Venture capital is social capital

Happy New Year, blog readers! Soon I’ll do my usual look ahead to 2020 books.

Meanwhile, this is from Trick Mirror, essays by Jia Tolentino, which I just finished. It’s an excellent, thought-provoking series of extended reflections on what life online is doing to us, and particularly how it interacts with the social constraints on women. As she says here, venture capital is social capital. In fact, capital is social capital.

This is why our Wealth Economy project started with what some people thought was the quixotic aim of measurement of social capital. But if economists think it’s so important – and we do, we just call it ‘goodwill’ or ‘institutions’ or some other term – we’d better be able to give it empirical life. So far, so good, in our work – the UK’s Industrial Strategy Council has taken up the social capital metrics produced by my Bennett Institute colleagues Matthew Agarwala and Marco Felici. But much left to be understood.



The long run is now

Among my Christmas present books was Ta-Nehisi Coates’ We Were Eight Years in Power, a powerful read. This passage spoke to me:

“A nation outlives its generations. We were not there when Washington crossed the Delaware but Emmanuel Gottlieb Leutze’s rendering has meaning to us. We were not there when Woodrow Wilson took us into World War 1 but we are still paying out the pensions. … ”

The more I think about the broad sustainability issues I wrote about in the Economics of Enough, the more important I believe paying attention to the long run to be. Hence the new project we just launched at the Bennett Institute on improving measures of natural and social capital. My goodness, we – certainly all the western countries – have been destroying both, and it looks like the bills are starting to come due.

Another extraordinary essay in We Were Eight Years in Power is about the incarceration of African-American men: “The US now accounts for less than 5% of the world’s inhabitants – and about 25% of its incarcerated inhabitants.” The rise and fall of crime in the 20th century was a common, broad pattern to many countries. Only in the US did the rate¬† of imprisonment climb as crime fell – other countries saw their crime rate fall without creating a prison state.

The book is great – he’s an outstanding essayist.

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More palaces for the people, please

The titular Palaces for the People in Eric Klinenberg’s latest book are libraries, so described by Andrew Carnegie as he built 2,800 of them in a lasting act of philanthropy. The book is a hymn of praise to libraries in particular but also all the other components of ‘social infrastructure’, places where people meet face to face and form relationships that are the warp and weft of a resilient society. This includes school playgrounds, local sports pitches, some bookshops and cafes, parks – the locations of community. The book starts with Klinenberg’s earlier work, reported in the excellent Heatwave, which explored why certain apparently similar communities experienced very different ‘excess’ death rates in the 1995 Chicago heatwave.

Palaces for the People: How to Build a More Equal and United Society picks up from this, pointing out near the start that having strong social capital in the heatwave was equivalent, in terms of mortality outcomes, to having an airconditioner in every home. One of the aspects of the new book I like is its emphasis on the interactions between different kinds of wealth – not only social but also conventional ‘grey’ infrastructure and the natural too. It’s long been obvious to me that there is no point in investing in concrete if you don’t think about natural capital alongside it, flood defences being the canonical example: green infrastructure such as downstream wetlands can be far more effective. Klinenberg points out they can also be designed as social infrastructure – put a park there, make a feature of the green space for enjoyment and also people’s physical and mental health, and the benefit of community relations.

The book distinguishes the social infrastructure from the social capital it enables to be built on top of it, a distinction I haven’t thought about a lot. Another point is that this lens puts the focus on place-based policies, rather than on individuals. In the heatwave example, all the individual characteristics an economist would typically control for on the right hand side a regression would have led you to predict the same mortality outcomes in all the deprived areas of Chicago, whereas it was the place they lived rather than their level of education or criminal record that affected people’s probability of succumbing to the heat.

As the book concludes, there are two reasons to think seriously about reinvesting in social and natural as well as conventional infrastructure. Climate change is one reason – New York City is going to end up under the sea. Concrete alone won’t prevent that. When a crisis hits, the only thing left to help people cope – is other people. The other is the all-too-evident impact of deindustrialization. The chickens of the 1980s and 90s have come home to roost, and they turn out to be monsters. Yet governments on both sides of the Atlantic are still cutting the facilities that make it possible for people with not much money and little hope for the future to cope: parks, playing fields – and libraries. The book doesn’t actually answer the ‘how’ of it’s subtitle, but it’s well worth a read.

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The paradox of trust

John Plender reviews favourably¬†[amazon_link id=”0198712383″ target=”_blank” ]Trust: A History[/amazon_link] by Geoffrey Hosking. The review says: “He argues, convincingly, that there is a tendency to give too much attention to power and the law relative to trust. The workings of trust are nonetheless complex….In the complex modern world, what increases trust in one group can intensify distrust in another.”

This seems to me one of the most difficult questions in the trust/social capital literature: what is the scope of the relevant group for trust to be a positive rather than a negative influence on the economy? Criminal gangs can be high trust organisations yet decrease trust in the society of which they form a part, and so on. Divisions into inside and outsider groups rarely end well.

[amazon_image id=”0198712383″ link=”true” target=”_blank” size=”medium” ]Trust: A History[/amazon_image]

Last year I wrote a short essay for the OECD Forum on the economic cost of diminishing trust in many of the institutions in OECD societies, including trust in big business. It highlights the paradox that the complicated, interlinked modern economy could not work without high levels of trust and yet so many indicators show that trust in established institutions is declining. More questions than answers here too, I’m afraid. But one can’t help but feel that we’re in a very corrosive downward spiral in trust at present.

Invisible wealth

Rebecca Solnit is one of my favourite writers. Her previous books include [amazon_link id=”1844675580″ target=”_blank” ]Wanderlust[/amazon_link],¬†[amazon_link id=”1841957453″ target=”_blank” ]A Field Guide to Getting Lost[/amazon_link] and [amazon_link id=”0747568413″ target=”_blank” ]Motion Studies [/amazon_link]about Eadweard Muybridge. As this (rather lukewarm) Observer review of her new book, [amazon_link id=”1847085113″ target=”_blank” ]The Faraway Nearby[/amazon_link], notes, she ought to be far better known in the UK. I’ve nearly finished the book, best described as a memoir of illness, I suppose. I particularly liked this:

“Kindness sown among the meek is harvested in crisis, in fairy tales and sometimes in actuality. I know a man who lost a fortune suddenly and was penniless with a legal battle to fight and children to support. He found that he had another kind of wealth in the ties of affection and respect he had built up, wealth he would never otherwise have seen. Lawyers took on his case pro bono, the grocery store extended credit, the schools gave scholarships and he got by on wealth that was invisible before the money dried up.”

It’s what we economists would prosaically label ‘social capital’.

[amazon_image id=”1847085113″ link=”true” target=”_blank” size=”medium” ]The Faraway Nearby[/amazon_image]

Her writing is probably an acquired taste – I can understand why some readers would find it too, well, Californian. If you’ve not tried, though, I’d strongly recommend giving it a go, especially if you like the genre constituted by authors like W.G.Sebald (in [amazon_link id=”1860466095″ target=”_blank” ]The Rings of Saturn[/amazon_link]) and the Iain Sinclair of his John Clare book, [amazon_link id=”0141012757″ target=”_blank” ]Edge of the Orison[/amazon_link].

[amazon_image id=”1860463983″ link=”true” target=”_blank” size=”medium” ]The Rings of Saturn: An English Pilgrimage[/amazon_image]

[amazon_image id=”B002RI9WYS” link=”true” target=”_blank” size=”medium” ]Edge of the Orison: In the Traces of John Clare’s ‘Journey Out of Essex'[/amazon_image]