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By Root 1582 0

when Putnam looked at the effects, people in the northern towns identified with the whole of the civic community. In the south, social capital was confined within extended families or other small groups, so the town as a whole suffered from the fact that mutual assistance was confined within small subsets of its population at the expense of the rest. In other contexts, urban gangs or terror cells have strong social capital internal to their membership, which translates into weak social capital for the wider social entities in which they live, whether their estate or their nation.

Strong social capital will improve the way economic markets operate. One example is the way specialized industrial clusters develop in a particular place, where access to market and the availability of employees to hire are part of the explanation, but so are social factors such as the way people in different firms might exchange know-how about their areas of expertise, or move from one job to another via word of mouth. Sometimes, social capital can stop markets from working properly, however. For example, people might decide they will only do business deals with members of their golf club, or their ethnic group, even if that isn’t objectively the best deal.

But although social capital doesn’t always take a “good” form in terms of its benefits for the wider economy, it seems clear that without trust, without enough of the “good” social capital, the economy will not perform well. Where there is too much distrust, many market transactions cannot take place. Does the evidence back up this intuition?

One hurdle to finding empirical evidence is that there are no obvious data measuring the abstract concept of social capital—after all, there isn’t even a single agreed definition. Economists have taken a practical approach. The empirical research has focused on whether an available measure of social capital is positively associated with economic growth—either at the level of the national economy or in other situations. For example, are companies with greater internal “social capital” more profitable than those with lower levels? Social capital in these studies is often measured using the responses to survey questions—for example, one standard question is: “Generally speaking, would you say that most people can be trusted, or that you can’t be too careful in dealing with people?”

There are many empirical studies exploring the economic impact of social capital, triggered by Putnam’s 1993 book. One early study concluded firmly: “Trust and civic cooperation are associated with stronger economic performance.”9 The vast body of later work, looking at different countries, regions, organizations and businesses, and at historical as well as contemporary evidence, has confirmed this.10 There is also evidence that high social capital contributes to a more effective and honest political system, as people in such places are less cynical and more willing to take action to punish political miscreants.11

In short, the consistent finding, for all the vagueness of the definition and difficulty of constructing a definitive empirical measure of an abstract concept, is that higher social capital, or greater trust, is linked to higher growth. Causality is much harder to pin down—perhaps a more successful economy makes it easier for people to have less concern for themselves or their immediate family and more for the wider community? Untangling causality is difficult given the imprecision of the definition and data for trust or social capital, and given all the other potential contributors to economic success that must be controlled for in the statistical work. For example, there is no clear evidence about whether trust, institutions, unspoken social norms or aspects of culture are more important for the economy—and indeed they must all be related to each other, and all will be affected themselves by the nature of the economy. But even if it proves impossible to untangle the arrows of causality, the evidence of a strong link between social capital and growth has important