Social Capital Versus Social Theory

Ben Fine

• Publisher: Routledge
• Year: 2002
• ISBN:
  9781134578306
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The idea of Social Capital is an attempt to incorporate social considerations into mainstream economic thinking. Its proponents feel that social factors are properly quantifiable. So, they use the compex algebra and statistics beloved of mainstream economic theory and measure 'units' of health care or education in the same way that they would machinery or transport.
Ben Fine's main argument in this book is that such concers cannot be judged in terms of mathematical methods and that to try t odo so is overly simplistic.
Fine assesses the impact of Social Impact across the social sciences and shows how economic analysis is being subsumed into these areas and how thinking in sociology and politics impacts upon economics.

Part I

1 Introduction and overview

Why social capital?

The last two decades have been unkind to political economy. The 1970s had witnessed unprecedented success—in response to the post-war boom and its demise, the political radicalisation of the 1960s, the liberal expansion of higher education, and an ideological climate in which the contentious issue was whether Keynesianism, welfarism and decolonisation were enough by way of state intervention. Political economy and political economists flourished as never before, alongside journals, books and Capital-reading groups. Most of this has been thrown into reverse following the rise of monetarism, concerns about gaining employment, increasingly conservative and uniform curricula, and a questioning of whether Keynesianism, welfarism and the post-colonial state are too much by way of obstruction to the global market. Political economists within economics departments have been left high and dry, increasingly needing or choosing to conform with orthodoxy in teaching and research and with little prospect of enjoying sympathetic support from colleagues, let alone arrival of, or replacement by, like-minded scholars.¹ Indeed, possibly more than any other discipline, economics has become dominated by its own neoclassical orthodoxy, one which is widely recognised from outside to be far removed from economic realities, to be totally intolerant of other approaches, and to be equally ignorant of its own history as a discipline as well as its fellow social sciences. Further, its supposedly rigorous and scientific commitment to mathematical modelling and statistical methods have become so demanding for both students and academics that breathing space scarcely exists to allow for more circumspect considerations. How could you, for example, tell students during or after three years of hard grind that a few simple criticisms suffice to render that effort essentially worthless other than in learning what economics is really like, no matter how its results might be presented informally or for popular consumption. In short, anyone interested in economies, especially from a progressive and/or critical perspective, would surely give economics a wide berth. Indeed, students have been voting with their feet, the vocationally inclined streaming in hordes to accounting, business and finance, and the less self-interested seeking refuge in the “softer” and more relevant social sciences.²

To someone who had benefited considerably from the earlier rise of political economy, and given more than twenty years back in return, its prospects seemed particularly bleak in the 1990s. Three fundamental tasks presented themselves: how to sustain commitment to socialism, to Marxism and to political economy. I was particularly concerned with how the next generation of political economists would be born. My own experience would not be replicated: following a degree in mathematics, providing an easy passage over the technical barriers to the discipline, and three years of fully-funded postgraduate study in economics, a university position was readily available in the early 1970s despite commitment to political economy. From the subsequent experience of my own PhD students, the prospects for academic jobs have only been diminished, if not eliminated, by revealing an interest in political economy. Quite apart from any ideological stigma and associated worries about acceptability of future research output, work on political economy entailed lost advantage in the increasingly fierce competition by mainstream publications with the growing legion of clones, formally trained in the esoteric techniques and ploughing a furrow down their narrow specialisms.³

In addition, as already mentioned, systemically and often both institutionally and personally, the discipline of economics has become more and more intolerant of alternatives—in teaching, research, appointments and publications. The fate of political economy at Cambridge in the UK is indicative, as past traditions have suffered under the assault from mainstream orthodoxy. Paradoxically, though, the more esoteric and unworldly the latter’s content—and the more vulnerable to criticism from outside—the more secure has been its internal stranglehold. Whilst intellectually crippled, mainstream economics has never been more secure. As a result, with considerable reluctance, I came to the view that economics as a discipline had been lost to political economy. Essentially, it has been squeezed from two directions in the process of excluding it from any effective participation even as critical conscience, let alone viable alternative, to the orthodoxy. First, mainstream economists have had no need to debate with political economy. For political economists to engage with them, it has been necessary to accept their methodological and theoretical terrain, and tease out inconsistencies as the entry price for being allowed to posit an alternative view. My own experience now suggests that even such levels of compromise have become insufficient to gain recognition with few exceptions. Rather, the twist in the tail to be provided by political economy has rarely been allowed to wag the mainstream dog in criticism of the orthodoxy. Publication would be refused or require neutering revision.

Second, political economy has, paradoxically, increasingly come under pressure from developments within economics itself. As will be apparent in the next section, many of its central concerns have been appropriated and transformed by the very discipline that it preceded and with which it is essentially inconsistent. Most notable are the new political economy, the new institutional economics, the new industrial economics, and so on, as these, respectively, purport to deal in politics, institutions, monopoly and other previously neglected aspects of economic reality. As Hodgson (1994a, p. 22) records, “as yet, the ‘political economy’ term does not itself provide a secure defence against the ravages of economic imperialism.”⁴

In short, the squeeze on political economy has had the effect of robbing it both of its subject matter and its subjects. The process of engaging with the mainstream has overtaken the provision of alternatives and increasingly slipped into one of succumbing to its dubious charms, an outcome marking much of US radical political economy. In this light, the prospects for securing the future of political economy seemed much brighter by locating endeavour within other social sciences, less alien to its methods, more intellectually tolerant, and where its importance continued to be recognised alongside its traditional variables of class, power, conflict, and so on. These too, however, had not escaped unscathed, if to a lesser degree, from the influences that had rendered political economy unpalatable to economics. In addition, the rise of postmodernism had done much to divert attention away from political economy, partly by accident and partly by denigrating design. Much more alarming was my discovery that the very same developments within economics that had squeezed out political economy had also been the basis for launching an assault on the subject matter of the other social sciences. I return to this in the next section, but it led me to the conclusion that the tasks of reviving and retaining political economy within social science needed to be undertaken side by side with defending it against the incursions of a new imperialism of economics.⁵ For it has become apparent that colonisation of other disciplines by the dismal science had been taking the insidious form of informal and unwitting transposition of concepts that would, hopefully, have been rejected had their origin and content been more fully recognised. Yet, once entertained, such colonising notions proved guests reluctant to depart, ingratiating themselves as if new-found family members.

Against this personal and intellectual background, it is now easy to explain how social capital became an object of my own study. Having worked previously on consumption, the work of both Gary Becker and Pierre Bourdieu had been familiar to me, one mainstream ideologue within economics, the other deriving, at least in part, from Marxist traditions, respectively. Remarkably, Becker (1996) published a book that used the notion of social capital. It had also been deployed by Bourdieu more than a decade earlier. I was immediately determined to discover the relationship between the two uses and its relevance for the hypothesis of colonisation of other social sciences by economics (Fine 1999a). Consequently, it was my (mis)fortune to be keenly attuned to the significance of social capital at an extremely early stage in its meteoric rise and evolution.

The rest, as the saying goes, is history, and what follows is its result. I found myself chasing a target that moved and multiplied at a pace that defied my capacity to catch up. But, before getting down to substance, a few preliminaries are in order. First, this book is heavily marked by its origins. Whilst written by an economist and, to a large extent, taking economics as its starting point, it ranges across the social sciences as a whole. As a result, it is liable to be tough reading since social science is characterised by narrow specialisation within disciplines despite increasing, often nominal, commitment to interdisciplinary endeavour. At times, some will have difficulties with the material covered that lies outside their own discipline and, at other times, will find the treatment of their own discipline insufficiently penetrating and extensive. Nonetheless, there is much here that challenges the existing literature both within each of the disciplines and across them. But depth and breadth across the social sciences has been one amongst a number of balances that has necessarily been struck in composing the overall content.

Second, whilst primarily a critical commentary on social capital, and without seeking to be either definitive or comprehensive, the book has relevance for much broader concerns, over and above those already laid out. The most important, to which I return in the closing chapter, is to shed light on the state of social theory and its associated intellectual, mainly academic, life at the turn of the millennium.

Third, to some extent it is a shabby life, and the standards of scholarship—even when not motivated by the imperatives of publishing or perishing and gaining external funding—often simultaneously reach the highest standards in some respects whilst plummeting to the lowest depths in others. At times, I do not hesitate from saying so, verging on the use of ridicule and contempt and, thereby, violating the politeness and respect that are conventional in most academic discourse.⁶ Too bad I am tempted to respond unless this defeats the purpose of being taken seriously. This is not a consequence of exercising hostile vengeance against economists who readily dismiss the slightest deviation from their methods and assumptions as being “unscientific” and lacking “rigour”, on the basis of a total ignorance of the debates and uncertainties that surround such terms.⁷ Gentle and subtle humour would be best in such circumstances, but blunt weapons can hardly be set aside. For much that passes as the highest scholarship is ridiculous and contemptuous. Failure to say so must surely contribute to its persistence even if in milder forms, not least as the supposedly more balanced gain credibility by distancing themselves from the extremes. Nor is this a victimising of the fledgling academics who need guidance in broadening their vision from narrow to wider horizons. We are dealing, for example, with the likes of Nobel prize winners who believe that the world should be understood on the basis of given biologically determined preferences without regard to the literature on such absurdities, and who are ridiculed by their own, more reasonable, colleagues. More generally, if scholars and intellectuals, those who peddle in ideas, use words like social, capital, trust, ethnicity, civil society, and so on, then they surely open themselves to ridicule and contempt if they do not engage with the corresponding literature superficially if at all. Possibly in less dramatic terms, although needing to be set against the making and results of economic and social policy, economists and social scientists might refer to Hobsbawm’s (1997, p. 277) closing assessment on history, when written from a religious or ethnic perspective without regard to the truth:⁸

Unfortunately, as the situation in large parts of the world at the end of our millennium demonstrates, bad history is not harmless history. The sentences typed on apparently innocuous keyboards may be sentences of death.

Third, and moving to a much more mundane level, as already indicated, the social capital literature has expanded beyond recognition within a few years. I cannot hope to have covered it all, or to deal evenly with what I have covered. At times, I am guilty of superficiality both in relative and absolute terms. At other times, my own devious interests, and capabilities, have taken me to the most arcane level of detail. Such imbalances are in part accidental, depending on what literature has been available, when and how. Had I been writing the book afresh rather than on the basis of contributions already studied for and drafted over the past five years, I would do it differently. But, by the time it was done, I would face exactly the same problem once again. This all taken for granted, I called a flexible stop on consulting the literature around the turn of the millennium, although there is surely slippage on either side.⁹ I have also pushed towards making each chapter as self-contained as possible although, in part, relying upon cross-reference between chapters. This has probably meant a slight amount of repetition across the book as a whole but, hopefully, this has been kept to a minimum. Fourth, much material has been downloaded from the internet, either in draft prior to publication or as the only way of accessing published material for lack of local availability of relevant journals. This has meant that pages for citations cannot always be given, and the rooting out of such, when published versions have materialised, has not been assiduously pursued. Last, I am grateful for being able to draw upon my own existing publications and drafts, on which many have usefully commented. Thanks to them and also to those who have assisted in my endeavours, especially those who have done so secure in the knowledge that the results would be unpalatable to them.

The revolution in and around economics

Until the end of the post-war boom, mainstream economics had been dominated by what might be termed a complacent Keynesianism.¹⁰ It was presumed to underpin the macroeconomic policy that would guarantee full employment whilst microeconomics provided a rationale for government intervention in detail to correct market imperfections. The Keynesian compromise between macro and micro, and between theory and policy, were rudely shattered both by the stagflation of the 1970s and the associated intellectual and ideological assaults launched by neo-liberalism. In short, in the 1970s, economics as a discipline was suffering from perhaps its greatest internal crisis of self-confidence. Over the post-war period, microeconomics had developed ever-more sophisticated and esoteric models of the ideal conditions necessary for the existence and stability of a market economy based on optimising agents. But macroeconomics was thrown into disarray by stagflation, not least because the failure of Keynesianism and interventionism gave rise to the neo-liberal alternative of presuming that markets work well if left alone—just as market economies were performing as badly as at any time for fifty years!

After a brief interlude of Milton Friedman’s crude monetarism, the discipline was saved from its doldrums by the new classical economics. It draws upon a new technique: that of rational expectations, the idea that, in effect, each economic agent acts upon the same, consistent economic model, fully deploying the information available. This simple, wildly unrealistic, assumption appeared to give rise to dramatic implications—that all previously estimated macroeconomic models were inappropriate for policy making, and government could not effectively and systematically intervene to shift the path of the economy.¹¹ Economic fluctuations became primarily understood as the consequence of responses to shocks by optimising and efficient economic agents who would neutralise systematic government intervention by anticipating its intended impact. With the rise of neo-liberalism, government expenditure was perceived to be excessive and government intervention as inducing inefficiency. Far from perfect competition and general equilibrium being the ideal from which deviations in the form of market imperfections justified state intervention, the ideal of attaining the free market and minimal state gave rise to what Carrier and Miller (eds) (1998) refer to as the new economic virtualism—the imperative to remould the world to conform to an imagined ideal of perfectly working markets spread as wide and deep as possible.

But the triumph of neo-liberalism, and its academic counterpart in the new classical economics, is far from a complete picture. For, it did not take long for the economics profession to embrace rational expectations which, for technical reasons, considerably ratcheted up the levels of mathematical and statistical techniques required. It was also realised that the results of the new classical economics depended less upon rational expectations as such and more upon the accompanying assumption of instantaneous market-clearing in all markets—in other words, that supply and demand are brought into equality with one another at all times and at once by price movements (by analogy with the trading in foreign currencies through computer links). In the case of real business cycle theory, for example, fluctuations in (un)employment are freely chosen with workers seeking to labour more (less) when productivity, and hence wages, are randomly higher (lower).

As a result of its content and results, the new classical economics served a number of crucial functions for the discipline. It rescued it from the analytical stagnation attached to the Keynesian/monetarism debate. On the one hand, it posed instantaneous market clearing as an extreme against which other models could react. On the other hand, it prompted the introduction of rational expectations into models that had not used this assumption previously. It pushed economics as a discipline further down the route of esoteric modelling in which mathematical and statistical technique prevails over conceptual advance. In addition, the new classical economics posed an intellectual challenge to its opponents in the form of explaining why prices might not adjust instantaneously in some markets. By resuscitating Say’s Law of markets, that supply creates its own demand, in the context of rational expectations, in a risky world subject to random shocks, the discipline established an extreme standard against and from which an agenda of less extreme mainstream alternatives have subsequently been able to prosper.

For, in a perverse way, neo-liberalism had the advantage of forging a link between micro and macro, even if in the negative or vacuous sense of emphasising the leaving of the micro “supply-side” to the market, with the macro demand-side also looking after itself apart from accommodating, not excessive, targeting of the money supply, government expenditure, etc. It further undermined confidence in the state by questioning its efficiency and motivation in view of rent seeking and corruption. In short, economic theory confronted two challenges: on the one hand, why are market imperfections so important; on the other hand, why would an improvement be guaranteed by intervention given government may be worse than market failure?

Over the past two decades, these challenges have been met by what I have termed a revolution in or, more exactly, around economics.¹² Briefly, as before, emphasis has been placed upon market imperfections, only with the new twist that these are also perceived to be the consequence of informational imperfections and asymmetries around sale and purchase. Consider, for example, the market for health insurance. Individuals are liable to know more about the...