Tag Archives: Democracy

SOCIAL CAPITAL AND INSITUTIONAL SUCCESS

SOCIAL CAPITAL AND INSITUTIONAL SUCCESS

R.D. Putnam

Cp. 6 of  Making Democracy Work: Civic Traditions in Modern Italy

A Summary 

In a Nutshell

Collective action problems mean that in the absence of a credible mutual commitment each member of a group has an incentive to defect and become a free rider. In such a situation actors must forgo many opportunities for mutual gain “ruefully but rationally”. One potential solution is to allow for third party enforcement. However this is expensive as the neutral third party (potentially the state) must monitor the contracts and enforce compensation such that it is cheaper for the defector to comply with the contract rather than break it. Even more basically impartial enforcement is a public good and so subject to the same problem it is trying to solve i.e. the third-party itself may have incentive to defect from impartial enforcement. Thus, impartial 3rd party enforcement is not generally considered a stable equilibrium where no player has an incentive to defect.

 So why then do we see cooperation? Indefinite repetition of games is important whereby the defector can be punished in subsequent rounds. This requires that there be abundant free information about past cooperation of players, which would seem to suggest that cooperation is less likely than the observed level in society.

 Ostrom argues that formal institutions reduce transaction costs of monitoring and enforcing agreements. The success of these institutions are conditional on the boundaries of the institution being well defined, that affected parties participate in creating the rules that there are graduated sanctions, and that the conflict resolution method is sufficiently low cost. Whilst this may be the case the question arises as to how such institutions come about? What are the conditions that enable them to be created? The participants themselves cannot create them for the same reason that they need it in the first place. The answer proffered is: community trust.

 Thus voluntary cooperation is much easier is communities that have a large stock of social capital in the form of norms of reciprocity and networks of civic engagement. When individuals have lived in such a situation with social trust and capital, and shared norms of reciprocity exist, there exists the foundations for building the institutional arrangements for resolving collective action problems.

 Trust is an essential part of this social capital and every commercial transaction involves a degree of trust. “Trust lubricates cooperation”. An individual expects the other actor to choose cooperation outside of the ability of a formal institution to punish defection.

 [Implications

The implication is that institutions cannot be imported into situations in which they have not developed organically, as the social capital foundations are not strong enough. Thus the key to cooperative behviour is not just getting the rules right. For even in the presence of strong contract law for example, commercial undertakings would be next to impossible if the level of mistrust in society meant that full contracts would need to be drawn up for any commercial interaction, as well as the need to include the expected costs of prosecuting upon defection which would appear highly probable. This would seem to indicate that the protection of private property for example cannot be the whole story as to the successful development of certain states {e.g. Botswana – see AJR}, as there must be some initial conditions of trust that enabled the institution of private property to be built.

 The argument also seems to move from conditions to institutional development and not the other way around, which answers Przeworski up to a point.]

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