Social capital and the free market

The concept of the positive form of social capital, as championed by Robert Putnam in books such as Bowling Alone, is the notion that economic and collective benefit can be derived from networks of relationships, reciprocity and trust within and between communities.

The creation of social capital is often associated with government intervention and even the enforcement of a certain set of moral principles based on the whim of the current government. The government's Big Society program has been scorned from its very initiation because of its disconnection from reality and lack of government backing. However, the Big Society program failed not because, as often argued, that social capital cannot be created without private wealth and public investment, but because it intended to redistribute wealth rather than promote healthy competition. The creation of social capital does have its place in capitalism, but it is not something that can be forced.

Let me explain. By promoting free market competition, big businesses are given no safety net; they must depend totally on Darwinian capitalist principles. This encourages cooperation to strive forward for that mutually beneficial prize and increases the amount of wealth and innovation in the system. At the individual level, libertarianism creates a similar pattern, giving people an incentive to volunteer their services and to create social networks. The creation of social capital should be at the forefront of the mind of anyone who wishes to create a libertarian system as it is only with a healthy dose of social capital that we can avoid the concentration of wealth that is feared by many Marxist theorists.

Conversely, by funding a selective welfare state through obligatory public funding, voluntary commitments seem unnecessary and makes the ‘norms of reciprocity and networks of civil engagement’ that Putnam states are crucial to the creation of social capital much harder to form and we may actually see the destruction of social capital. Staffan Kumlin and Bo Rothstein have noted that ‘people with experience with selective welfare... will to a greater extent perceive themselves as having been mistreated’ and this in turn affects levels of interpersonal trust.

The creation of a free market system and the abolishment of a selective welfare state can and will create the social capital that will further reinforce libertarian principles. Governments must not be tempted to intervene in an attempt to create social capital as by doing so they will undermine the delicate balance of reciprocity. Social capital is not something that can be enforced, but can grow organically through the perception of universal benefit and fairness.