Submitted

by Asuncion M. Sebastian On August 31, 2012 For Development Administration (DVS531P) Ph. D. in Development Studies

Essay No. 2 Social Capital and Development

Submitted to Dr. Rizal G. Buendia Word count: 7,599

Outline
I. Introduction II. Discussion A. Social Capital 1. Definition 2. How social capital is created 3. How social capital is destroyed B. Variables Associated with Social Capital C. Social Capital and Development 1. Economic Development 2. Political Development D. Social Capital in Development Administration III. Conclusion Bibliography

I.

Introduction

This essay examines the literature on social capital, albeit all materials are written in the Western context. No material has been written yet on social capital in the Philippine context, thus, the hypotheses and propositions of the various authors are tested in using local cases and scenarios. The authors do not agree on the intention of social capital, its level of applicability, the process of its creation, and the possible influence of and to development administration hence, the essay starts with the different understanding and definition of social capital. This paper attempts to answer the following questions: What is social capital? Is it any different from personal leadership or power of network? How is social capital created and destroyed? Does development administration play a role in its creation and destruction? What variables are associated with social capital? Are they applicable in the Philippine context? What is the role of social capital in development, specifically in achieving economic and political development goals and civic engagement? The aim of this essay is to demystify the concept of social capital and to discuss its role in the light of its economic and political functions, mainly at the community or meso level, and its implications on development administration in the Philippines. Finally, what is the importance of understanding social capital in the light of development administration?

II.

Discussion

Social capital provides conceptual and policy device that go beyond that orthodox economic theories (Woolcock, 1998). Contrary to the classic economics

principles, not all people make economic decisions based on rational choice or utility-maximizing reasons or on market forces of supply and demand; some, if not many, decide on the grounds of non-economic factors, including relationships or social capital. Social capital has both economic and political functionsin efficient functioning of modern economies and an essential condition for stable liberal democracy (Fukuyama, 2001). Social capital has been recognized as a vital ingredient in economic development and, as shown in a number of studies, has been essential to growth of physical investment, appropriate technology, and getting prices right of indigenous grassroots associations. The success of cooperatives to manage common pool resources, for example, has also been attributed mainly to the stocks of social capital (Putnam, 1993, p.5). However, Fukuyama (2001, p.7) asserted awareness of social capital is often critical for understanding development, although it is difficult to generate through public policy. This paper therefore aims to discuss the role of social capital in the light of its economic and political functions. Because of the various cleavages used in analyzing social capital, it would be more useful to examine the concept at the smaller scale than at the macro or country level.

A.

Social Capital
1. Definition

Putnam defined social capital as the features of social organization such as networks, norms, and trust that facilitate coordination and cooperation for mutual benefits (The Prosperous Community Social Life and Public Life, 1993, pp.1-2), which he later revised to those features that enabled participants to pursue shared objectives (The Strange Disapperance of Civic America, 2001, p.1). Social capital may be witnessed in what people are willing to do for each other, their care of the less fortunate members, and the preservation and guardianship of common assets, among others (Sen, 2002, p.5). Members also

Social Capital in Development

Page 2 of 24

participate because they like to, not because their participation strengthens social fabric (Putnam, The Prosperous Community Social Life and Public Life, 1993, p.4). Dense social ties facilitate gossip and other valuable ways of cultivating reputationan essential foundation for trust, according to Putnam (1993, p.4). While Putnam and Sen looked at social capital in a group or organizational context, Fukuyama (2001, p.7) had a more individualistic take: social capital is an instantiated norm that promotes cooperation between two or more individuals. Hence, Gleasar, Laibson, and Sacerdote (2000 in Gomez & Santor, 2001), proposed that social capital may be at work at several levels: country, community, and individual. Woolcock (1998) likewise defined social capital at two levels, referring to it as the nature and extent of a communitys personal and institutional relationshipswhich make social capital relevant to the discussion of institutions and behavior. At the individual level, social capital is believed to lead to better levels of economic performance for each person. It may be in the form of charisma, status, or access to networks that enables a person to gain benefits from interactions with others. The return on social capital, on the other hand, may be in terms of material support, knowledge and information, and/or psychological aid such as encouragement (Gomez & Santor, 2001). Social capital at individual level as defined by the authors does not make much difference from the field of psychologys personal powerwhich may stem from ones position, expertise, persuasion and selling skills, and charisma, among othersthat one may use to make others work to help achieve ones goal. It is no different either from leadership of all brands, which is commonly defined as ones ability to influence others to act toward a certain goal. Finally, if the outcome of personal social capital is gauged in terms of material and psychological support, and information, then social capital can just be another term for friendship or other kinds of personal relationship that do not warrant academic discussions in sociology, economics, or political science. However,
Social Capital in Development Page 3 of 24

there is more to social capital than what has been defined at individual level, that which enables group or community actions that would not have been possible in its absence. Another contention about social capital taken at a smaller scale than community is its working at the family context. If Fukuyama (2001) were correct that the basic radius of trust is ones nuclear family, and that social capital facilitates achievement of common goal, then why is it a popular notion that one should not do business with family? A more fundamental question would be, why is there an increasing number of family breakdowns if it were indeed the seat or center of social capital? Does it follow then that social capital is also decreasing in stock? Perhaps, social capital is more applicable and appropriate in group or community context and using it in personal and family levels is either stretching the concept a bit too much or chartering a more complex network of relationships beyond the scope of development studies. 2. Social capital is a public good, created as a by-product of social relationships, and as such, tends to be under produced if left to the market (Kawachi, Kennedy, Lochner, & Prothrow-Stith, 1997, p. 1495). However, Fukuyama (2001) contended that since cooperation is necessary to virtually all individuals as a means of achieving their selfish ends, they would produce social capital as a private good (pp.7-8). Putnam (1993, p.4) also explained social capital is the product of successful collaboration in one endeavor that builds connections and trust, which in turn would eventually facilitate future collaboration in other, not necessarily related tasks. In short, social capital is the result of deliberate, conscious actions of the members of the group. Fukuyama (2001) opposed this view, arguing that social capital is a by-product of religion, tradition, shared historical experience, and other types of cultural norms. It is, more often than not, created by hierarchical sources of authority such as the religion and culture (p.16; Sen, 2002). For
Social Capital in Development Page 4 of 24

How social capital is created

Fukuyama, there are three main sources of social capital, which are external to the community: the state, religion, and globalization (2001, p.18-19). Citing Verba et. al., Putnam (1993, p.8), however, acknowledged that the church is a uniquely powerful resourcean arena in which tomake connections. Both accounts may be truewhile social capital can be built among equals within a community either deliberately or organically (that is, as a consequence of a continuous or natural development), it can also be established by external forces. In the literature of social capital in microfinance, Ito (2003) distinguished the social capital that lies in the relationship among the micro borrowers/micro entrepreneurs organized into groups or centers, or the horizontal social capital, from that which lies in the relationship between the MFI workers and the micro entrepreneurs, or the vertical social capital. The idea of vertical social capital can hence be applied in other situations such as the church and the followers, the governor and the governed. Fukuyama, however, did not explain why more often than not social capital is created in hierarchical sources of authority. It would thus help if the creation of social capital would be examined in the light of institutionalism. According to Sen (2002, p.7), behavior depends not only ones values and dispositionsthus the organic creation of social capitalbut also on the absence or presence of institutions and on the incentives they generate. On one hand, institutions can easily create the venue or opportunities for social interaction, as pointed out by Putnam, such as the weekly church gathering or the regular basketball competition organized by the barangay council. Moreover, they can setup incentives to attract people to work together or disincentive to do so; they can oblige people to do certain things (which the church will always deny to be doing) like paying tax or tithe, or do otherwise. Sen explained that authoritarian rule, for example, could repress peoples inclination to participate and create instead either a culture of fear or a culture of indifference (p.4-5). On the other hand, people tend to be trusting of priests, pastors, leaders, gurus, or anyone in the position who appears larger than life. But while Fukuyama suggested the influence of authority in the creation of social capital, he (2001, p.7) also argued
Social Capital in Development Page 5 of 24

that it (social capital) is difficult to generate through public policywith the preceding explanation and the last section on the implication of social capital on development administration, maybe not. Another institution that is influential in the creation of social capital is the non- profit or the non-government organizations (NGOs). Although Cameron (2000) recognized the role of NGOs in the growth of grassroots institutions, Putnam (2001, p.3) argued that most prominent nonprofits are bureaucracies, not associations, so the growth of the civil society sector is not tantamount to a growth in social connectedness. Fukuyama (2001, p. 12) added, There is no guarantee that NGOs actually represent real public interest(because of) the entrenched interest group. However, how different are the NGOs from other institutions like the church or the state? Like NGOs, they do not necessarily represent real public interest; however, regardless of their motives, these institutions, NGOs included, can create venues, incentives, and/or compelling orders to make people connect and collaborate over and over again until social capital is established. 3. How social capital is destroyed While there are factors that determine or help build social capital, there are also factors that can destroy it. The growing gap between the rich and the poor, for one, has led to declining levels of social cohesion and trust, or disinvestment in social capital. Ironically, while inequality causes the break down of social capital, there is also seemingly inherent inequality in social capital (Putnam, 1993, p.7). If indeed social capital is a public good, as argued by Kawachi et. al. (1997) and Putnam (1993), similar to the air each individual breathe or the highway one passes through, how could there be inequality in social capital? How can inequality be possibly created within the ideal system of trust and reciprocity? Inequality may exist in relation with other communities, particularly if social capital has become exclusive rather than bridging (Woolcock, 1998). Putnam (1993, p.8) cited the power of the church in pushing for the political engagement

Social Capital in Development

Page 6 of 24

of the blacks, serving as job banks for the congregation, and working as informal credit bureau at times. However, the very same power can be used for block voting, which is against the spirit of democracy; and in religious discrimination in employment application, among others. Such practices promote distrust, if not total animosity, with the outsiders. The author also cited the power of education in building social capital (p.8). However, in situations where education is not democratized, is the social capital gap not further widened by the socio- economic gap? Hence, people in this situation are caught in the vicious cycle. On the other hand, inequality can also exist within the community or within the system itself. Inner circle, council of elders, or the less formal cliques, are but indications of exclusive source of power or benefits enjoyed by the smaller group of members within the community. As Fukuyama (2001, p.14) furthered, politics or power position within a group determines ones capacity of collective action. In short, inequality may be embedded in the very systems that create social capitalthat is, if the established norms are discriminatory (Putnam, 1993, p.11). Aside from inequality, Woolcock (1998, p.182) also argued the following conditions cause social capital in a community to be low: Endemic poverty that cannot be resolved by social safety nets and employment, similar to the argument of Kawachi et. al. (1997) Weak, unjust, flaunted, or indiscriminately enforced laws Polities that are not freely and fairly elected, or when voters have few serious electoral choices Dominant and subordinate groups having little shared stake in common outcomes If one examines the abovementioned conditions carefully, these are simply various forms of inequality that go against the innate human sense of what is fair and just.
Social Capital in Development Page 7 of 24

War, famine, rampant inflation, disease, or chronic underemployment Minorities being covertly or overtly discriminated against

B.

Variables Associated with Social Capital

Several authors associated social capital with various social conditions although the direction of the causal relationship and the intervening mechanisms are yet to be established empirically. Putnam (2001) hypothesized variables are closely associated with social capital, some of them are the following: Education and economic affluence. Lower-income segments tend to be less engaged in community and less trusting than those who are better off (p.8). What Putnam did not mention is the possible reason why the lower-income segments tend to be less engaged. For one, they need to spend more time making both ends meet than those who are affluent. Two, they do not have the luxury of having helps in the domestic front (in fact, they could be the one doing the domestic chores for the higher-income class). Finally, they are likely not to have the confidence to socializeespecially among low-income Filipinos, it is common to hear the term lang attached to their occupation (e.g. driver lang, namamasukan lang), which is more like an expression of shame than humility. The less trusting trait could be justified by some evidence that suggests that poverty is linked to the depletion of social capital (Kawachi, Kennedy, Lochner, & Prothrow-Stith, 1997, pp.1491-1492). The causal link is this poverty reduces opportunity cost of engaging in conflict thus grabbing resources, for example, is quicker and more profitable for the poor than the steady process of wealth accumulation (Ray, 2007, p.17). It is therefore unusual to see informal settlers and jail mates robbing one another even of the littlest things such as spoonful of food, firewood, and safety pins. When this happens, the culture of distrust is created. Age and generation. Second to education, age is a strong determinant of social capital. Older people are consistently more engaged and trusting than
Social Capital in Development Page 8 of 24

younger people, although they do not become more engaged and trusting as they age. This phenomenon is explained by period or generation effects, that is, when people are affected by an event in an era or all people born at the same time undergo common experience. If one grew up in a period of high level of civic engagement, one is likely to be more trusting and engaged (pp.13-14). Perhaps, the Martial Law babies or the members of the EDSA People Power generation are more inclined to engage in civic matters. However, as far as policy or development administration is concerned, how can this insight be used in promoting social capital? While one cannot plan for it, as in the death of Secretary Robredo, one can capitalize on the event to rally people into doing something good and noble. Robredos brand of tsinelas leadership is now incorporated in the curriculum of value formation in public elementary and high school. In short, the approach can only be opportunistic rather than deliberate. Mobility and suburbanization. They tend to disrupt root systems and it takes time for an individual to put down new roots. Residents of small towns and rural areas are slightly more trusting and engaged in civic matters than those who live in metropolitan areas. There is no correlation though between increase in population and losses in social capital (p.6). Again, what Putnam did not mention is the correlation of mobility and economic affluence. Migration of rural population to urban areas is driven by the peoples search for economic opportunities, which, in turn, contributes to the increasing concern of informal settlement. In this case, which contributes to the weakening of social capital, poverty or migration/ uprooting? The argument does not discount, however, the natural tendency of the rural folks to be more trusting. In the rural areas, people are more welcoming to strangers, letting them into their homes, entertaining them, some even offering foodsomething that could hardly be witnessed in the city, if at all.
Social Capital in Development Page 9 of 24

Employment. In general, regardless of gender, workaholics or those who work for long hours would cut down on their sleep, eating time, and leisure but not on organizational activities (pp.7-8).

As they say, if you want to get something done, assign it to the busiest person, as they are the most productive, the most effective in time management, and the most committed to work. Again, with the lack of explanation of intervening mechanism, one may hypothesize that workaholics have certain kind of personality that makes them drawn to civic engagementbe it high level of confidence, drive, sheer enjoyment of others company, or appreciation of value of network. However, the hypothesis is flawed in this: if it was true, then all people with social capital would be of the same personality and of the same employment status. State intervention. By crowding out private initiatives, state intervention has undermined civil society. Demolition of informal settlements is one way of destroying social capital (p.11). This item has probably the shortest discussion but it has the most concrete impact on development policy or administration. Demolition is often equated to political will of the incumbent but the government heads do not realize that it is not the only expression of political will. On the other hand, Putnams wording is very neoliberalnot all state interventions lead to the undermining of the civil society or the private sector, just as not all civil society undertakings are successful. There are market failures, government failures, as well as development failures. Electronic revolution. Television, for example, takes time outside of home and encourages couch potato, passive behavior. While newspaper reading is associated with high social capital, TV viewing is associated with low social capital (pp.18-20).

Social Capital in Development

Page 10 of 24

In the absence of causal explanation, one could hypothesize that TV viewing is simply a proxy indicator of something elseperhaps a natural inclination to be anti-social/a loner/a homebody. In an unpublished study using focus group discussion as research method, the group of microfinance borrowers who showed significant poverty movement (meaning, they have become remarkably less poor over time) spent no more than 30 minutes on TV in a day while the other groups that did not do as well watched TV from 2 hours a day to practically the whole day. The more successful group also exhibited high level of discipline in handling household finances and in their conduct of business, relative to the other groups. In this case, electronic revolution is not necessarily the culprit of low or decreasing social capital; it could simply be the natural inclination of the members to passive behavior and/or their lack of discipline. Recently, a new hypothesis came out arguing that human beings have the natural desire of human to be distractedthis could be another reason, and not electronic revolution per se. On the other hand, electronic revolution has been lauded for connecting people for social cause: the yellow boat project for the benefits of students of Mababoy Elementary School in Masbate and the Hop-E bamboo school project for the indigenous children in Rizal are just a couple of projects launched in the internet and has sourced considerable funding since. Donors are well-meaning strangers both locally and abroad who trust the idea and the goodness of the proponents without necessarily an expectation of reciprocity, without established relationships, or an experience of successful collaboration in the past that warrants trust in the present. As Fukuyama (2001, p.13) stated: changing technology changes forms of association. Does it also change the center of social capital from norms and trust-based relationships to trust in abstract ideas? Does this mean that electronic revolution has changed the meaning of social capital? Perhaps, it is not social capital that is at work but merely the human spirit that yearns to help another. If it were social capital, will the same people donate resources continuously? Will be beneficiary-students return the favor
Social Capital in Development Page 11 of 24

sometime in the future? Where does the possibility of reciprocity lie? As Putnam (The Prosperous Community Social Life and Public Life, 1993, p.3) argued, the key in social capital formation is organized reciprocity and civic solidarity. Ultimately, the cited projects are still based on the benefactor- beneficiary contract, devoid of social capital. What the electronic revolution must have changed is not the nature of social capital but the means of distributing financial capital. In addition to the variables identified by Putnam to be associated with social capital, Sen (2002) highlighted the influence of culture on the societys general inclination for civic and political participation. Similarly, culture could influence a societys operation of social solidarity and mutual support (p.4-5). An observation in the field is that a community so isolated from society and therefore deprived of various services would find a way of meeting their own needs and eventually become self-sustaining. The system of "paluwagan" grows naturally among people who need short-term financing but do not have collateral or access to credit, or do not meet the requirements of formal institutions. On a larger scale, some communities have even developed their own financial and economic system such that financial institutions and NGOs find it difficult to penetrate such a marketthe social capital of self-sustaining communities more often than not becomes exclusive. Is this good or bad? While their exclusivity can protect them from the exploitation of the outside agents, who probably see them as yet another market to sell products to, it can also deprive them of things that can improve their living such as ideas, innovation, and information. Ultimately, any society that is unable to adapt to environmental changes because they refuse to learn new things will most likely become extinct. However, the question is, is it really culture that pushed the community into building exclusive social capital or is it their isolation that created the conditions for such? Or was there any external force that led people not to trust any outsider? In the case of the Philippines, does its long history of being under colonial rule lead to the destruction of social capital within the country as a result of distrust of foreign invasion? And in the absence of strong national
Social Capital in Development Page 12 of 24

identity, has this feeling of distrust eventually led to exclusive social capital across regions and thus to parochialism? At the national level, this issue can be easily or has already been addressed by the open-trade, open-economy policies (and given the stereotype of Filipinos having colonial mentality, maybe this is not a serious problem). At the regional level though, considering the archipelagic feature of the country as well as position of imperial Manila (a phrase that connotes inequality), coming up with public policy that will foster the creation of social capital and unity will be a challenge. No literature has also mentioned the role of expectation in the formation of social capital. A possible hypothesis is that the simpler the expectation from a relation of reciprocity is, the easier trust, and hence social capital, is built. For example, the expectation of one-time loan repayment alone between a debtor and creditor is more manageable than the expectation of the exercise of honesty and material and non-material support every single day between employer and employee. As the scope and scale of social capital increase, so is the challenge of building it. Finally, there is also no discussion in the literature that the flipside of trust is riskrisk of non-meeting of expectation or non-performance of the other members of the group. Ones capacity to absorb or manage the risk will likely determine ones openness to trusting others. A better-off person will most likely lend Php5,000 to a friend, without perhaps expecting any repayment from him/her and charging interest; however, a daily-wager may not readily lend even his/her closest friend this amount equivalent to 70 percent of his/her monthly take-home pay for practical reasons. The level of relationships or social capital in these examples may be the same but the proportion of the risks involved alters the impact of social capital in the sharing of resources.

C.

Social Capital and Development

At the macro or country level, social capital has both economic and political functionsin efficient functioning of modern economies and an essential
Social Capital in Development Page 13 of 24

condition for stable liberal democracy (Fukuyama, 2001). Another way of putting it is that social capital is the missing link in developmenta substitute to state intervention with social intermediation in order to overcome market imperfections (Ito, 2003, p.322). Social capital is important in the development of advanced Western economies. Studies of highly efficient, highly flexible industrial districts emphasize network of collaboration among workers and small entrepreneurs. Even the new growth theory pays more attention to social structure than conventional neoclassical models do. Likewise, studies of the rapidly growing economies of East Asia also almost always emphasize the importance of dense social networks, so that these economies are sometimes said to represent network capitalism. These networks, often based on extended family or on close-knit ethnic communities, foster trust, lower transaction costs, speed information and innovation (Putnam, 1993, p.5). What is it in social capital that contributes to economic and political development, and civil society empowerment and how? This paper argues that social capital is necessary in facilitating economic and political development, and strengthening civil empowerment but not all mechanisms that build social capital lead to these results. In addition to organized reciprocity and civic solidarity as key elements of social capital (Putnam, 1993), this paper argues that having a common goal is necessary in its formation; social capital formation is not an end in itself and social gathering for the sake of social gathering will not lead to economic and political development, and civil empowerment. This argument is contrary to Putnams (The Prosperous Community Social Life and Public Life, 1993, p.4-5) point that members participate in activities because they like to, not because of some altruistic goal such as strengthening the social fabric. Likewise, this argument contradicts Fukuyama (2001, p.16) in saying that norms are transmitted through a process of socialization that involves much more habit than reason. If Putnam and Fukuyamas arguments were correct, then perhaps the Philippines probably has the highest stock of social capital in
Social Capital in Development Page 14 of 24

the world, what with its basketball tournaments held in each of its more than 42,000 barangays and the number of fiestas held at the barangay and town levels (it is estimated that at least one fiesta per day is celebrated in the country). Add to these regular community gatherings the traditional beauty pageants and singing contests. Have these occasions led to the nations economic and political development, and civil empowerment? Not necessarily because, as this paper argues, these occasions are devoid of meaningful goals. The counter argument then is this: can social capital formation be manipulated by gathering people to work to meet certain meaningful goals? It has been discussed earlier that institutions can create venues or opportunities and design incentives or disincentives to make people come togetherjust as the barangays organize tournaments and fiestasand the last element that is added to this structure to achieve development is the common goal. 1. As discussed by Putnam (1993, p.3), the causal relationship of social capital and economic development is this: communities become rich because they were civic, not that they were civic because they were rich. The social capital embodied in norms and networks of civic engagement seems to be a pre- condition for economic as well as for effective government (p.3). As proposed as well by the new growth theory, people, together with knowledge, entrepreneurship, and innovation, comprise the determinants of economic growth, contrary to the classical economic theory that highlights the factors of production, namely, land, labor, and capital, as the source of development (Acs, 2002). Social capital leads to economic development because it promotes efficient systems and operations. According to Putnam (1993, pp.3-4), a society that relies on generalized reciprocity is more efficient than a distrustful society and facilitates coordination and communication. At the country level, the author cited the case of China whose economic growth depended less on formal institutions than on personal connections. This
Social Capital in Development Page 15 of 24

Economic Development

generalization is consistent with the findings of several studies on Chinese corporations, particularly of Chinese family corporations. These businesses still thrive on verbal, trust-based contracts rather than on legal instruments that pass through bureaucratic process. Thus, their business deals are carried out faster than in a normal corporate setting. The same business principle operates at the community level. Prices at the level of microenterprise, for example, are based on suki (customer loyalty) relations between the buyer and microentrepreneur. The best products are also saved for the suki and not for the highest bidder or for the volume buyer (although the volume buyer could also be the suki). The reason is that the suki system works on the basis of mutual trust and reciprocity that the buyer will always source from the entrepreneur and that the seller will always give the buyer the best products and/or the best deal. For this reason, too, it is not unusual for the seller to dissuade the buyer from purchasing products if they are of low quality even if the buyer has no way of telling (e.g. overage balut) and even if the seller is bound to gain, if only for the short run. Thus, the suki system stabilizes economic relationships and encourages growth in the long run. The trust system at the community level is also apparent in the sari-sari store operations. Hardly does any sari-sari exist without a long list of buyers payables or credits. The seller trusts that the buyer will pay his/her dues when money comes while the buyer trusts that the sari-sari store will help his/her family tide over. Indeed, sari-sari stores play a key role in the economic life of the low-income communitiesa market deemed too small or too unprofitable by the big supermarkets. Despite the stories of stores closing down because capital being eaten up by bad debts, still, their estimated number increased by over 14 percent from 700,000 in mid 2000s to 800,000 in 2010. Unsurprisingly, in Metro Manila, sari-sari stores are the third most popular source of credit, next to family and friends and loan sharks or 5/6 (Sebastian, 2011). Finally, the operations of microfinance institutions (MFIs) are largely based on social capital. Literature cited how the MFIs using group-based financial scheme
Social Capital in Development Page 16 of 24

have tapped social capital in using information that the group members have about each other in managing their risks. Hence, the MFIs are encouraged to employ similar institutional mechanisms to use pre-existing social capital or help create it (Ito, 2003, p.323). Serageldin and Grootaert (2000, p.47 in Ito, 2003) argued that MFIs provide an informal framework for sharing information, coordinating activities, and making collective decisions, something that makes microfinance program work because members have better information about one another than banks do. This information often includes the traits and financial habits of the members (do they have good credit standing among sari- sari stores in the neighborhood?), their social relations in the community, and their family conditions (e.g. unemployed or gambling spouse), among others. Microfinance borrowers also do not get tired of group guarantees (at least in the particular case of the interviewed MFI officer) because outside of the MFI, when they need food or money during hard times, they turn to the very same group members for helpthe spirit of reciprocity and trust at work. At the firm level, lack of trust will be costly, as it will compel setting up of control systems to ensure that the employees, managers, suppliers, and other stakeholders will deliver. Control system raises transaction costs (imagine investment in time monitoring system, surveillance cameras, and security measures) and prolongs operating / waiting time (imagine audit processes, check points, and protocol for signatures and approval). Fukuyama (2001, p.10) also explained the role of social capital in generating useful information, that is, gossiping does more efficient job than the formal coordination techniques. He added that in effective management, workers who are much closer to the sources of local knowledge are thus authorized to make decisions on their ownwhich is also one of the reasons behind devolution. Fukuyama (2001, p.15) also mentioned the impact of social capital on the market valuation of a company. Why does it matter in the context of profit-maximizing capitalists? Beyond effective management cited in the previous example, social capital adds to overall economic stability of the society. The folding up of pre- need companies in which many people from different socio-economic classes
Social Capital in Development Page 17 of 24

invested their hard-earned money (some, their retirement money even) for the future education of their children and the closing down of several banks created so much distrust in the financial institutions among the people. The resultthe affluent ones bring their money out of the country while the low-income groups save in their own homes. The country as a whole loses because the money that is supposed to fuel the economy is kept somewhere else. Social capital, however, can have negative effects, too. Fukuyama (2001, p.9) noted that social capital may have either positive externality, that which leads to collective growth and development, or negatively externalityan example of which is the culture that makes one feel entitled to steal for the benefit of ones family. Other examples of negative externality are nepotism and inbreeding, especially in the case of anti-migrant, exclusionary tendencies (Sen, 2002, p.5). These externalities do not necessarily cause major economic problems in themselvesonly that they create inequalities in the system that widen the gap among members and eventually result in inefficiencies. 2. In the political arena, social capital may lead to collective action. Putnam (1993, p.9) argues we have too easily accepted a conception of democracy in which public policy is not the outcome of a collective deliberation about the public interest, but rather a residue of campaign strategy and thus proposed that those who lack connections at the top, we must nourish grassroots organization. Following this argument, it means that weak state leads to strong civil society, that is, founded on social capital. Fukuyama (2001, p. 11) supporting Putnams point that dense civil society which social capital produces is a necessary condition for modern liberal democracyasserted civil society serves to balance the power of the state and to protect individuals from the state power(but) in the absence of civil society the state often needs to step in to organize individuals who are incapable of organizing themselves. The logic of this argument serves as the counterfactual of the previous point raised by Putnam, that is, weak civil society requires strong state. However, in reality, why
Social Capital in Development Page 18 of 24

Political Development

would the state organize the individuals to balance its power? Perhaps, only a highly evolved state would recognize that empowered citizens can do a lot more than a disenfranchised ones. Fukuyama (2001, p.11) emphasized that low levels of social capital lead to a number of political dysfunctionadministrative centralization has led to an excessive rigid and unresponsive political system. This argument is similar to economic/market/firm level dysfunctions in that low social capitallow level of trust that the other party will performance or do its shareleads the government to set up controls that may lead to red tape, which in turn may lead to areas of inefficiency. Whenever there is inefficiency, there is room for graft and corruptionso there goes the domino effect of breakdown of social capital. Social capital is more critical in the proper functioning of public institutions (Fukuyama, 2001, p.12) than it is in the private sector because the former, by social contract, is supposed to protect the economically and politically challenged and thus serves wider membership in social capitals circle of trust. The public institutions are supposed to uphold public interest; however, with higher expectations comes the higher risk of breaking the trust. However, truth be told, even in the political arena social capital can also have negative effects. Fukuyama (2001, p.12) cited that ones civic engagement can be anothers rent- seek; public resources can be used to favor causes of certain interest groups; and there is no guarantee that NGOs represent real public interest. When these happen, social capital breaks down further. How then can this vicious cycle of social capital breakdown be reversed? The existing literature offers no solution. Following, however, the process of how social capital is created, the reversal process can start either within the community or by external force, namely the state, religion, and globalization (Fukuyama, 2001). According to Fukuyama (2001 p.19), globalization is a bearer not only of capital but also of ideas and culture. On the contrary, Sen (2002, p.2) argued local cultures are in danger of destruction as a result of globalization. Since there are a lot of losers in globalization, it would be difficult to argue for its neutrality.
Social Capital in Development Page 19 of 24

However, the question in general should have been, is extra-community social capital good or bad? Is changing culture not part of its natural evolution and not necessarily its destruction? Culture is not static in the first place; in fact, interaction with extra-community factors offers opportunity of correcting what could be a repressive culture into something more just and fair to all members of the society. Thus, the direction of change of culture also matters. The rising culture of commercialism, for example, that destroys both nature and human relationships is also not good by any standard. Anthropologically speaking though, there is no good or bad, primitive or modern culture. Perhaps, the more appropriate question would be what works and what works better for the people. On the other hand, Sen argued (2002, p.18) the prohibition of cultural influences is not consistent with a commitment to democracy and liberty and suggested that there be participatory decision-making on the kind of society people want to live in. How exactly do we operationalize this suggestion? Can people really decide on the kind of culture that they want? Is culture not an aggregation of the spontaneous actions and reactions of individuals making up the society? In short, can society really choose the impact of globalization on its members?

D.

Social Capital in Development Administration

What is the implication of the foregoing discussions on development administration? The understanding of social capital and what it can do or make people do can lead to various, concrete development programs that range from preservation of culture to community development. This paper works on Sens (2002, p.7) proposition that behavior depends not only on personal values and predispositions but also on the absence or presence of institutions and the incentives they generate so that public policy and administration, building on the communitys stock of social capital, can in fact effect change that will lead to economic and political development, and civic empowerment.
Social Capital in Development Page 20 of 24

However, one has to start in earning or even gaining back the trust of the people. As Cameron (2000) put it succinctly, why should poor people accept growing uncertainty and insecurity when the resources they need to sustain themselves are being appropriated by institutions acting in the interest of people with far higher certainty of living comfortable lives? The poor have been used and abused time and time again, especially during election. When one offers them something, an innovative product or service for instance, almost always their question will be whats the catch?. Demolitions and closing down of factories have cost so much social capital the effect of which may transcend generations. As pointed out by Putnam (The Strange Disapperance of Civic America, 2001, p.11), some government policies have almost certainly had effect of destroying social capitalslum clearances in the 1950s and 1960s, for example, replaced physical capital but destroyed social capital. Consider the case of displaced communities in Mindanao, robbed of their ancestral lands. How does one reverse the negative impact and rebuild trust? If somebody knew the answer then the conflict would have long been ended. In terms of policy on education, Putnam (1993, p.8) suggested that policymakers move beyond debates about curriculum and governance to consider the effects of social capital. As Comer, an educational reformer, proposed, education process should deliberately involve parents and other members in the process. The current educational system is individualistic and thus if policy would consider social capital, the intervention must focus on community development (pp.9-10). Since the Philippine education system takes after the American model, the countrys policymakers should consider this point. Besides, the American education model has been criticized for its competitive learning environment, rewarding the best of the best. In contrast, the European model encourages collaboration among the students, encouraging them to improve their mean performance instead of recognizing only the best students. Thus, early on in their lives, people are taught about working together, which is the essence of social capital.
Social Capital in Development Page 21 of 24

Aside from education policy, Fukuyama (2001) also suggested that social capital be created by public policy that builds on existing social network such as provision of public goods. Home ownership rather than tenancy, for example, help build peoples sense of security as well as establish roots and trust. Putnam (1993, p.7) furthered that living in a neighborhood depleted in social capital, for example, regardless of the stock of individual resources, has deleterious effect. Families in deprived neighborhood have to deal not only with the societal issue such as unemployment but also with the behavior and frustrations of other jobless families in the neighborhood (Kawachi, Kennedy, Lochner, & Prothrow- Stith, 1997, p.1496), thus the emphasis on community development.

III. Conclusion
This essay argues that trust and norm of reciprocity make social capital more than what has been defined at individual level and enable group or community actions that would not have been possible in its absence. It also argues that social capital is more applicable and appropriate in group or community context rather than in personal and family levels. The essay also shows that social capital is created either organically or naturally, or by some external agents, mainly by institutions such as the state, religion, civil society/NGOs, and even by globalization. Inequality, on the other hand, and all its forms cause the breakdown of social capital. Through policies and incentive structures, development administration can help create social capital and direct it positively to achieve economic and political development goals. Several variables are associated with social capital formation. Aside from the direction of causality the need to be established yet, co-determination of these variables also has to be tested. For example, education, economic affluence and employment are likely to have causal relationships, and so as poverty and migration. What this essay also contributes to the discussion are the elements of history of colonialism and culture, expectations, and risks.
Social Capital in Development Page 22 of 24

Social capital contributes to economic development in that it cuts down on transaction and information costs, and facilitates coordination of economic activities. It also stabilizes economy as a whole. Similarly, it contributes to political development by strengthening or complementing the weak sector of the society, protecting public interests, and reducing transaction and information costs as well. The understanding of social capital and what it can do or make people do can lead to various, concrete development programs that range from preservation of culture to community development. Public policy and administration then can build on the communitys stock of social capital and can in fact effect change that will lead to economic and political development, and civic empowerment. The social fabric created by social capital therefore has to be considered in development administration, as it makes cooperation, coordination, and information flow more efficient and cost-effective than if it they were to take place under a formal, institutional setup often designed with control systems. It then follows that community preparation, local participation or engagement of the community, and the power of the informal leaders have to be in check. However, Putnam (1993, p. 10) warned, social capital is both a requisite for and a consequence of, not a substitute for sound public policy. The discourse, however, does not end here; instead it leads to further questions. To what extent does social capital influence the effectiveness of development programs? What are the features of successful social capital building mechanisms that contribute concretely to economic and political development, and civic empowerment? Finally, what is the countrys current stock of social capital and how can it be used more effectively?
Social Capital in Development Page 23 of 24

Bibliography

Acs, Z. J. (2002). Innovation and the Growth Cities. Cheltenham, UK: Edward Elgar Publishing Limited. Cameron, J. (2000). Development Economics, the New Institutional Economics, and NGOs. Third World Quarterly , 21 (4), 627-635. Fukuyama, F. (2001). Social Capital, Civil Society, and Development. Third World Quarterly , 22 (1), 7-20. Gomez, R., & Santor, E. (2001). Membership Has Its Privileges: The Effect of Social Capital and Neighborhood Characteristics on the Earnings of Microfinance Borrowers. The Canadian Journal of Economics , 34 (4), 943-966. Ito, S. (2003). Microfinance and Social Capital: Does Social Capital Help Create Good Practice? Development in Practice , 13 (4), 322-332. Kawachi, I., Kennedy, B. P., Lochner, K., & Prothrow-Stith, D. (1997). Social Capital, Income Inequality, and Mortality. American Journal of Public Health , 87 (9), 1491-1498. Narayan, D., & Cassidy, M. F. (2001). A Dimensional Approach to Measuring Social Capital: Development and Validation of a Social Capital Inventory. Current Sociology , 49 (2), 59-102. Putnam, R. (1993). The Prosperous Community Social Life and Public Life. The American Prospect , 4 (13). Putnam, R. (2001 19-December). The Strange Disapperance of Civic America. Retrieved 2012 8-July from The American Prospect: http://prospect.org/article/strange-disappearance-civic-america Ray, D. (2007, March). Development Economics. New York, New York, USA. Sebastian, A. M. (2011, June). Market Saturation of Microfinance in Metro Manila: Fact or Fiction? . Sen, A. (2002). How Does Culture Matter? In V. Rao, & M. Walton (Eds.), Culture and Public Action. (forthcoming). Woolcock, M. (1998). Social Capital and Economic Development: Toward a Theoretical Syntehsis and Policy Framework. Theory and Society , 27 (2), 151- 208.

Social Capital in Development

Page 24 of 24