"Social Capital Overrated as basis of healthy society" November 28, 1998

The idea of social capital was first developed by Irving Kristol, the American father of the new conservatism, or neoconservatism. It is a sobering idea that is the basis of Kristol's criticism of the Scottish economist Adam Smith (1723-90) and his liberal followers in the 20th century.

A thriving capitalist economy needs individuals with entrepreneurial initiative, resourcefulness and imagination, not corporate robots and conformists

Smith is famous for his theory of the "hidden hand." He thought that in the course of pursuing their own interests, individuals operating in a competitive market place would unwittingly contribute to the prosperity of the commonwealth.

Smith and the economists who followed him implied that morality was not critical to the prosperity of the nation. Given the right institutions, one could have a just political order even with a nation of devils. The appeal of this way of thinking is that it leads one to believe that it is possible to have excellence without effort. The message is not unlike the advertisements that promise a slim trim figure without exercise.

Kristol was right to object to the implications of Smith's social theory. Kristol argued that the economic success of America was due to an accumulated "moral capital" rooted in its Puritan and Protestant heritage, which encouraged the virtues of honesty, sobriety, thrift and hard work. Kristol is very worried that these virtues are no longer at a premium. He surmises that as these virtues diminish, the social capital on which economic prosperity depends will be increasingly depleted until it is spent.

These sobering insights did not lead Kristol to criticize the unprecedented rapacity of corporate capitalism and its limitless pursuit of wealth with no heed to the common good, the environment, or future generations. On the contrary, Kristol was a champion of corporate capitalism, not liberal, individualistic, laissez-faire capitalism. Why? Because corporate capitalism is compatible with Kristol's social conservatism. Corporate capitalism is characterized by hierarchy, authority, and discipline, not freedom, individuality, and independence.

More recently, Francis Fukuyama has developed and popularized Kristol's ideas. His book, Must, is the jazziest neoconservative eulogy to corporate capitalism. He tells us that only countries with large corporations that operate globally can be successful in the modern race for recognition and greatness. The modern race is economic, not military. Fukuyama does not question the race or its worthiness: he merely tells us what it takes to win.

Fukuyama argued that a market economy cannot sustain itself in the absence of social capital, which is not itself economic in nature. A market economy depends for its success on a fabric of social relations characterized by trust, reciprocity, and mutual obligations. These virtues are first learned within the family. But in truly successful societies, these qualities must extend outwards from the family to the society at large. A network of organizations such as clubs, churches, charities and business associations are necessary if trust and mutual co-operation will be diffused from the family to society at large. Societies where this development occurs - he lists the United States, Germany and Japan-- are the wealthiest in the world.

Fukuyama's message is that we need family values, but they are not enough. There are plenty of family values in Southern Italy and in China, but these are not economically prosperous societies.

Japan is Fukuyama's model of excellence because it displays a collective ethos that transcends the family. Economic success requires the sort of loyalty to groups outside the family that mirror the loyalty of the Samurai warrior to his feudal lord-- he was willing to see his family butchered for the sake of his lord. Fukuyama compares this loyalty with the loyalty of the Japanese worker to his firm. It is with his fellow workers that he drinks after work, it is with his fellow workers that he goes away on weekends.

In describing the conditions necessary for success in the world of global corporate capitalism, Fukuyama says blatantly that what is needed is a population that is willing to be "herded" into large office buildings and large factories. Individuality, independence and entrepreneurial initiative are deadly for the new corporate ethos. Fukuyama associates individuality with selfishness, and even crime. He regards America's liberal individualist tradition as the source of moral decay and social disintegration.

Fukuyama berates the Chinese for their independence and lack of corporate loyalty. When they get jobs with large corporations, they use them as training opportunities and leave as soon as they can manage to set up their own businesses. He condemns this spirit of independence as symptomatic of a lack of social capital. Contrary to Fukuyama, I would say hurrah for the Chinese and their spirit of independence! And hurrah for American individualism!

It seems to me that social capital is highly over rated. I certainly do not believe that it is desirable or necessary for a healthy and prosperous society.

First, social capital is a profoundly collectivist and conformist ethos. Even Japan has become disenchanted with it. All that mutual trust, loyalty and shared values belonged to the elite of corporate executives, politicians, and bureaucrats who constituted the crony capitalism that has ruined the Japanese economy, in other words, social capital is not intrinsically desirable--there is a great deal of social capital in the Ku Klux Klan.

Second, social capital accounts for the Japanese inclination to work hard and be loyal to their corporations. But surely, such loyalty is laughable in an age of downsizing. Moreover, the single-minded devotion to work is deleterious to human well-being. Something is wrong with the Japanese businessmen who prefer suicide to bankruptcy and the Japanese students who prefer death to wrong schools. Clearly, the work ethic has gone astray. Japanese men are workaholics, which, needless to say, is not conducive to family life or any other good life for that matter. It is no wonder that Japanese women are reportedly taking interest in more fun-loving "foreign" men-- an unheard of phenomenon a generation ago. But who could blame them?

Third, there is no reason to think that a capitalist economy needs shared values and purposes to thrive. It is sufficient for people to agree on a set of rules that govern public life. Agreement on the rules of fair play does not presuppose that people necessarily share the same goals or purposes. Agreement on the rules of public conduct is compatible with a plurality of values and purposes. It is even plausible in multicultural societies, which are anathema to neoconservatives.

A thriving capitalist economy needs a good government that eschews crony capitalism and commands enough respect to collect taxes. It needs a strong banking system able to lend money for new ventures and set monetary policies favorable to business. It needs a securities and exchange commission that can monitor insider trading. A thriving capitalist economy also needs individuals with entrepreneurial initiative, resourcefulness and imagination, not corporate robots and conformists. These are some of the reasons that lead me to believe that social capital is highly overrated.

Shadia B. Drury is professor of political science the University of Calgary. Her most recent book Leo Strauss and the American Right.