Sixth Annual Conference in Political Economy
Rethinking Economics: Pluralism, Interdisciplinarity and Activism
9 – 11 September 2015, University of Leeds, U.K.
[Conference homepage...]

What’s Wrong with Having Good Preferences? Towards a Consistent Conceptualisation of Cognitive Social Capital

ABSTRACT

The ‘cognitive’ or ‘normative’ dimension of social capital has often been operationalized in terms of trust, social norms, beliefs, altruism, or even sympathy. All of these flattering properties of human individuals stand in sharp contradiction, however, with one of the most fundamental assumptions of economic theory, viz. the self-interested nature of the homo oeconomicus. In line with self-interest, actions and choices should be motivated by egoistic preferences; and yet, empirical observations contradicting this theory have led researchers to stipulate the existence of non-egoistic preferences, i.e. cognitive social capital which may derive, for instance, from an individual’s identification with a social group. Thanks to this amendment, as it seems, the rest of the model can be left untouched. In reality, however, two serious problems arise.

Firstly, the recognition of non-egoistic preferences allows for post-hoc explanations of any behaviour, thus undermining the possibility to make falsifiable predictions. Secondly, and possibly worse even, the very idea of non-egoistic preferences is misleading in that it creates the illusion that desirable outcomes, such as social efficiency, are likely caused by equally desirable traits such as civicness (Putnam, 1993), niceness (Meulemann, 2008), sympathy (Robinson, Schmid & Siles, 2000; Farr, 2004), or ‘good’ culture (Guiso, Sapienza & Gonzales, 2008). Evidently, this idea runs counter to Adam Smith’s crucial insight that the self-interested behaviour of individuals can give rise to a collective advantage; what is more, in the context of social capital, the reverse effect may also occur, for instance when social capital is useful for a particular nation, group or individual but detrimental for the society or the globe as a whole.

In order to avoid these problems, a more pertinent re-conceptualisation of social capital can be based on a truly theoretical rather than empirical amendment. What must be added is not a new kind of ‘kind’ preferences, but a whole different type of behavioural motivation. Very much in line with the notion of social capital, this behavioural motivation can be described as a decision to invest; unlike other investments, however, this decision is not motivated by an expected positive payoff in the future, but by a general inclination to invest even though the calculated payoff equals zero, that is, the value of the investment is negative. An individual endowed with this inclination will trust others, contribute to the common good, cooperate, etc. as if this behaviour could raise a gain in the future, though without expecting such recompensation.

As a result, the ‘invested’ action increases the society’s productivity without generating a discounted debt of the same magnitude as would be the case with financial investments. In theory, this explains why social capital facilitates the production of a surplus in every period; empirically, this is precisely the situation prevailing in societies where the social norm of reciprocity has been generalized in a way such that clientelistic relationships have been replaced by weak social ties, as has been described by Coleman (1988) and Putnam (1993). Thus, the theory and empirics of social capital can actually be reconciled in a consistent way, without reducing the notion of social capital to a mere discursive praxis or ideological buzzword (cf. Sabatini, 2005; Smith & Kulynych, 2002).

REFERENCES

  • Coleman, James S. (1988). Social Capital in the Creation of Human Capital. American Journal of Sociology 94 (Supplement), S94–S120.
  • Farr, James (2004). Social Capital: A Conceptual History. Political Theory 32(1), 6–33.
  • Guiso, Luigi, Paola Sapienza, and Luigi Zingales (2008). Alfred Marshall Lecture: Social Capital as Good Culture. Journal of the European Economic Association 6(2–3), 295–320.
  • Meulemann, Heiner (2008). Introduction. In Heiner Meulemann (Ed.), Social Capital in Europe: Similarity of Countries and Diversity of People? Multilevel analyses of the European Social Survey 2002 (pp. 1–37). Leiden: Brill.
  • Putnam, Robert D., in collaboration with Robert Leonardi and Raffaela Y. Nanetti (1993). Making Democracy Work: Civic Traditions in Modern Italy. Princeton, NJ: Princeton University Press.
  • Robinson, Lindon J., A. Allan Schmid, and Marcelo E. Siles (2002). Is Social Capital Really Capital? Review of Social Economy 60(1), 1–21.
  • Sabatini, Fabio (2005). Measuring Social Capital in Italy: An Exploratory Analysis. Working Paper Nr. 12, Facoltà di Economia di Forlì, Universität Bologna.
  • Smith, Stephen S., and Jessica Kulynych (2002). It May Be Social, but Why Is It Capital? The Social Construction of Social Capital and the Politics of Language. Politics & Society 30(1),149–186.