Thursday, April 06, 2006

Great disruption

Together with Mochtar Pabottingi of LIPI (Indonesian Institute of Sciences), I gave a talk on Fukuyama's Great Disruption at Freedom Institute. (It's not really a new book, but Freedom has just published the Indonesian edition -- an appreciated effort). Here's what I said, more or less:


Social capital is “a set of informal values or norms shared among members of a group that permits cooperation among them. If members of the group come to expect that others will behave reliably and honestly, they will come to trust one another”. Social capital (in the US and Europe) has been depleted: rising crime rates and increased family disruption. This is a “Great Disruption”.

Main reference

To elaborate on the views on “the contradiction of capitalism”, FF refers to sources like Edmund Burke (who blamed French Revolution and Enlightenment Era for the GD), John Gray (who blamed the fall of the Berlin Wall), Fred Hirsch (who blamed growth), and even goes further to Schumpeter, Daniel Bell etc (for possible conflict between market and social order). Thank God, FF doesn’t buy all this stuff – at least not all. In fact, he says those arguments are not even-handed. He then balances the literature with the likes of Montesquieu, Samuel Ricard, and Adam Smith (rightly, FF uses “The Theory of Moral Sentiments” rather than “The Wealth of Nations”) who argued, among all, that trade is good for developing social capital.

Where FF stands

FF stands quite on the center. But not exactly. Note, for example, he says that the view that social capital belongs to the society is wrong. It is produced by private market. Being honest, trusted and all that is every firm’s way of maximizing its profit, not because it is concerned with the society (pg 314 of Indonesian edition). It’s not surprising. Had he been more in-depth on Hayek, he might not even need to write this book. A point that leads us to “spontaneous order”. “Slug” is definitely a spontaneous order. (Did I just reveal where I am in FF’s Figure 8.4?).

My impression

This book is confusingly ambiguous. You can easily find contradictions here and there (and you are asking yourself: Is this really that famous Fukuyama?). It might as well be just a reflection of FF’s political pendulum (neocon or what?). Or even his swinging academic viewpoint (We still remember how he declared liberal democracy as the last man standing and then later seemingly declared the death of the last man and turned to the state again). But anyway, I think the main weakness is on the methodology. It's one thing to say that social capital is declining and that the quality of life is lowering. But establishing the relationship -- causal, if possible -- between the two is another. FF fails to establish such connection. And what's so special about "trust" anyway? That guy Thaksin Sinawathra, to take a very recent example, lost the trust from his people. But what forced him to step down is also another trust: a trust that grew up within the people he had been oppressing. So, which trust are we talking about? Most dangerously is FF's attempt to persuade us to give trust to the State -- at least that's what he's implying by worrying that the participation rate in general election or membership in political parties were declining and that's not good for life quality, again no strong connection. What? The state should earn trust, not "get" it. If FF's line of argument flawless, we should just register to as many organizations as possible. That will increase our life quality.

If I were to write on this topic

I propose Sobel’s 2002 JEL paper definition: “Social capital describes circumstances in which individuals can use membership in groups and networks to secure benefits”. It is drawn from Pierre Bordieau (1986): “Social capital is an attribute of an individual in a social context. One can acquire social capital through purposeful actions and can transform social capital into conventional economic gains”. Obviously FF’s argument is not unique. Putnam (1995, 2000, “Bowling Alone”) has similar view, that, as summed by Sobel, “a dramatic decline in the level of participation in group activities” threatens the quality of democracy and the quality of life. He lists some negative effects e.g. destabilizing democratic institution, lowering schools effectiveness, etc. In short, Putnam’s view is pretty heroic. And Sobel attacks all that. If I were to review FF, I’d save time by suggesting people to read Sobel’s review on Putnam. The tone would be the same. Because GD is just another way to lay out Bowling Alone all over again. FF is Putnam. They both argue that, again borrowing Sobel’s sentence, “measurable declines in group activities cause bad outcomes”. As for me, SC is just a possible consequence of human action in his or her society. When it’s beneficial for him/her to engage with other people, vice verse, then SC is developed.

My countertrend

Just like Nicholas Lemann (1996, “Kicking in Groups”) who offered countertrends such as small business and restaurants, I would like to offer the … blogosphere. If Putnams says “You can’t make friends using telephones; but you can use the phone to maintain friendships”, I’d suggest him to go look Friendster. If you can measure somebody’s social capital by looking at the size of his Rolodex, why don’t you want to look at somebody’s circle of friends in his Friendster?


Roby said...

Aco - do you have the complete reference for Sobel's paper? thanks.

Aco said...

sure thing, rob. it's: Sobel, J. (2002). Can We Trust Social Capital? Journal of Economic Literature, 40, 139-154