and the probability of using reciprocity norms” (E. Ostrom 2003, 49-50). If cultivated, trust, reputations and reciprocity are “valuable assets” (E. Ostrom 1998, 12) that can create a “mutually reinforcing core” (E. Ostrom 2003, 50) and transform Hardin’s negative vicious cycle of tragedy into a virtuous cycle of improved joint outcomes, ultimately increasing one’s evolutionary (ibid., E. Ostrom 1998, 12). These insights into the mechanisms of reciprocity, trust and reputation to overcome social dilemmas are fundamental in Elinor Ostrom’s theoretical development of an alternative to market or state policy prescriptions that are grounded in micro-situational everyday experiences.

4.5. Self-Governing Commons with the Aid of Eight Design Principles

Despite these positive impacts on peoples’ capabilities to cooperate and trust one another, it must be emphasized that Elinor Ostrom’s research also reveals the contingency and fragility of these norms and behavioral patterns. For this reason, she shifts her focus from such endogenous variables to exogenous, contextual variables in order to understand how social conditions can strengthen these norms and enhance the possibilities of overcoming social dilemmas. By analyzing the effect of institutional structures on human interactions, it can be said that first-order dilemmas of reciprocity, trust and reputation are then transformed into second- and third-order public good dilemmas of institutional supply, credible commitment and mutual monitoring (E. Ostrom 2008a, 41-5). Similarly to her findings on trust and reciprocity, while the classical theory of fully rational agents predicts that rule making will not occur because everyone will default to free-riding,29 Ostrom’s meta-analysis of numerous laboratory and field experiments has discovered that people are actually often willing to invest time and energy into changing rules and institutions to improve joint outcomes.

Before analyzing and discussing these exogenous factors in detail, it should be mentioned that one specific variable can be considered fundamental for overcoming social dilemmas on all levels of interactions: The possibility of communicating with one another. Although no single variable automatically produces reciprocity norms, face-to- face communication is central for cultivating cooperation and creating institutions. In contrast to the situations of non-communication in Hardin’s unregulated commons and the prisoners’ dilemma, Elinor Ostrom explains:

“With a chance to see and talk with others repeatedly, a participant can assess whether he or she trusts others sufficiently to try to reach a simple contingent agreement regarding the level of joint effort and its allocation. Communication thus allows individuals to increase (or decrease) their trust in the reliability of others” (E. Ostrom 2003, 51).

Face-to-face communication not only enables people to access more information about other participants, but it also enables people to make promises and create agreements in relation to future actions. Furthermore, communication can reinforce prior normative values and facilitate the development of a group identity, which also generally increases mutual trust (ibid., 33). Thus, the possibility of face-to-face communication must be understood as a key variable in dealing with social dilemmas on different but interrelated levels of action. ...