One of the most important headings under which the issue of culture and development has been discussed in the 1980s and 1990s has been that of social capital. Social capital consists of norms or values shared among a group of people that promote cooperation and trust among them; like physical and human capital, social capital is a source of wealth. While the term social capital was put into general circulation by sociologist James S. Coleman in the 1980s the concept underlying it has a long intellectual history. Alexis de Tocqueville noted in Democracy in America that the American propensity for civil association was key to the success of American democracy, since it permitted the society to organize itself without the help of centralized, hierarchical authority. Edward Banfield in his classic ethnographic study The Moral Basis of a Backward Society coined the term amoral familism to connote the pathological condition he found in a small town in southern Italy, where people were only able to trust members of their immediate nuclear family and behaved opportunistically towards everyone else. The case described by Tocqueville was one of abundant social capital outside the family, which created the basis for successful democracy and economic development. Banfield’s village, by contrast, was characterized by a dearth of social capital except within a narrow circle of kinship, a situation widely held responsible for the under development and political corruption characteristic of southern Italy.
More recent studies of social capital have shown that it is very important in understanding the flow of information in an economy. Social networks propa gate information on job opportunities, relative prices, and a host of other economic information, but they can also obstruct the flow as well. In the 1990s the World Bank has experimented with so called micro lending projects that seek to use social networks to extend very small retail loans to poor customers in Africa and other regions. The success of microlending depends on adequate information about credit worthiness that is best captured through informal rather than formal information channels.
The concept of social capital has been criticized by both economists and sociologists for either being overly vague, or else being simply a repackaging of already familiar concepts. One of the key weaknesses of the concept of social capital is lack of an agreed upon method for measuring it, as exists for physical and human capital. Without a good metric, it is difficult to incorporate social capital into econometric models, and therefore to measure the impact of cultural factors relative to other types of variables.