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Building social capital requires trust and participation among individuals

By Peter Costello - posted Monday, 25 August 2003


Last month I was doing a press conference, on a rather memorable day, and I became reflective. At the end of the press conference I said this:

I want to see Australia be everything it can possibly be. I want to see it prosperous and strong and secure and tolerant and I want to be able to see it fulfill all of those objectives and I want to make a contribution to that.

As I was speaking I was thinking about the kind of country I would like Australia to be. I was thinking about a prosperous country with high living standards supporting high standards of health care and education, high standards of transport and communication, and disposable income. I was thinking about a strong country respected in the region and the world which was secure against outside threat and able to protect its citizens and allow them to enjoy this high standard of living. But I didn't want to leave just a picture of a country that was obsessed with material prosperity. I wanted to leave the thought that we should aim to be rich in values as well. So I talked of being a country that was tolerant.

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A tolerant society is one that respects differences and allows people to pursue their different aims and ambitions within an overall framework of order. How do you promote such a society? Where does the notion of trust and tolerance come from?

If you were re-building a country from the ground up after the fall of a totalitarian state you would have to start re-building trust among citizens. You would need to build a culture of tolerance between citizen and citizen which would allow expression and association within the context of trust. You would need to build trust between citizens and institutions.

And this can take enormous effort. And yet a country that has the experience of voluntary associations is likely to have a higher level of trust between citizens which can be used to build confidence in public institutions.

If you want to run a successful modern liberal economy then trust and tolerance between citizens gives you a long head start.

Trust facilitates compliance. Trust enhances efficiency. It reduces transaction costs because you do not have to ascertain and negotiate the bribe on each transaction. Trust in the legal system and the enforceability of contract underpins the willingness to invest.

Trust and tolerance are sometimes described as social capital. In an IMF paper on Second Generation Reform, Francis Fukuyama argued: "Social capital is important to the efficient functioning of modern economies and is the sine qua non of stable liberal democracy."

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In 1987 Margaret Thatcher famously declared: "there is no such thing as society. There are individual men and women, and there are families." This is an extremely individualistic view of the world. And she received a lot of criticism over this statement.

At the other end of the spectrum are the collective views of the world usually held by politicians of the left who want to submerge individuals into groups of one kind or another. One clear giveaway is the tendency to put the word "community" after everything. In this view of the world there are no longer individuals who are artists or Greeks or businessmen. There are a series of groups into which individuals are divided and treated together. It is assumed that they have a uniformity of opinion because they share a particular characteristic even though they might never have met, have no desire to do so, and have very different perspectives.

In reality, individuals have varying connections of varying intensity with others. In the first place there is the family, then maybe the street, the neighbourhood or a town. They might have a religious association through a church they attend and their relationships might extend to involvement in a voluntary association, a sporting club, or a political organisation.

These are the networks and associations that give rise to trust between people.

Robert Putnam, in his book Bowling Alone, has tried to measure the rundown of engagement in voluntary organisations in America over the last third of the 20th Century. Although I have not seen a similar attempt to measure this in Australia, all the anecdotal evidence to me from the churches, the political parties, the Scouts, the local sporting clubs suggest that membership is in decline and in that sense social capital is running down. The Productivity Commission's research paper on social capital reviews the work that has been done in Australia.

Putnam quotes a slogan used by a volunteer Fire Department to publicise its annual fundraising effort: "Come to our breakfast, we'll come to your fire."

Of course we know that the volunteer bushfire brigade will come to our fire whether we come to their breakfast or not. But we also know that if nobody comes to their fundraiser, or if nobody comes to join their brigade, there will not be anyone available to come to our fire.

Engagement in these voluntary groups produces a direct outcome, for the bushfire brigade is a group that can attend to a fire. But it also produces by-products. By-products like friendship, belonging, tolerance and trust - and forms the basis for relationships which can be extended to other worthwhile causes.

Engagement is reciprocated, it sponsors further engagement. And in these groups where people have a common interest, and a name, they build trust and tolerance.

Does it matter if this culture of engagement is running down?

I think it does. I think the public laments the fact that engagement is running down. But we should be careful here. The majority of the public is not so worried about the issue that it makes them want to change their behaviour and reverse the trend of declining participation. If people were really worried they would presumably start flocking back into all those associations now struggling for membership.

But there is a tendency to think fondly of a time when people in a neighbourhood knew each other better and seemed to be closer.

Although television could well be one of the main causes of disengagement it is replete with shows that depict people living together in close neighbourhoods. The Australian TV series Neighbours is one such show. The American series Friends is another. There are not too many television shows about people who sit at home and just watch television shows. Even if people don't actually engage that much with their neighbours, they apparently like watching others who do.

I should mention here that not all social groupings are positive ones. The Mafia is a very close social network; calling itself a society, an honoured society. It generates a high degree of trust among its members. It uses these associations for anti-social activities such as extortion, racketeering and the like.

Some social networks also inspire enormous trust between insiders on the grounds of a common intolerance to outsiders. Paramilitary organisations in Northern Ireland work on this principle. Urban gangs are another example. These organisations develop social capital among themselves which they then direct in a destructive way against others. It is the combination of internal trust and external tolerance that produces positive benefits for the wider society

Recognising the importance of the non-government sector and the positive values arising from it, what are the lessons for policy?

The first thing is the very important maxim for government, any government, on any issue: "Do no harm."

These social networks are neither established by nor controlled by government. They are voluntary. That is their strength. So while the government cannot establish these associations and should not force engagement it should be careful to do no harm. Second, if government has a choice between delivering services in a way that enhances engagement and one that does not, then, all other things being equal it should prefer the former. Third, government should be alert to deal with any threats that arise to the voluntary sector.

It is the activity, as well as the result, that brings the value.

This is the benefit of mutual obligation. Take a work-for-the-dole project. In return for income support a person engages in a work project. The project produces, hopefully, some valuable infrastructure. But the person who has engaged in the activity has more than just income support. They have the experience of meaningful work, social contact, and hopefully have developed their work skills.

This is why reliance on welfare can damage communities: A person who receives income support without engaging in the social activity of work misses all the side benefits of that activity, and the positive benefits of self-reliance. This is why we should be heightening mutual obligation for people of working age.

On the principle of do no harm, a government should be careful not to usurp the voluntary sector. It should not take away those things which people can and want to do for themselves. But where it can support the voluntary sector, without smothering it, it should do so.

And it must be alert to threats to the voluntary sector. One such threat is the public liability crisis.

We would all agree that an innocent person injured through no fault of their own is entitled to compensation. But if the cost of insuring against the compensation threatens the viability of the local sporting club or the pony club or the scouts then it will threaten an important dimension of our society. It will undermine social capital. This is why it is necessary to limit pay-outs and heighten the protection against liability for the voluntary sector. It is defending a very important part of our social infrastructure.

In the 2001 Bolte lecture I suggested that we could revive the non-government organisations of Australia by spending one hour a week in a volunteer activity.

Some people were critical of the suggestion. I did not stipulate that it should be charity work, although that is a particularly important area of voluntary activity.

I suggested one hour a week at the Rotary, the Lions group, the Church, the Synagogue, the sporting club, the neighbourhood watch, the school or the RSL, the Scouts, the book group, the political meeting or at a neighbour's house.

The idea was just to heighten engagement. It was not being critical of anybody. Some people suggested this was a deep plot to withdraw government funds from the voluntary sector by increasing unpaid participation. Some people were of the view that if there is a problem the government should fix it. But if we expect government to solve all our problems even in this voluntary sphere of life we are a long way from the solution.

The view I am putting is that there are non-monetary things that add to the wealth of a society. Civic engagement and the values which it promotes like trust and tolerance are some of those things. You can call them social capital if that is conceptually easier. It might help with the idea of building them up, running them down, adding to our wealth, or detracting from it. But a society which has these things should be careful not to let them run down. Once they are gone it takes a lot of effort to get them back again.

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Article edited by Bryan West.
If you'd like to be a volunteer editor too, click here.

This is an edited extract of Peter Costello's July 16 address to The Sydney Institute.



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About the Author

Peter Costello AO is a former, and longest serving, Commonwealth Treasurer. He is a company director and a corporate advisor with the boutique firm ECG Financial Pty Ltd which advises on mergers and acquisitions, foreign investment, competition and regulatory issues.

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