Tuesday 12 November 2013

Social capital isn't an unadulterated good

The same trust and cooperation that can yield great things in civil society in provision of public goods also facilitates group norms punishing cartel defectors and reducing criminals' likelihood of giving evidence against co-conspirators.

McSweeney's seemed to be channeling an excellent old Cowen and Sutter piece this week [HT: BK Drinkwater]. Here's McSweeney's:
OK, let’s sit and think about this for a minute. Mr. Atkins is dead. And, no, Carol, we can’t go to the police. Why? Because this wasn’t an accident. We all know that. Mr. Atkins made us come to this Trust-Building Retreat. He made us do these exercises for two whole days. He yelled at us to work together. And we all lost it and decided to cut his zip-line rope. That’s murder, Carol! Plain and simple. And, you know what? If one of us goes to jail, we all go to jail.

So, the question is this: Do we trust each other enough to keep this murder a secret? When we go back to Lenny Dykstra Toyota on Monday and people start asking questions about where Mr. Atkins is, when his wife starts wondering why he never came home, when the police get involved, do we trust each other enough to know that not a single one of us will rat? I think we do.

I’m looking around this group. I’m looking at the entire sales team — a sales team who just had an amazing quarter, thank you very much — and I see a lot of people I can trust.
Cowen & Sutter, 1999:
Public goods production is not necessarily desirable and involves higher costs than is often recognized. Specifically, public goods production may require that a small minority of individuals can collude at the expense of others or impose strategic sanctions on non-contributors. These facilities may have negative as well as positive effects. The same conditions that support public goods production also support business cartels and racial discrimination, for instance. We examine the implications of this perspective for modern debates on economic policy, civic virtue, communitarianism, and libertarianism.
And, more recently, The Umlaut points to work by Satyanath et al showing that strong social capital links helped foster the rise of Nazi Germany, albeit intermediated by weak social political institutions, and by Acemoglu et al showing how strong social capital measures can be an outcome of clientelle states where success depends on strong relationships with the governing elite.

Social capital's inclusion as a target measure* for Treasury policy analysis then can be a bit worrying. It's awfully easy for strong social capital to really mean cliquish high school connections in a country like New Zealand. It's not hard to imagine that some measures of social capital could be advanced by having even stronger networks among the alumni of Christchurch Boys' High or Christ's College or St. Andrew's or Girls' High or Rangi Ruru. I doubt that Treasury would ever recommend such measures: they'd be counterbalanced by the equity measure. It's just worth keeping in mind that more isn't always better.

Bryce Wilkinson provided pointed critique of Treasury's "Living Standards" framework. The NZ Treasury now seeks to evaluate policies along five dimensions: economic growth, sustainability for the future, increasing equity, social infrastructure [social capital], and managing risk. He makes the entirely correct point that, except in the rare case of policy initiatives advancing all five measures simultaneously, we can't make judgments about policy adequacy without some way of weighting the five measures. I expect in such cases that Treasury would note the effects on the various dimensions so that Parliament might make the appropriate balancing. But I share Bryce's concerns about opportunity costs: I'd sooner have Treasury analysts spending time assessing the adequacy of Ministries' Regulatory Impact Statements (often currently left to the authoring agencies). On the other side, the relevant counterfactual is more likely equity analysis done very badly outside of Treasury (and taken as counterweight to the sound economic analysis done by Treasury).

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