The Quality of Government and Social Capital: A Theory of Political Institutions and Generalized Trust

The purpose of this article is to present a new theory on the generation of social capital. In the discussion about the sources of social capital it has been stressed that generalized trust is built up by the citizens themselves through a culture that permeates the networks and organizations of civil society. Since this approach lacks a micro-theory and has produced only mixed empirical evidence, we like to highlight instead how social capital is embedded in and linked to formal political and legal institutions. Not all political institutions matter equally, however, in fact we argue that trust thrives most in societies with effective, impartial and fair street-level bureaucracies. The article presents the causal mechanism between these institutional characteristics and generalized trust, and illustrates its validity in a cross-national context. Bo Rothstein The Quality of Government Institute Department of Political Science, Goteborg University Box 711 SE 405 30 Goteborg, Sweden bo.rothstein@pol.gu. se Dietlind Stolle Department of Political Science McGill University 855 Sherbrooke St. West Montreal, QC H3A 2T7, Canada Dietlind.Stolle@mcgill.ca Introduction: The Theory of Social Capital The purpose of this article is to present a new theory explaining how social capital is generated. The reason for investigating this is the wealth of empirical research showing that social capital is associated with a number of political, social, and economic outcomes that for most people are normatively desirable. Among these are well-performing democratic institutions (Putnam 1993, Newton 1999b, Woolcook 2001), personal happiness (Helliwell 2002), optimism (Uslaner 2002), economic growth (Knack & Keefer 1997, Zak & Knack 2001), and democratic stability (Inglehart 1999). The problem is that in this abundance of positive associations between social capital and various desired social and political outcomes, the sources of social capital often remain under-theorized and empirically unexplored. Simply put, if social capital is such an important societal resource, we need to know more about how it is generated and maintained. From a theoretical point of view, social capital has gained interest because it has been pointed out as an important resource in the solution of social dilemmas. These problems are also known in non-cooperative game theory as “multiple equilibria. ” Whereas game theory has established certain structural aspects of a cooperative game, which foster the emergence of cooperation, e.g. the tit-for-tat strategy, or a form of reciprocity combined with the perception that a relationship is long-term in character (Axelrod 1984, Scharpf 1997:86, Kydd 2000), recent research has also pointed out the importance of generalized trust (Ostrom 1998, Ziegler 1998, Eckel & Wilson 2003). In social dilemma type of situations, agents acting from a utility-based script can reach radically different levels of social/economic efficiency depending on the existence of social trust. Even if everyone realizes that cooperation would be beneficial for all, it will only come about if the agents trust that (almost all) others are going to cooperate (Rothstein 2005). The reasons are well known: Not only can cooperation be a costly strategy for the individual, it is also an unlikely strategy if one is not convinced that (almost) all other agents are also going to cooperate because the public 1 They are also known as the n-person prisoners’ dilemma, or the problem of collective goods, or the “tragedy of the commons. ”