Thursday, June 14, 2007

Social Capital: A Return to Ethics and Moral Values in Economic Analysis

Thursday, June 14, 2007
The following is an excerpt from my Master's Thesis.

Economic theory - with its myopic focus on self interest- seems to be irreconcilable with ethics and moral philosophy. Goldfarb and Griffith (2002: 234) states that “incorporating moral values and social norms into economic analysis presents various challenges to the traditional model of microeconomic behavior,” wherein “human actors are considered to be rational egoists” and moral values are analyzed in terms of preferences and norms as decision rules or constraints. The separation of ethics and economics is not a recent phenomenon. (Zaratiegui 1999) The first indication of the disassociation of the two disciplines happened during the heyday of positivist methodologies in both disciplines and the resultant secularization of the Renaissance:

..morals were siphoned off from other public domains such as politics and economics. The process of separation that began during the Renaissance fostered a gradual substitution of morals for a “worldly providence”: the belief in a charitable role for the market. The rise of the market order changed this situation dramatically. It broke down the old ties of community by integrating them into an extensive division of labor governed by the abstract logic of commodity exchange. Personal ties between producers were replaced by the anonymous process of commercial transactions. Furthermore, this transformation required a change in the nature of morality itself. It is difficult to see how any kind of general morality can arise spontaneously from an entirely anonymous process of exchange. (Zaratiegui 1999: 210)

However, as various sociologists, economists, and philosophers purport, ethics and economics are interrelated and not mutually exclusive. (Wilber 2003, Sen 1997, Walsh 2003, Putnam 2003 and Zaratiegui 1999) Sen (1997) in his book On Ethics and Economics, argues that:

The nature of modern economics has been substantially impoverished by the distance that has grown between economics and ethics … [economics] can be more productive by paying greater and more explicit attention to the ethical considerations that shape human behaviour and judgement. It is not my purpose to write off what has been or is being achieved, but definitely to demand more.

The relationship between ethics and economics has become less hostile in recent years. (Zaratiegui 1999) The emergence of the concept of social capital illustrates this point. Social capital - which glues individuals and societies together with its emphasis on internalized moral values (such as altruistic behavior, trust and honesty), what Durkheim calls a “collective conscience” and commitment to societal norms - warrants a return to ethics and moral values in economic analysis. It reflects upon the ethical dimensions of economic behavior.

According to Zaratiegui (1999) moral codes and ethical norms that economic agents adhere to are not static entities but instead evolve with changing economic and social conditions. The fundamental idea is that:

Economic life requires cooperation between agents and both encourage morality and are facilitated by it. Moreover, cooperation, initially, is based on self interest, sanctions, and mutual policing, but in the course of time, as social conventions arise, it acquires a moral dimension. (p. 215)

The use of the term “capital” in the concept of social capital is not a betrayal of the value of the social dimension or an undermining of the moral dimension. But on the contrary, it fortifies the social and the moral in human behavior. The use of the term “capital” is essentially tied to the link between social capital and human well-being and development. It is an injustice to conclude that the concept of social capital is merely using an economic justification to make a social idea sound more important since the social, the moral and the economic are intertwined and a complete analysis of one dimension necessitates the analysis of the other dimensions.


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