on the role of civil societyâthose intermediate forms of social organisation that ... organisations and the norms of trust and reciprocity that animate them. In this ..... during the post-World War II period owed less to direct state intervention in.
Global Society, Vol. 15, No. 1, 2001
Civil Society, Social Capital and Economic Development
DAVID SKIDMORE
In recent decades, debates over the determinants of economic development have routinely turned on disagreements over the proper boundaries between the state and the market. Statists argue that the imperfect and immature markets of most developing countries require the guidance of a strong, autonomous, Weberian state. Neo-liberals champion the ef® ciency of free markets in allocating resources toward their most productive uses and decry the distortions accompanying many forms of state intervention. Neither perspective places primary emphasis on the role of civil societyÐ those intermediate forms of social organisation that stand between, and partially independent of, both state and market. When statists and neo-liberals do sometimes focus on the role that civil society plays in economic development, they ® nd common ground around a negative assessment of the economic impact of associationalism. Statists fear that a vigorous civil society will press multiplied demands upon the state. These external pressures undermine the bureaucratic autonomy that serves as the central prerequisite to neutral, technocratic management of the development process. At the extreme, a constantly agitated civil society threatens to overwhelm fragile political institutions and lead to ungovernability in the face of fractious and contradictory demands from below.1 Neo-liberals see matters in similar terms. Societal mobilisation usually entails collusion among rent-seeking agents who seek to transfer income from other segments of society by manipulating markets or state policies. These distributive coalitions reward the organised at the expense of the unorganised in a zero-sum game. Widespread rent seeking adds nothing to overall economic development and in fact interferes with the growth process by distorting incentives and impeding innovation.2 In the last decade, a growing number of sociologists, economists and political scientists has sought to overturn this negative portrayal of the economic consequences of associationalism. The notion of social capital has served as the driving wedge of this effort to de® ne a ``third way’’ along the path to development. Social capital consists of the economic potential embodied in social organisations and the norms of trust and reciprocity that animate them. In this view, the self-organisation of civil society is a necessary element of successful 1. Samuel Huntington, Political Order in Changing Societies (New Haven, CT: Yale University Press, 1968). 2. Mancur Olson, The Rise and Decline of Nations: Economic Growth, Stag¯ ation, and Social Rigidities (New Haven, CT: Yale University Press, 1982). ISSN 1360-0826 print/ISSN 1469-798X online/01/010053-20 © 2001 University of Kent at Canterbury DOI: 10.1080/13600820020025795
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economic development, complementing the roles played by the state and the market.3 This promising, yet still immature, rethinking about the economic role of civil society holds the potential to inspire important changes in traditional development policies and practices. At a time when statist prescriptions are in retreat almost everywhere and yet widespread scepticism persists about neoliberal alternatives, a vision of development centred around grassroots communalism holds obvious appeal. Yet the insights offered by the growing literature on civil society and economic development do not entirely negate the objections shared by statists and neoliberals toward some forms of associationalism. Not all forms of organisation in civil society are the same. Organisations built around strong vertical tiesÐ such as patron± client relationships, drug cartels, and predatory networks of corruption encompassing both state and non-state actorsÐ rest upon relations of exploitation and coercion. Distributive coalitions take advantage of exclusive collective control over socially valuable assets to drive up returns to those inside the group. Both of these particular forms of associationalism stand in a zero-sum relationship to the remainder of society and both tend to resist wealth-producing innovations. 4 Socially productive associations, by contrast, tend to take the form of voluntary, horizontal, non-exclusive networks that serve to resolve collective action problems or to reduce transaction costs. Fortunately, globalisation and democratisation, both of which have made strong inroads in the developing world over the past two decades, each have 3. For a sampling of the literature on social capital, see Stephen Cohen and Gary Fields, ``Social Capital and Capital Gains in Silicon Valley’’, California Management Review, Vol. 41, No. 2 (Winter, 1999), pp. 108± 129; James Coleman, ``Social Capital in the Creation of Human Capital’’, American Journal of Sociology, Vol. 94, supplement (1988), pp. S95± S120; Bob Edwards and Michael W. Poley, ``Civil Society and Social Capital: Beyond Putnam’’, American Behavioral Scientist , Vol. 42, No. 1 (1998); Peter Evans, ``Government Action, Social Capital and Development: Reviewing the Evidence for Synergy’’, World Development, Vol. 24, No. 6 (1996), pp. 1119± 1132; Jane Fountain, ``Social Capital: A Key Enabler of Innovation in Science and Technology’’, in L.M. Branscomb and J. Keller (eds.), Investing in Innovation: Toward a Consensus Strategy for Federal Technology Policy (Cambridge, MA: The MIT Press, 1997); Mark Granovetter, ``Economic Action and Social Structure: The Problem of Embeddedness’’, American Journal of Sociology, Vol. 91, No. 3 (1985), pp. 481± 510; Patrick Heller, ``Social Capital as a Product of Class Mobilization and State Intervention: Industrial Workers in Kerala, India’’, World Development, Vol. 24, No. 6 (1996), pp. 1055± 1071; Lane Kenworthy, ``Civic Engagement, Social Capital and Economic Cooperation’’, American Behavioral Scientist , Vol. 40, No. 5 (1997); Stephen Knack and Philip Keefer, ``Does Social Capital Have an Economic Payoff ? A CrossCountry Investigation’’, Quarterly Journal of Economics, Vol. 112, No. 4 (1997); Robert Putnam, Making Democracy Work: Civic Traditions in Modern Italy (Princeton, NJ: Princeton University Press, 1993); Robert Putnam ``The Prosperous Community: Social Capital and Public Life’’ , The American Prospect, No. 13 (Spring, 1993), pp. 34± 42; Robert Putnam, ``Bowling Alone: America’s Declining Social Capital’’, Journal of Democracy, Vol. 6, No. 1 (1995), pp. 65± 78; Maurice Rubio, ``Perverse Social Capital: Some Evidence from Columbia’’, Journal of Economic Issues, Vol. 31, No. 3 (1997), pp. 805± 816; Danny Unger, Building Social Capital in Thailand: Fibers, Finance and Infrastructure (Cambridge: Cambridge University Press, 1998); Mildred Warner, ``Social Capital Construction and the Role of the Local State’’, Rural Sociology, Vol. 65, No. 3 (1999), pp. 373± 393; P. Whiteley, ``Economic Growth and Social Capital’’, ECPR workshop on Social Capital and Politico-Economic Performance, University of Bern, Switzerland, April, 1997; Jennifer Widner and Alexander Mundt, ``Researching Social Capital in Africa’’, Africa, Vol. 68, No. 1 (1998); Patricia Wilson, ``Building Social Capital: A Learning Agenda for the Twenty-First Century’’, Urban Studies, Vol. 34, Nos. 5± 6 (1997). 4. Alejandro Portes and Patricia Landolt, ``The Downside of Social Capital’’, The American Prospect, No. 26 (May/ June 1996), pp. 18± 21.
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the effect of disrupting pernicious forms of associationalism. Democracy tends to undermine vertical associations that rest upon coercion and corruption. Globalisation erodes the bases for nationally organised distributive coalitions by exposing previously sheltered producers to renewed market competition at the international level. Neither democratisation nor globalisation, however, insure the growth of positive forms of associationalism. Social capital accretes slowly. Thus nations that, for complex historical and cultural reasons, have large pre-existing stocks of social capital hold greater potential for growth and social welfare than those which possess only meagre stocks of social capital. Whether the state or other actors can purposefully intervene to stimulate the accumulation of positive forms of social capital in civil society is an important but largely unanswered question at this point. This paper offers an overview of the recent literature on the role that civil society plays in development and draws critical comparisons to existing statist and neo-liberal theories. Since the discussion is pitched at the level of basic concepts, it does not, admittedly, begin to re¯ ect the vast diversity of experience across the developing world. Civil Society, Social Capital and Development
De® ning Civil Society Civil society has been de® ned in many different ways.5 Most commonly, the term refers to the varied forms of social organisation that lie between the individual and the state. Civil society manifests itself in an almost in® nite variety of social groups ranging from sports clubs to political parties. Civil society is an expression of the basic human desire to socialise with others through voluntary association. In some formulations, the concept of civil society is narrowed to exclude pro® t-seeking enterprises, i.e. business ® rms. This approach makes sense for our purposes, because it allows us to explore the relationships among the state, the market and civil society in economic development. It can also be justi® ed on the grounds that each of these three realms of social life is based upon a different central ordering principle: the state is built upon coercion, the market upon competition and civil society upon (voluntary) co-operation.6 Yet, it is clear that these three spheres overlap and interpenetrate one another in myriad ways and that the above-mentioned ordering principles are not exclusive to one realm of social life alone. Indeed, it is important to inquire whether the process of economic development bene® ts from tight linkages and close interdependence among state, market and civil society or if development requires that one or more of these distinct realms operate in relative autonomy from the others. As suggested above, much of the literature on development until recent years 5. Julie Fisher, Nongovernments: NGOs and Political Development of the Third World (Kumarian Press, 1998), pp. 11± 12. 6. For a somewhat similar classi® cation scheme, see Norman Uphoff, ``Grassroots Organizations and NGOs in Rural Development: Opportunities with Diminishing States and Expanding Markets’’, World Development, Vol. 21, No. 4 (1993), pp. 607± 622.
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has suggested that either the state or the market should take the lead in guiding economic decisions and that both function best if freed of the potentially corrupting in¯ uence of civil society. Consider, for instance, neo-classical economic theory. Perfect markets, from a neo-classical point of view, resemble auctions in which a large number of anonymous bidders engage in impersonal, arms-length exchanges. Yet, in the real world the associationalism that animates civil society also in¯ uences the character of many market relationships. Business ® rms form trade associations or build enduring networks with related ® rms. Workers organise into labour unions. Even consumers sometimes join or contribute to organisations that advocate their interests. These expressions of associationalism among ® rms, workers and consumers take us beyond the sort of ¯ eeting and narrowly utilitarian relationships depicted in the auction model of the market. Many forms of economic association are not direct and impersonal responses to market signals, even if members expect that their participation will hold economic value over the long term. Economic life is often characterised by expressions of sociability that are not strictly driven by market logic. This constitutes a grey zone where markets and civil society overlap and interrelate. The degree to which markets are ``embedded’’ in civil society, however, does varyÐ from one society to another, in the same society over time, and across different sorts of market activity within a society at a given point in time.7 The relationship between the market and civil society can be placed along a spectrum. At one extreme lie fully embedded markets that extensively overlap with civil society and are pervaded by various forms of associationalism. At the other extreme are ``disembedded’’ or fully autonomous markets that resemble the impersonal auction model described above. Most real economies, of course, will lie somewhere in between these ideal types, but closer to one end of the spectrum or the other. Neo-liberal theories of economic development assert that economic development proceeds most rapidly when market activity lies near the auction end of the spectrum. Markets function most ef® ciently when drained of social content and encumbrances. Simply put, the arguments assessed in this paper largely reject this claim. Civil society and associationalism are viewed as positive and perhaps even necessary complements to market activity. Markets function best if deeply embedded in civil society and certain types of co-operative associationalism. 8 The literature surveyed below offers a similar critique of statist claims that successful development requires the leadership of strong, autonomous states. Instead, states that are embedded in civil society (and the market) are more likely to play a constructive role in the development process. The ideal that emerges from this critique of traditional development theories is an image of state, market and civil society as mutually embedded, each playing complementary roles in enabling the economic and social development of a society. 7. This discussion of ``embedded’’ and ``disembedded’’ economies draws on Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time (New York: Farrar and Rinehart, 1944). 8. Mick Moore, ``Societies, Polities and Capitalists in Developing Countries: A Literature Survey’’,
The Journal of Development Studies, Vol. 33, No. 3 (February, 1997), pp. 287± 363.
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57
The Role of Social Capital One way to explore the effects of civil society on economic performance is by reference to the concept of social capital. Economists de® ne capital as any wealthproducing asset. Commonly recognised forms of capital include natural, physical and human capital. The latter refers to the skills, knowledge and creativity that individuals contribute to economic life. Social capital, by contrast, inheres in the organisational features of social and economic life. It refers, in other words, to the wealth-producing potential that ¯ ows from various forms of collective association. The World Bank de® nes social capital as ``the institutions, relationships, and norms that shape the quality and quantity of a society’s social interactions’’.9 Social capital is explicitly relational. It cannot be produced by individuals acting in isolation from one another. In sum, social capital re¯ ects the value of cooperative social activity. Families, communities and nations differ in their endowments of social capital. In some, the social networks that give rise to social capital are dense and ef® ciently organised. In others, levels of associationalism are low and the stock of social capital is meagre. Recent theory suggests that communities possessing relatively high levels of social capital will experience higher levels of economic performance and social welfare (other things being equal). A better sense of the economic role of social capital can be gained by considering a few examples of recent empirical studies on the relationship between associationalism and economic performance: ·
·
·
·
·
A cross-national study of 29 countries found a signi® cant positive relationship between measures of social capital (particularly levels of trust) and economic growth rates by country.10 A separate cross-national study of 34 countries also found a strongly positive association between social capital and economic growth, even after the in¯ uence of factors often cited in neo-classical growth models were taken into account.11 A survey of social capital in rural Tanzanian villages found that a one standard deviation increase in social capital was associated with a 20% or greater rise in average household incomes.12 Studies of high school dropout rates in the United States suggest that students embedded in supportive social networks are less likely to leave school prior to graduation.13 High levels of social mobilisation in the Indian state of Kerala are associated with strikingly enhanced overall social welfare as compared with other Indian states with similar or higher levels of per capita income.14 Regionally based industrial districts featuring clusters of tightly networked, yet 9. World Bank, ``Social Capital Initiative’’ (Web site: http://www.worldbank.org /poverty / scapital/scindex.htm), 2000. 10. Knack and Keefer, op. cit. 11. Whiteley, op. cit. 12. Deepa Narayan and Lant Pritchett, ``Cents and Sociability: Household Income and Social Capital in Rural Tanzania’’, Economic Development and Cultural Change , Vol. 47, No. 4 (1999), pp. 871± 893. 13. Coleman, op. cit. 14. Heller, op. cit.
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·
often competing, sets of ® rms in related industries provide a powerful mechanism for innovation and economic transformation. Examples include the computer industry in Silicon Valley15 and the textile ® rms of Northern Italy.16 Recent studies suggest that Japan’s surge towards industrial predominance during the post-World War II period owed less to direct state intervention in the form of industrial policy than to the unique organisational characteristics of Japan’s private sector, including the development of close ties among groups of ® rms clustered around lead banks.17 The symbiotic partnership between public agencies and local village associations in rural Taiwan has created an ef® cient and well-functioning irrigation network that depends upon collective action among local farmers.18 A study of aid-® nanced rural water supply projects found that projects with a high degree of bene® ciary participation enjoyed a success rate of 68% while projects with low participation from bene® ciaries achieved a success rate of only 12%. 19 The Grameen Bank in Bangladesh and its many imitators in the rapidly spreading micro-credit movement illustrates how local self-organisation can allow the poor to gain access to credit that would otherwise be unavailable through normal commercial channels.20 This case also shows how social capital can serve to compensate for market failure. Firms that acquire capital through enduring socially embedded relations with lenders pay less for credit than those that secure ® nancing through episodic, arms-length transactions in the market.21 One study has found that ``communitarian polities’’Ð including social corporatist and Confucianism societiesÐ that enjoy high levels of social solidarity and organisation experience higher levels of economic growth than noncommunitarian polities.22 ·
·
·
·
·
15. For an interesting application of social capital theory to Silicon Valley, see Cohen and Fields,
op. cit. The authors argue that the concept of social capital helps in understanding the case of Silicon Valley only if we acknowledge that not all forms of social capital are the same. The success of Silicon Valley is an outgrowth not of civic engagement, of which there is little, but of more narrowly commercial forms of trust and reciprocity that have emerged as ef® cient ways of doing business. Cohen and Fields also offer an interesting discussion linking recent theories of social capital with earlier work in institutional economics and theories of industrial districts associated with ® gures such as Alfred Marshall and Thorstein Veblen. 16. Fountain, op. cit.; Michael Piorre and Charles Sabel, The Second Industrial Divide: Possibilities for Prosperity (Boston: Basic Books, rev. ed., 1990). 17. Michael Porter and Hirotaka Takeuchi, ``Fixing What Really Ails Japan’’, Foreign Affairs , Vol. 78 (May/ June, 1999); Gary Hamilton and Nicole Woolsey Biggart, ``Market, Culture and Authority: A Comparative Analysis of Management and Organization in the Far East’’, American Journal of Sociology, Vol. 94, supplement (1988), pp. S52± S94. 18. Wai Fung Lam, ``Institutional Design of Public Agencies and Coproduction: A Study of Irrigation Associations in Taiwan’’, World Development, Vol. 24, No. 6 (1996), pp. 1039± 1054. 19. World Bank, Assessing Aid: What Works, What Doesn’t and Why (Oxford: Oxford University Press, 1998), p. 22. 20. Muhammad Yunis, Banker to the Poor: Micro-Lending and the Battle Against World Poverty (New York: PublicAffairs, 1999). 21. Brian Uzzi, ``Embeddedness in the Making of Financial Capital: How Social Relations and Networks Bene® t Firms Seeking Financing’’, American Sociological Review, Vol. 64 (1999), pp. 481± 505. 22. Duane Swank, ``Culture, Institutions, and Economic Growth: Theory, Recent Evidence, and the Role of Communitarian Politics’’, American Journal of Political Science, Vol. 40, No.3 (1996), pp. 660± 679.
·
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Northern regions of Italy that tend to have strong traditions of civic associationalism also enjoy higher income levels and better-performing local governments than southern regions of Italy where traditions of civic engagement are weak. 23
How Social Capital Stimulates Growth Based upon examples such as these, scholars have identi® ed four principal pathways through which social networks enhance economic performance: ·
Heightened levels of social trust and strong traditions of generalised reciprocity reduce transaction costs.24 Societies with high levels of trust and reciprocity rely less heavily upon formal institutions for enforcing contracts and thus pay less for the overhead costs such institutions generate. · By providing individual members with sources of support during times of trouble, social networks spread risk and allow the group as a whole to engage in overall higher levels of innovation and risk-taking.25 · Social networks facilitate the rapid dissemination of information and innovation among members and reduce the asymmetries of information that can otherwise discourage pro® table transactions.26 · Social networks allow members to solve collective action problems more easily with less fear of defection and free riding.27
Illustrating the Logic of Social Capital We can illustrate the logic of social capital by considering the advantages that it offers to states and to business ® rms. For states, social capital provides the practical, local knowledge that of® cial planners often lack. For business ® rms, social capital in the form of networking allows producers to enjoy the advantages of scale without sacri® cing ¯ exibility. As James Scott28 has eloquently argued, ``seeing like a state’’ means adopting a synoptic view of the development process. States cope with complexity by attempting to impose greater simplicity and order. Progress is measured according to a few key indicators, which themselves fail to register the multidimensionality of social life. State attempts to impose standardised recipes for development from above can lead to the sort of catastrophic and tragic failures documented by Scott. Successful development requires that planners give attention to the day-to-day realities of social life in particular communities. This sort of ``practical knowledge’’ is not easily available to states but can be found in the concrete networks of civil society. The need to tailor development planning to the particulars of speci® c communities provides one of the most 23. Putnam, Making Democracy Work, op. cit. 24. Francis Fukuyama, Trust: The Social Virtues and the Creation of Prosperity (New York: Free Press, 1995); Putnam, ``The Prosperous Community’’, op. cit., p. 37; Narayan and Pritchett, op. cit., p. 873. 25. Narayan and Pritchett, op. cit., pp. 873± 874. 26. Ibid. , p. 873. 27. Putnam, ``The Prosperous Community’’, op. cit., p. 37. 28. James Scott, Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed (New Haven, CT: Yale University Press, 1998).
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powerful rationales for creating development partnerships that stretch across the boundaries of state and society. Just as local communities need the resources and expertise provided by agents of the state, public of® cials need the knowledge and co-operation of local interlocutors. The signi® cance of social capital for economic development may be heightened by the rise of network capitalism, which refers to the tendency for onceindependent ® rms to build dense and enduring sets of co-operative ties among themselves and with other public and private partners. Networking is a response to problems of size and scale. Large ® rms enjoy scale economies and may reduce transaction costs through vertical integration. Yet, massive size may also hinder ¯ exibility, particularly under rapidly changing market conditions. Smaller ® rms can respond to changing conditions more quickly but forego economies of scale. This dilemma can be partially resolved through the construction of informal but dense networks of relationships among small to medium-sized ® rms, sometimes encompassing public agencies or educational institutions as well. The decentralisation of ownership and decision-making allows for ¯ exibility and decreased response time. Yet, the network as a whole serves individual members well by spreading risk and creating the potential for economies of scale. A key element in the success of corporate networking is the development of relations characterised by high levels of trust and diffuse reciprocity. These emerge from expectations of continued collaboration as the shadow of the future and reputational concerns reduce incentives for cheating and backstabbing. Once high and sustainable levels of trust have been established, transactions costs, which present the chief obstacles to networking arrangements, subside to manageable levels.29
Social Capital and Rent Seeking While the concept of social capital has most often been invoked in relationship to positive and bene® cial forms of co-operation, associationalism can, as neoliberals contend, also give rise to rent-seeking coalitions that bene® t members at the expense of non-members. Rents produce deadweight losses to overall economic welfare. Examples include oligopolistic behaviour in concentrated industries to push up prices and pro® ts, labour unions which use their bargaining power to demand wage increases beyond rises in productivity, and conspiracies among public of® cials and private contractors to extract excessive pro® ts from state coffers.30 Numerous recent revelations about the pervasiveness of ``crony capitalism’’ in some Asian countries point to the costs of this sort of phenomenon. There are sound reasons, however, to expect a declining role for rent-seeking coalitions in many developing countries over time. Considerable research suggests that forms of rent seeking involving public of® cials are less pervasive under democratic as compared with authoritarian regimes.31 Democracy permits greater transparency in public business and the free ¯ ow of information. As a result, corruption is more easily exposed and contained. Also, democracy allows 29. Granovetter, op. cit.; Hamilton and Biggart, op. cit.; Fountain, op. cit. 30. Olsen, op. cit. ; Schamis, op. cit.; Portes and Landolt, op. cit. 31. Mark Brawley, ``Rents and Regime Types’’, paper presented at the annual meeting of the International Studies Association, Minneapolis, Minnesota, 17± 21 March 1998.
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interests that are harmed by the behaviour of rent-seeking coalitions to organise their own counter-coalitions, which then lobby against rent-producing public policies. Democratic transitions in many Third World countries should thus reduce overall levels of rent-seeking behaviour. Globalisation is a second force working to curtail rent seeking. Local oligopolists ® nd their positions undermined by increased competition as the removal of trade and investment restrictions lower barriers to entry.32 Finally, rents often arise as by-products of extensive government regulation and rationing of vital resources such as credit, hard currencies or raw materials. As governments everywhere remove various controls on economic life under the in¯ uence of neo-liberal doctrine, opportunities for rent seeking dwindle.
The Organisation of Civil Society Nevertheless, the neo-liberal focus on rent seeking, which is present in all societies and a serious problem in some, serves to remind us that not all forms of associationalism are positive in their impact on society as a whole. Criminal networks, street gangs and intolerant ethnic groups all draw upon forms of social capital to sustain themselves and realise group interests. Mauricio Rubio refers to such negative forms of associationalism as ``perverse’’ social capital, in contrast with the ``productive’’ forms of social capital discussed earlier in this paper. 33 Whether perverse or productive forms of social capital predominate in a particular case will depend upon the organisational features of civil society. Not just the degree of societal organisation, but its character also affects economic performance. 34 Recent research suggests the following conclusions: ·
Horizontal associations among relatively equal partners are more favourable to development than vertical associations that join actors unequal in power and status. The latter often take the form of patronage networks in which disadvantaged individuals and groups are dependent upon favours from more powerful actors who provide such rewards in compensation for political and other kinds of support. Patron± client relationships are typically status quo oriented and seldom welcome or tolerate innovation.35 Other kinds of vertical associations, such as criminal gangs, rest explicitly upon coercion. These sorts of groups produce little or nothing and impose severe costs, both social and economic, upon society. · Relatively encompassing associations are more likely to identify with broad public interests than narrowly based and fragmented patterns of association. Encompassing associations of labour or capital, for instance, are less tempted to engage in free riding or rent seeking because they will be more directly affected by the negative externalities such behaviour creates for the economy as a whole. At higher levels of aggregat ion, myopic and narrowly self-seeking 32. Olsen, op. cit. 33. Rubio, op. cit., p. 805. 34. It is for this reason that Bob Edwards and Michael Foley, op. cit., argue that social capital should be viewed as a morally neutral conceptÐ it can facilitate both positive and negative social outcomes. Edwards and Foley criticise Putnam and others for limiting their discussion of social capital to illustrations of its good uses. 35. Putnam, ``The Prosperous Community’’, op. cit.
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interests are subordinated to broader interests of class, community, industry or nation.36 · Social networks that are open to new entrants are less likely to produce negative externalities for other groups than those that are organised around exclusive forms of identity, such as ethnicity. · High trust societies are likely to produce denser and more productive forms of associationalism than low trust societies. Trust also in¯ uences the potential scale of economic enterprises. Societies where relationships of trust do not easily extend beyond the family will ® nd it dif® cult to move from ® rst and second generation family ® rms to larger and more enduring corporate forms in which management and ownership extend beyond the boundaries of the founding family.37 · Societies where the principal social cleavages are cross-cutting, rather than reinforcing, are more likely to avoid extreme forms of social polarisation and the political instabilities that often result. These points suggest that civil society is best poised to play a positive role in the development process where horizontal ties among social groups are strong, functional groups are organised into relatively encompassing associations, social networks are open to new entrants, a culture of social trust is pervasive and cleavages are cross-cutting. These are stringent requirements. Few societies will enjoy all of these conditions in full. Many will be de® cient in several or even all categories. These considerations should temper somewhat enthusiastic appraisals of the potential for civil society to promote development and welfare. Yet, the potential exists gradually to transform civil society in positive directions and to create conditions more conducive to social co-operation and economic growth. Critiquing Neo-liberal and Statist Perspectives on Civil Society and Development These propositions about the crucial role of civil society in economic development challenge existing perspectives. Neo-liberal doctrine views markets as freestanding mechanisms for ef® cient resource allocation. The neo-liberal critique of associationalism stresses the negative effects of rent-seeking coalitions on economic growth. This concern is valid but exaggerated. Moreover, neo-liberals ignore the many and varied ways in which some kinds of dense social networks can produce positive economic outcomes. Just as neo-liberals argue for market autonomy, so statists view strong autonomous states as the key enablers of economic development. A strong society threatens to undermine state autonomy and produce ungovernability. Once again, this perspective is not so much wrong as it is one-sided and incomplete. States can and have played essential roles in economic development. The Weberian ideal of a skilled, professional, honest bureaucracy has much to recommend it. But statist perspectives err in assuming that the relationship between state and society is zero-sum. Strong states need strong societies, particularly at later stages of economic 36. Olsen, op. cit. ; Swank, op. cit. 37. Fukuyama, op. cit.
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development. A well-organised society provides the state with crucial feedback on its policies and insures greater public accountability.38 Healthy social networks can multiply the ef® cacy of state intervention by serving as partners in the development process. States are limited in their ability to effect economic transformation through vertical, top± down ties to society. Horizontal linkages across societal groups are necessary to spread information and innovation. Statist theories exaggerate the importance of state autonomy and fail to account for changes over time in both the constraints states face and the need for concentrated state control over the development process. The following sections explore the limitations of neo-liberal and statist perspectives, emphasising the ways in which civil society can complement the roles of markets and states in fostering development.
The Limits of Neo-liberalism Following a long period in which statist perspectives dominated thinking about development, neo-liberal strategies have lately taken centre stage. Yet, development that relies almost solely upon market mechanisms is deeply ¯ awed. Unmediated by strong civil societies and active states, markets produce growing inequality, social polarisation and political instability. Moreover, marketsÐ ® nancial markets in particularÐ are given to erratic swings that are inconsistent with steady development in fragile Southern societies. Finally, structural conditions of life in the developing world often produce extensive market failure that can only be corrected or compensated for by non-market mechanisms. Karl Polanyi’s warning earlier in this century about the dangers of reliance upon the notion of the ``self-regulating’’ market remains as valid today as ever.39 Post-communist Russia offers a striking example of the degree to which functioning markets are dependent upon a healthy civil society. During seven decades of communist rule, civil society was deliberately repressed. Russians came to depend upon the state for virtually all social and economic needs. The collapse of communism destroyed this system and led to efforts to introduce markets as the primary mechanisms for allocating resources in the new economy. Economists expected that markets would arise spontaneously as state control over economic activity receded. Price signals, competition and the pro® t motive would suf® ce to redirect economic behaviour in more ef® cient and rationale directions. While markets have emerged, they have been hobbled by the absence of crucial institutional and social supports. These include formal institutions, such as the rule of law and clear property rights. Just as devastating, however, have been the weakness of civil society and a pervasive culture of distrust and dependence among average Russians. In the absence of a strong civil society, ``uncivil’’ forces have come to dominate economic and social life, including criminal networks and concentrated rent-seeking coalitions.40 Russia thus suffers 38. Danny Unger argues, ``in the absence of interlocutors outside the state apparatus positioned to make demand of state agencies, of® cials of the state are given to goal displacementÐ pursuing their self interest with minimal reference to the needs of their nominal clients in society’’ . Unger, op. cit., pp. 69± 70. 39. Polanyi, op. cit. 40. Gregory Yavlinsky, ``Russia’s Phony Capitalism’’, Foreign Affairs, Vol. 77 (May / June, 1998).
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from two problems: the absence or weakness of positive associationalism across much of the society and the growth of negative forms of associationalism among concentrated groups. Poland offers a revealing contrast. Market reforms have proven more successful there than in Russia, in part because civil society suffered less disruption under communist rule in Poland. Poland’s communist experiment was in place for a shorter period than in Russia. Moreover, the Catholic Church was permitted greater independence and leeway in Poland and small-scale private enterprise survived there, especially in agriculture. A strong sense of nationalism and the widespread resentment toward external domination also contributed to the persistence of social identities independent of the prevailing state ideology. Finally, Poland’s transition from a command to a market economy took place only after a decade of grassroots efforts to carve out an autonomous civil society through the efforts of the Solidarity labour movement. Russia’s transition, by contrast, was initiated from the top by Mikhail Gorbachev without the advantage of strong supporting social coalitions. This contrast between the fate of market reforms in Russia and Poland serves to underscore the point that the role of a healthy civil society is not to substitute for market mechanisms but to help markets function more successfully in producing economic and social welfare. Civil society provides the bedrock of trust, reciprocity and sociability without which markets cannot work effectively. The right kind of social networks reduce transaction costs and solve collective action problems. They compensate for instances of market failure. They also buffer the sometimes harsh, inequitable and unfair outcomes of market competition.
The Limits of Statism Across much of the developing world, the decades following World War II brought a new consensus on the proper roles of state, society and market. The statist doctrines then in vogue prescribed strong, autonomous states, weak, dependent societies and guided markets. This formula was dictated in large part by the circumstances of late development.41 As late developers, Third World countries occupied a subordinate role in a world economy dominated by Northern interests. The international role of Third World states was to renegotiate the terms of developing country insertion into the world economy and shield their societies from the more exploitative forms of Northern penetration. Internally, strong Southern states played two roles. State elites often presided over poorly integrated national societies. They therefore set about to mobilise and unite various social groups around a national project of rapid industrialisation. States in the Third World were often authoritarian and experimented with various top± down corporatist schemes for channelling societal demands through state-controlled institutions. A second domestic challenge was to compensate for the weakness or even lack of a dynamic, modernising capitalist class. Both traditional culture and 41. Alexander Gershenkron, Economic Backwardness in Historical Perspective (Cambridge, MA: The Belknap Press of Harvard University Press, 1962).
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colonial legacies often conspired against the natural emergence of entrepreneurial, commercial and industrial elites. States sought to compensate for this weakness, either by directly assuming the role of collective capitalist themselves or by cultivating and nurturing the rise of local capitalists under the state’s protective umbrella. The particular forms of state economic guidance varied considerably: comprehensive economic planning and direct state ownership in the socialist bloc; import substitution in Latin America; and state-allocation of credit toward growing export industries in East Asia. State-led development formulas enjoyed considerable success during their heyday of the 1950s± 1970s. Rates of economic growth and industrialisation exceeded all previous experience in many developing countries and compared favourably with the performance of Northern countries at similar stages in their historical development. Yet, by the 1980s and 1990s, state-led development had fallen into disrepute and states almost everywhere ceded power to the market. In Latin America, ISI led to massive international debt problems and economic turmoil during the 1980s. Socialist bloc countries experienced economic stagnation in the 1970s followed by political upheaval in the late 1980s and early 1990s, culminating in the overthrow of communist regimes in Europe. Even politically stable communist governments in China and Vietnam adopted far-reaching market reforms. The much admired developmental state model that propelled East Asia toward First World status over the past several decades experienced its own day of reckoning with the onset of the Asian ® nancial crisis in the late 1990s. In retrospect, it appears that statist development strategies, while successful for a time, were self-limiting in two respects. Statist strategies failed in fostering the transition from extensive to intensive economic development. Also, state-led modernisation contributed to the growth of newly empowered social groups which eventually challenged the dominant role played by the state in the development process. A pattern common to most state-led development efforts is the onset of exhaustion following an initially successful burst of growth and development. It appears that state-led strategies are capable of producing extensive growth but ® nd it dif® cult to make the successful transition to intensive growth. Extensive growth is based upon the mobilisation of new inputs to the economy in the form of higher savings rates, increased labour force participation, opening new land to cultivation and increased exploitation of natural resources. Increased inputs lead to rising output. While extensive development can produce economic growth and rising living standards, its long-term potential is constrained by eventual limits on the mobilisation of new inputs. At some point, savings rates peak, workforce participation levels out, all arable land has already been placed into production and resource ¯ ows have reached their sustainable limit. The economy stagnates, albeit at a higher level of output than before. Intensive development, by contrast, rests upon the discovery and implementation of methods for producing continuing rising output from static inputs. This requires steady enhancements to productivity and ef® ciency. While extensive development suffers from clear limits, intensive development can, in principle, proceed inde® nitely. State-led development strategies appear to succeed best at producing extensive development. The state can manipulate a combination of coercion and material
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incentives to mobilise a growing share of societal resources toward the development process. Centralised decision-making systems featuring tight control over information ¯ ows are less conducive to ef® ciency-producing innovations. Intensive development works best under decentralised decision-making systems where competition among independent ® rms leads to constant innovation near the site of production. It is perhaps for this reason that researchers have found that state-led development in the former Soviet bloc and in many East Asian countries has depended heavily upon extensive patterns of growth.42 In the Soviet case, the state-led economy reached a point of stagnation and crisis when opportunities for extensive growth ® nally were exhausted and the system proved incapable of making the transition to intensive patterns of growth. The successful transition from extensive to intensive growth requires willingness to place growing reliance upon market mechanisms. Market competition is an essential driving force in producing ef® ciency-enhancing innovation. Yet, markets alone cannot complete the transition to intensive development. The supportive organisation of civil society matters as well. Innovation is often a product of partnerships among industry, educational institutions and government agencies. Capital and labour must collaborate over the terms and conditions of innovation if workers are to be persuaded to co-operate with productivityenhancing improvements. Social networks must serve as channels for disseminating information and ideas. In sum, state-dominated strategies of development are effective in producing extensive growth but poorly suited to the task of fostering intensive growth. To make this transition successfully, states must rede® ne their roles in relation to markets and society. Vertical linkages between the state and other social forces and institutions must be supplemented with horizontal ties across participants in both the market and civil society. There is a second important respect in which state-led development is a selflimiting process. The more states succeed in fostering modernisation, the stronger become the social forces unleashed by this process. Outside of socialist command economies, development leads to the accumulation of economic resources in the hands of larger and more numerous private business concerns. As they grow, local ® rms become less dependent upon the state for key resources, such as credit or information. Large ® rms gain access to alternative sources of ® nancing, such as retained earnings or international banking and capital markets. Over time, the business sector as a whole is likely to become better organised through industry-level and peak associations.43 These developments eventually render the private business sector less subject to state guidance and increasingly capable of acting on an autonomous basis. The same is true of other social forces. The proletarianisation of labour creates larger and more powerful unions. A growing middle class ® nds expression in professional associations and new forms of political organisation. The growing complexity of civil society brought on by modernisation gives rise to autonomous social actors that increasingly chafe under strict forms of state oversight. In time, 42. Paul Krugman, ``The Myth of Asia’s Miracle’’ , Foreign Affairs, Vol. 73, No. 6 (1994). 43. Francisco Durand and Eduardo Silva (eds.), Organized Business, Economic Change and Democracy in Latin America (North-South Center Press, 1998).
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these forces often coalesce into movements for democratic reform. Paradoxically, the strong, modernising state creates the very conditions that eventually undermine its own power and autonomy.44 In some ways, the growth of civil society is an indirect product of successful state modernisation strategies. Yet, it is tempting for state elites to interpret the growing power of increasingly independent social groups as a threat to the power and relevance of the state itself. This can easily prompt defensive efforts to reign in civil society and reassert state dominance. The likely result of such moves will be to sti¯ e the natural processes of social transformation that serve to promote economic development. During the early stages of development, when civil society is weak and disorganised, state leadership may play a necessary role in jumpstarting economic growth. At a later stage, once modernisation has created the basis for a stronger and more complex civil society, state dominance not only becomes less needed, but may act as a fetter on further progress. The key is for state elites to recognise that the growth of civil society requires a renegotiation and restructuring of state± society relations. This process may force the state to share power to a greater degree than in the past, but it does not necessarily entail a net loss of state capacity. Productive partnerships with societal groups can in fact empower the state to act more effectively than was possible through policies implemented in a top± down fashion. Although a more highly organised civil society may serve to constrain state autonomy, particularly in democratic settings, the relationship is not necessarily zero sum. In sacri® cing a degree of autonomy in relation to domestic social actors, for instance, the state may regain a greater measure of autonomy in its dealing with international actors. As an example, strong political constraints at home can provide state of® cials with leverage in negotiating with Northern banks and international ® nancial institutions over the terms of debt renegotiation.45 In such ``two level games’’ , the ability of developing-country negotiators to make credible claims about the dire political consequences of unilateral concessions can compel external actors to offer better terms out of fear that tougher tactics will undermine the domestic authority of the government upon whom international actors depend to implement any agreement. 46 Can Social Capital and a Strong Civil Society Be Cultivated? If, as a growing number of observers has argued, social capital is a crucial ingredient in the development process, what can be done to strengthen civil society in communities and nations where it is weak or divided? Can civil society be shaped through purposive design? Or, is the organisation of civil 44. Peter Evans, Embedded Autonomy: States and Industrial Transformation (Princeton, NJ: Princeton University Press, 1995). 45. An example involves IMF negotiations with Indonesia following the outbreak of the Asian ® nancial crisis in 1998. IMF-mandated cuts in fuel subsidies generated a strongly negative domestic reaction among Indonesians. IMF concerns about the potential for domestic instability allowed the Indonesian government to renegotiate the terms of the IMF loan package and to reinstate fuel subsidies. See John Miller, ``IMF under Siege’’, Dollars and Sense ( July/August, 1998). 46. Robert Putnam, ``Diplomacy and Domestic Politics: The Logic of Two Level Games’’, International Organization, Vol. 42 (1988), pp. 427± 460.
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society something that necessarily emerges organically, in an unplanned and bottom± up process of development? The answers to these questions are not yet clear. Any efforts to capitalise on the latent potential contributions of civil society to development must begin, however, at the intellectual level. Development theories must acknowledge and explore the roles that civil society and social capital play in producing economic growth and social welfare. Until recently, existing theories did not allow for such a possibility. Theoretical and empirical work over the past decade has begun to open space for such questions. However, much thought and research remain to be done. As James Coleman47 and Robert Putnam48 have each pointed out, one distinctive feature of social capital is that it often takes the form of a public good. Social capital generates large positive externalities. In many cases, the bene® ts of social capital cannot be appropriated fully by the producers. The possessors of natural, physical and human capital, by contrast, can more easily internalise returns. One piece of evidence for the public goods character of social capital comes from a study of associationalism in Tanzanian village life. Deepa Narayan and Lant Pritchett49 found that high levels of village-level social capital lead to higher incomes not only for those households heavily invested in social networks but also for those in the same village who did not directly participate in such networks. This suggests that the bene® ts of social capital in these cases were generalised and non-excludable, tending to spill-over beyond the producers themselves. The public good character of much social capital means that individual incentives to engage in behaviours that create or sustain social capital are relatively weak. The temptation to free ride on the social contributions of others is strong. As a result, social capital is often under-produced relative to the value of its potential contributions to social welfare and economic growth, or, where it is abundant, social capital often arises as a by-product of non-economic factors (e.g. in association with kinship networks). The public good character of social capital and its tendency to be under-produced both create a strong rationale for public policies designed to encourage, stimulate and even subsidise the formation of social capital. Once we better understand how civil society and social capital affect development, strategies for giving practical expression to such ® ndings must be devised. Three potential agents of change present themselves: states and local governments; international organisations; and transnational social networks. Developing-country governments can seek out partnerships with societal groups in prioritising and providing public services more effectively.50 Local governments are particularly well placed to devise more democratic mechanisms for allowing popular involvement in setting budgetary priorities. An interesting example arises from Brazil, where municipal governments controlled by the Partido dos Trabalhadores (Worker’s Party) in a number of cities have launched 47. Coleman, op. cit. 48. Putnam, ``The Prosperous Community’’, op. cit., p. 38. 49. Narayan and Pritchett, op. cit., p. 881. 50. Peter Evans discusses the potential ``synergies’’ to be gained from such public± private partnerships. See Evans, op. cit.
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experimental Participatory Budgets. In this case, popular assemblies of citizens allocate a portion of city funds to various programmes through a process of deliberative democracy.51 One detailed study of the city of Porto Alegre attributed the explosion of popular mobilisation brought about though the participatory budgeting process in part to municipal policies that lowered the costs of participation while increasing the bene® ts. An altered political opportunity structure and enhanced government responsiveness encouraged even the poor and low-paid workers to become active participants in deliberations that allocated money toward neighbourhood improvement projects.52 International development agencies can shift lending priorities, funnel a larger share of funds through non-governmental organisations and insure greater participation on the part of recipients in both planning and implementation. The World Bank, for example, has begun to build conceptions of social capital into the design of some of its lending projects. The Bank is currently conducting a survey of social capital in 20 development countries as a means for creating a database that will allow researchers to test various hypotheses related to the economic impact of variations in social capital. The World Bank’s ``Social Capital Initiative’’ has supported research into the linkages between social capital and development in particular sectors. The Bank has also supported ``Participatory Poverty Assessments’’ in over 50 countries as a means of both assessing and building levels of social capital in target societies.53 Transnational social networks can create linkages among groups with similar concerns across national boundaries.54 Doing so can provide non-governmental organisations that are part of such networks with better information and models of successful social change from elsewhere. Transnational social networks can also serve to balance the growing power of internationally mobile capital, perhaps also strengthening the bargaining position of states in the process. The North American Free Trade Agreement, for instance, has spurred heightened levels of co-operation among labour unions across the United States± Mexican border.55 Another example of this phenomenon is the micro-credit movement. Inspired by the success of the Grameen Bank in Bangladesh, international development agencies and transnational non-governmental organisations have combined to replicate variations on micro-credit institutions in dozens of poor countries around the world.56 Signi® cantly, the micro-credit model typically relies upon explicit norms of associationalism, as borrowers are required to form co-operative clusters in order to qualify for loans and are held collectively responsible for repayment. 51. Peter Kingstone and Timothy Power (eds.), Democratic Brazil: Actors, Institutions and Processes (Pittsburgh: University of Pittsburgh Press, 2000), pp. 134± 137. 52. Rebecca Neaera Abers, Inventing Local Democracy: Grassroots Politics in Brazil (Boulder, CO: Lynne Reinner, 2000), pp. 135± 153. 53. World Bank, 2000, op. cit. 54. Margaret Keck and Kathryn Sikkink, Activists Beyond Borders: Advocacy Networks in International Politics (Ithaca, NY: Cornell University Press, 1998). 55. Thalia Kidder and Mary McGinn, ``In the Wake of NAFTA: Transnational Workers Networks’’, Social Policy (Summer, 1995), pp. 14± 21. 56. For resources on the international spread of micro-credit programmes, visit the Virtual Library on Microcredit located on the web at http://www.soc.titech.ac.jp/icm /.
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Better theory, research and experience will all be necessary before we can evaluate the conditions under which external intervention by states, international organisations or transnational networks can effectively serve to cultivate social capital where it is weak or non-existent.57
Ambiguities and Puzzles Although the literature on civil society and social capital already has begun to enrich our understanding of economic development, important gaps in existing research remain. Three such areas of de® ciency merit comment here. First, discussions of social capital often ignore distributional issues. Second, it remains unclear the degree to which social capital is fungible across various types of uses. Third, there remains uncertainty about whether the accumulation (or lack thereof ) of social capital is primarily a function of the cultural traits common to given societies or of the incentives produced by particular institutional arrangements. Much of the existing literature examines absolute levels of social capital, whether the focus is on the society as a whole or a particular community. This ignores the fact that relative levels of associationalism can differ signi® cantly among groups within a given society or community. Such disparities in organisational capacity among sometimes competing social groups can have enormous distributional consequences. Differential degrees of social co-operation within distinct groups can translate into varying political and economic power. As Robert Putnam notes: ``Social inequalities may be embedded in social capital’’ .58 It makes a difference to the distribution of economic resources if business is better organised than labour, if producers are better organised than consumers, or if urban dwellers are better organised than rural folk. Not only can social cleavages of this sort spur efforts by speci® c groups to enhance their own level of social organisation, but they can also motivate efforts by some groups to disrupt, disorganise, or divide the existing social networks formed by competing groupsÐ sometimes employing the state itself as an instrument for such purposes. Research into the economic consequences of social capital should therefore give more attention to the relative distribution of associationalism. A second signi® cant gap in the present literature concerns the fungibility of social capital. The literature contains many references to types of social networks created for one purpose that also come to serve quite different purposes as well. A sports club, for instance, might also serve as a source of business contacts for its members. Students enter a university to gain an education, but also make friendships that may prove valuable in their later professional lives. Farmers ban together to manage an irrigation system, but subsequently decide to expand the scope of their co-operation to encompass joint arrangements for marketing crops. Anecdotal evidence thus suggests that social capital can sometimes be fungible. However, there is little research about the conditions under which social capital 57. Warner, op. cit. 58. Putnam, ``The Prosperous Community’’, op. cit., p. 42.
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can be put to multiple purposes, or the economic consequences of doing so.59 Are some types of social capital more fungible than others? Do there exist declining marginal returns as a given organisational network takes on additional functions? Are ``dedicated’’ social networks more ef® cient than general or multipurpose networks? Can we rely upon aggregate measures of social capital in a society if, in fact, social capital is highly context dependent?60 These questions point toward a rich vein of research for scholars to mine. A third unresolved question is whether social capital is a product of underlying cultural traits or a function of institutional design. Those who rely upon cultural explanations for the surfeit or lack of social capital in given societies tend to view socialisation as the principal mechanism by which people learn to cooperate or not.61 An institutional approach, by contrast, looks to the structure of material incentives as the chief explanation for why people co-operate or fail to do so.62 Which approach is correct makes a signi® cant difference. If culture is key, then we would expect patterns of social co-operation to change only slowly. Since cultural values and beliefs persist over long time-spans, a society either enjoys a culture that supports a healthy stock of social capital or it does not. Either way, inhabitants can do little to alter these circumstances over the short run. If, on the other hand, associationalism responds primarily to changes in institutional incentive structures, then de® ciencies in social capital can be corrected (or surpluses squandered) relatively quickly with institutional reform. The key sorts of institutional changes necessary to spur the growth of social capital would be those that lower the costs of associationalism while enhancing the bene® ts. Conclusion Although not all forms of associationalism are bene® cial, a growing body of theoretical and empirical literature suggests that some types of social capital can enhance economic growth and social welfare. Social capital complements the economic roles played by states and markets while ® lling important functional gaps left by these other two major social institutions. Strong states need strong societies. State economic planners and bureaucrats lack the practical knowledge of local conditions that is often necessary to plan effective economic intervention. Such detailed local knowledge can be had only in partnership with organised societal groups. An organised civil society also plays an important function in monitoring state performance and, especially in democratic settings, exerting pressure to enhance state responsiveness to social needs. State-led development strategies can succeed in drafting unused resources into the development process, but may lack the capacity to engineer the shift 59. Among the more evocative illustrations of social capital at work is James Coleman’s (op. cit.) discussion of the role that trust plays among merchants in New York’s diamond district. Bob Edwards and Michael Foley (op. cit.) point out, however, that the trust and reciprocity that diamond merchants enjoy in their relationships with one another is highly speci® c to a narrow and particular context. When diamond merchants leave the world of diamond trading, ``those norms of reciprocity and trust do not necessarily go with them into other social contexts’’. 60. Edward and Foley, op. cit. 61. Swank, op. cit. 62. Kenworthy, op. cit.
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from extensive to intensive growth at the appropriate stage. Intensive development rests upon the rich ¯ ow of information across horizontal networks in civil society. As the development process unfolds, ® nally, heavy-handed forms of state leadership that were necessary at earlier stages when groups and institutions outside of the state were weak become less necessary and possibly counterproductive once the business ® rms and other societal actors acquire the maturity and resources to act with greater independence. Markets are also limited in their capacity to produce growth in the absence of a healthy civil society. Markets everywhere, but especially in developing societies, are frequently given to predictable failures and distortions. Non-market forms of associationalism can correct or compensate for these de® ciencies by providing collective goods, reducing transaction costs and facilitating information ¯ ows. A healthy stock of social capital can also buffer some of the harsher side-effects of market behaviour, such as instability and inequality. Strong associational networks can provide a source of social insurance for those who ® nd themselves on the losing end of market competition. The debate between statists and neo-liberals over the proper path to development has grown stale and unproductive. While states remain important actors, the heyday of top± down, state-dominated development has clearly passed. Globalisation has eroded state autonomy from without while democratisation and the strengthening of civil society are forcing developing-country states to rede® ne their roles at home. Even in East Asia, that last bastion of the powerful development state, ® nancial crises have weakened state control. While neo-liberalism is currently ascendant across much of the developing world, market-led strategies have tended to create sharp divisions between winners and losers. The resulting social polarisation is incompatible with longterm political and economic stability. Dissatisfaction with the results of neoliberal reforms is widespread and promises to simulate the continued search for alternative paths to development. Given this stalemate, recent work on the role of civil society in economic life is a welcome and refreshing addition to development studies. As of yet, this literature remains in its infancy. We do not yet have a coherent theory that might demonstrate the feasibility of a ``third way’’ along the path to development. However, the ideas discussed in this paper do allow us to glimpse a more democratic grassroots approach to development that emphasises the construction of a strong and vigorous civil society as a complement to the state and the market. Sharpening this vision and bringing it to fruition is a worthy intellectual and practical endeavour.
