The expansion of research in social capital has been explosive during the past ten years. The time seems to have been ripe for this. From the point of view of economics this is related to the revival(1) of new growth theory and the new institutional economics. In the background there are big questions like why some countries produce so much more output than others. The discussion is dealing with the so called fundamental or ultimate sources of economic growth. The same type of question can be extended to regions and to even different firms. So social capital and institutional exciting.
So far the empirical correlation between economic success and social capital indicators is striking. It is so overwhelming that one temps to think that it cannot be all ‘spurious’. But as Durlauf warns us, we may still be far away from real causal analysis. One should be aware about pitfalls in order to avoid giving completely wrong answers to extremely important questions.
Empirical studies show that various dimensions of social capital are strongly correlated with economic growth. Since evidence seems to be quite ample it does not seem wrong to assume that these phenomena are related. The results , so far, are not however, of such a kind, that we could tell that social capital also causes economic success. In many ways the causality may run the other way round also: good economic performance enhances social capital. But it may not be so harmful if we do not know the ultimate causality. If we succeed to improve some dimensions of social capital like increasing trust or reducing corruption we may feel rather comfortable, that we have not harmed economic progress.
First empirical results of tests of the influence and role of social capital have certainly raised important issues on the table. But of course they leave much to be desired. But this is very understandable because of the youth of this research tradition. There is shortage of appropriate data sets. The generation of sufficient data sets is slow and has just been started some years ago. But what seems to be the case, already now the research has progressed quite a bit.
Much remain to be done in the clarifying the concept itself. But one should not perhaps not to be too much worried about unspecified nature of the concept. We still do not know how to measure ability or intelligence or human capital even though these concepts have been around already for some time and they have been fruitfully applied both in theory and practical applications.
(1) Director General Government of Finnish Institute for Economic Research. Doctor of Political Science, Economics University of Helsinki. Fields of expertises: Public economies, taxation and fiscal policy, urbanisation, social capital in economics. Has e.g. written: “Context and Scope. Social Provision in Low-Income Countries - New Patterns and Emerging Trends(Eds. Germano Mwabu - Cecilia Ugaz - Gordon White) A study prepared for the World Institute for Development Economics Research of the United Nations University, “Social Capital and Economic Growth” Helsinki, Valtion taloudellinen tutkimuskeskus, 1998