- the Third Way must encompass a new vision of the economy appropriate for the next 25 years
- the concept of social capital provides the basis for an entirely new approach to the economy
- social capital emphasises the importance of participatory citizenship and mutual respect as the basis for building the most economically effective knowledge economy and learning society
- social capital emphasises the importance of the equality of communicative competence throughout the economy, with radical implications for a range of policies, including education
This paper’s contribution is to argue that the newly-emerging concept of social capital can provide a unifying rationale which gives philosophical coherence and intellectual conviction to the Third Way’s political economy. Social capital is a radical new approach to the economy, representing a new, fourth category of analysis. Mainstream liberal market economics currently recognises financial capital (including industrial plant), environmental capital (land) and human capital (skills) in its attempts to understand and model the economy. Social capital provides a new focus on a fourth crucial area: the characteristics of the networks of human relationships which are essential for the three conventional forms of capital to be brought together in productive economic activity. Once stated, this is so obvious that soon we will be asking how we could have done our economics and our analysis of the market for so long without thinking about social capital.
The policy implications of social capital are entirely consistent with the central thrust of New Labour’s most radical initiatives so far, which have related to constitutional affairs and the democratisation of the organs of governance. Social capital provides the intellectual means to generalise the principles lying behind these first steps into a more ambitious programme aimed at transforming Britain into a dynamic society of active and responsible citizenship, appropriate to the challenges of the knowledge and information-based ‘weightless’ economy of the future. This is the Third Way.
Social capital focuses on the importance of relationships in economic affairs. The social capital perspective is now based on a diverse body of evidence which confirms that companies, towns, industrial regions, and national economies can all function more efficiently in the market place for goods and services when they have a rich endowment of mutually respectful, trusting relationships among the citizens who compose their work-forces. This facilitates active dialogue, optimal sharing of relevant information, and the maximum of willing participation. In short, social capital is the essential ingredient which promotes confidence and goodwill, those two most ancient economic precepts which traders have valued above all else since time immemorial.
Social capital is equally significant because of its synergistic relationship with human capital- the expertise and skills which economists now recognise as essential to productivity, especially in increasingly knowledge-based, service-oriented economies. Social capital is critical to the optimum development, nurturing and deployment of human capital.
Social capital is, thus, a political and social phenomenon with powerful economic virtues. It concerns the way in which citizens behave and interact with each other. The form and character of institutions and organisations are therefore important. Social capital is created by citizens willingly participating with each other in mutually respectful dialogue to achieve shared goals. The greater the variety of citizens who can so participate, the greater is the economy’s stock of working social capital. This latter point means that true equality of communicative status has to be extended to the greatest variety of participants in order to maximise the virtues and gains from social capital. This requires genuine tolerance among individuals and absence of social exclusionist institutions. This can only be achieved through political change.
The formation of the Social Exclusion Unit signifies that New Labour have grasped the significance of this issue. But the social capital perspective indicates that the commitment to equality of opportunity can be conceived in a still more general form and that it has great importance for the dynamism of an increasingly information and knowledge-based economy of the future.
In its emphasis on active, participatory citizenship, social capital is also at one with New Labour’s policies to reinvigorate active and responsive local government, a key form of organisation. However, again, the social capital perspective indicates the generalisation of this principle. All the nation’s key civic institutions, not only local government, need to be assessed in terms of their contribution to the economy’s social capital, including schools, voluntary and charitable associations, firms and businesses.
The policy of extending ‘partnerships’ between public and private sector in order to get things done in Britain has its corollary in the social capital literature in the concept of ‘co-production’ across the mythical divides between ‘the state’ and the ‘market’. The relevance of social capital here is that it is essential to the success of such partnership efforts. It is only where the various different parties to such an enterprise- central or local government agencies, small or large businesses, representatives of communities or pressure groups, and, of course, individual citizens with all their variety of interests and perspectives- participate together on the basis of mutual respect and communicative equality, that a ‘partnership’ to negotiate and achieve together a joint goal will really mean just that. A nation that does not breed social capital will not be able to work partnerships effectively. This is a crucial lesson for a government wishing to sponsor partnerships and it notably includes those which are of increasing economic importance: where the public sector (typically local or regional government) can facilitate economic growth through the provision of expensive collective services (e.g. communications infrastructure) for the small growing firms in its locality.
To maximise social capital in the economy, the highest political priority of the Third Way should be that of creating an active participatory citizenship right the way across British society, in which all are capable of dialogue with each other on a basis of communicative equality. To take this aim seriously will entail taking a long hard look at all British civic institutions, starting with the nation’s educational system.
While it performs tolerably well in producing high-grade human capital among a restricted section of the nation (the highly-educated professional and managerial classes), it has been badly failing to create social capital across the whole width and depth of British society. This is attributable to two compounding features of recent British educational history. The private versus state school divide represents an unfortunate institutional inheritance, which has been the principal perpetuator of Britain’s famed ‘class’ system, a fundamentally divisive phenomenon, which is antithetical to true social capital. Secondly, this has been exacerbated for an entire generation due to the Tory governments’ misunderstanding of economics (lacking a social capital perspective). The government itself prosecuted a devastating campaign against the state education system, which involved both public denigration the teaching profession and vilification of individual teaching staff and schools alongside the systematic long-term starvation of basic resources; whereas virtually all other advanced economies have continually enhanced the majority of their citizens’ educational provision during the last two decades. Education will, therefore, be a crucial, short-, medium-, and long-term social capital priority for the practical policies of the Third Way.
Note:
The full text (14,000 words) of this documents exists on the NEXUS internet site in the Library for the discussion group on the Economy and the Third Way