Undercover Economist

A capital idea

The Undercover Economist – FT Magazine 22 July

My father used to ride to work in a colleague’s car. I distinctly remember as a child pressing my nose against the sitting-room window and forlornly watching him standing by the roadside. He did not usually have to wait more than a couple of minutes before he was picked up and driven 15 miles to the big city. Neither of us realised that he was using a mysterious economic asset, “social capital”.

Social capital is important but elusive. It is an attempt by social scientists to expand the traditional list of economic assets beyond physical capital, such as computers or roads; and human capital, that is you and me and whatever tricks we’ve learned along the way. Economists have attempted to account for why, in the words of P.J. O’Rourke, “some parts of the Earth prosper and others suck”. But as long as those attempts have simply measured the roads and counted the number of IT graduates, they have failed. Social capital is supposed to explain why, and social scientists, including economists, embraced the concept with enthusiasm.

Francis Fukuyama published Trust, explaining how trusting societies were richer. Robert Putnam offered Making Democracy Work, noting that in southern Italy, it didn’t. He then followed up with Bowling Alone, a study of the decline of everything from voting to bowling leagues.

All this is the realm of social capital, but it is a slippery concept. Some kinds of social capital might be rather destructive: the old school-tie network, or patron-client relationships. Social capital will sometimes be a zero-sum game: if I enjoy high status, that is social capital for me, but an improvement in my status will often reduce yours.

Even “good” social capital is hard to measure. One popular way to gauge trust is to ask people whether they think other people can be trusted. Unfortunately, this is a terrible measure of whether people do actually trust each other. Research by economist Ed Glaeser and his colleagues suggested that people who are “trusting” according to the surveys do not actually trust others in simple laboratory experiments. They are, however, more trustworthy. Another popular measure of social capital is the turnout at elections, but it’s not at all obvious that voting and social capital are the same thing. It would be much better to measure an activity that cannot happen without social capital.

And so we return to car-pooling. It is not a bad measure of a certain kind of social capital: car-pooling does not work without trust. Can you trust your fellow travellers not to be late, drive badly, or murder you? Whatever it is, social capital would seem to help you get a lift. Economists Kerwin Charles and Patrick Kline have just published a paper about car-pooling and social capital, and there’s a twist. Charles and Kline want to understand how the local racial mix affects social capital. They predict that, for instance, African-Americans will find it easier to car-pool if they live in an area with lots of other African-American, following a battery of tedious but handy statistical tests, this is exactly what they find.

They also find that not all racial differences present the same barrier to car-pooling. Asians who are a minority in a chiefly white area car-pool more than Asians who are a minority in a chiefly African-American area. African-Americans and Hispanics seem to find it similarly easy to get along. But neither whites in a largely African-American area nor African-Americans in a largely white area tend to car-pool. There is such a thing as social capital, and if you live in an area full of people with the same colour skin as you, it seems you will enjoy more of it.