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A Matter of Trust: Social Capital and Economic Development

Dasgupta, Partha

SCI Discussion Paper Series. Manchester: Sustainable Consumption Institute; 2010. Working Paper No. 1.

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Abstract

In recent years a great many scholars have argued that the formation of social capital is the engine of economic progress. Many others have noted, however, that the evidence is mixed. In this paper I argue that the deep requirement for economic progress is the development of trust among people. Defining social capital in lean terms, namely, as "interpersonal networks", I show that when suitably directed, social capital can build and sustain trust; but if it is misdirected or if it operates in the wrong sphere, it can hamper economic development and even cause economies to regress. I argue, moreover, that if the idea of social capital is to serve a useful purpose in economics, it should be interpreted as interpersonal networks whose members develop and maintain trust in one another to keep their promises by the device of "mutual enforcement" of agreements. But trust is the key to cooperation; "social capital" when suitably applied, is only a means to creating trust. I also show that a natural place to look for the worth of social capital in macroeconomic statistics in "total factor productivity" (TFP). But that implies that TFP is an amalgam of technology and institutions. The paper concludes (Appendix) by demonstrating how an increase in trust among people would result in an increase in total factor productivity, which is another way of saying that an increase in trust among people would lead to an increase in the economy's wealth.

Bibliographic metadata

Type of resource:
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Author(s) list:
Working paper number:
1
Publication date:
Total pages:
63
Abstract:
In recent years a great many scholars have argued that the formation of social capital is the engine of economic progress. Many others have noted, however, that the evidence is mixed. In this paper I argue that the deep requirement for economic progress is the development of trust among people. Defining social capital in lean terms, namely, as "interpersonal networks", I show that when suitably directed, social capital can build and sustain trust; but if it is misdirected or if it operates in the wrong sphere, it can hamper economic development and even cause economies to regress. I argue, moreover, that if the idea of social capital is to serve a useful purpose in economics, it should be interpreted as interpersonal networks whose members develop and maintain trust in one another to keep their promises by the device of "mutual enforcement" of agreements. But trust is the key to cooperation; "social capital" when suitably applied, is only a means to creating trust. I also show that a natural place to look for the worth of social capital in macroeconomic statistics in "total factor productivity" (TFP). But that implies that TFP is an amalgam of technology and institutions. The paper concludes (Appendix) by demonstrating how an increase in trust among people would result in an increase in total factor productivity, which is another way of saying that an increase in trust among people would lead to an increase in the economy's wealth.
Language:
eng
Related website(s):
  • Related website http://www.sci.manchester.ac.uk/medialibrary/sci_discussionpaper_no1.pdfhttp://www.sci.manchester.ac.uk/
General notes:
  • The Sustainable Consumption Institute (SCI) was established in 2007 to become a world leading, interdisciplinary research institute at The University of Manchester. Research, teaching and outreach at the SCI aims to resolve how to move society towards a low carbon economy. A key to our success will be to work cooperatively with government, business and consumers. Publisher contact details: Sustainable Consumption Institute, The University of Manchester 188 Waterloo PlaceOxford RoadManchester, UK M13 9PL www.sci.manchester.ac.uk More information is available by contacting Lynda McIntosh in Communications and Marketing via email at Lynda.mcintosh@manchester.ac.uk or telephone +44 (0) 161 275 0187.

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Record metadata

Manchester eScholar ID:
uk-ac-man-scw:77434
Created by:
Mcintosh, Lynda
Created:
5th March, 2010, 12:12:39
Last modified by:
Mcintosh, Lynda
Last modified:
23rd August, 2014, 20:29:14

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