Social Capital And Poverty Reduction: Toward A Mature Paradigm

Introduction The purposes of this paper are: (1) to introduce the social capital paradigm; (2) to present evidence that social capital has an important role in poverty reduction; and (3) to suggest several policy prescriptions for building and using social capital to reduce poverty. The social capital paradigm includes social capital, networks, socio-emotional goods, attachment values, institutions, and power. Social capital is a person or group's sympathy for others. Social capital resides in sympathetic relationships that can be described using networks. One reason to value social capital is because it can produce economic benefits and if neglected, economic disadvantages. Another reason to value social capital is because it can be used to produce socio-emotional goods. Sometimes socio-emotional goods become embedded in objects. When this occurs, the meaning and value of the object change. The change in the value of an object produced by embedded socio-emotional goods is the object's attachment value. Individuals exchange both physical and socio-emotional goods. Institutions are the rules that order and give meaning to exchanges. Institutions with high attachment values are more likely to be observed than those whose compliance depends on economic incentives or threats. Finally, power, the ability to influence others, depends on one's resources, including one's social capital. In most personalized transactions, persons exchange both socio-emotional goods and physical goods and services. Moreover, the relative amounts of socio-emotional goods and physical goods and services exchanged will alter the levels and terms of trade when measured in physical units. Since one's ability to include socio-emotional goods in exchanges for physical goods and services depends on one's social capital, the terms and levels of exchange of physical goods and services will be influenced by the transacting party's social capital. Those with high levels of social capital will have advantages over those who lack social capital because they can exchange both socio-emotional goods and physical goods and services. Furthermore, since social capital alters the terms and levels of trade and the terms and levels of trade influence the distribution of incomes derived from trades, then social capital also has an important influence on the distribution of household income and poverty. Some evidence suggests that the distribution of social capital in networks and the distribution of household incomes are connected.