Social Capital, Municipal Governance, and Urban Development in Russia

1. Social Capital, Municipal Governance, and Urban Development in Russia Rinat Menyashev, Leonid Polishchuk Center for Institutional Studies at the Higher School of Economics, Moscow PET11 Conference Bloomington, IN

2. The Wealth of Nations – 2011 Factors of economic growth: • Resources • Institutions • Social capital Social capital = capacity for collective action based on trust, values, social norms and networks

3. Economic significance of social capital Social capital is shown to have a strong impact on economic growth and welfare,social service provision (education, health care, etc.), institutions and public administration, and quality of life • Keefer, Knack, 1997 • Tabellini, 2008 • Guiso et al., 2010

4. Social Capital and Regional Development The variation of social capital stock explains cross-regional differences in economic well-being and quality of governance Italian regions – Helliwell, Putnam, 1995; Guiso, Sapienza, Zingales, 2006 US states – Knack, 2001 Regions of Europe – Tabellini, 2008 GermanLänder – Blume,  Sack, 2008

5. What social capital? • Bridgingsocial capital is based on universal morality and long radius of trust – it facilitates the creation of broad societal coalitions (Putnam groups) to supply public goods • Bondingsocial capital is based in limited morality and short radius of trust – it facilitates the creation of narrow interest groups (Olson groups) to supply club goods for group members • Bridging social capital is expected to unconditionally benefit the society. Bonding social capital produces immediate benefits to group members but could entail significant social costs due to exclusion and wasteful competition between groups (‘the dark side of social capital’; Putnam 2000).

6. Transmission mechanisms • Horizontal channel – lower transaction costs in private sector and society • Vertical channel – higher accountability and improved governance

7. Social capital and formal institutions • Substitutes: whenever grassroots capacity for collective action and coordination is lacking, the state is expected to fill the void by public enforcement and formal institutions such as courts, regulations, public services etc. reforms (Knack, Keefer, 1997; Djankovet al., 2003) • Complements: performance of formal institutions, including government agencies, could be in itself an outcome of social capital (Putnam, 1993; Tabellini; 2008; Aghionat al., 2010) • “Accountable governance is a public good that no government can provide”

8. Limitations of the literature • Ambiguity of definition: ‘social capital is not a concept but a praxis, a code word used to federate disparate research interests’ (Durlauf, Fafchamps, 2010) • Lack of structure • Imprecise separation of social capital from its outcomes • Neglect of transmission mechanisms

9. Social capital, governance and development • Bridging social capital insures government accountability through shared values (civic culture) and political participation • Bonding social capital is mobilized to mitigate the damage caused by government predation or lack of performance • Outcomes: (i) positive economic payoff to bridging social capital and through improved public sector governance; (ii) ambiguous impact of bonding social capital: positive directeffect of obtaining relief from government abuse, and negative indirect equilibrium effect due to lower economic and hence political costsof such abuse

10. Model

11. Government problem

12. Impact of social capital

13. Impact of social capital (contd.) Impact on welfare of bonding social capital: • Positive at low levels of bridging social capital (‘we got nothing to lose’) • Zero at high level of bridging social capital (bridging idles bonding) • Negative at the intermediate range of bridging social capital (bonding crowds out bridging)

14. Specification 1: predatory taxation

15. Specification 2: diversion of public funds

16. Social capital and abuse of power

17. Social capital and economic outcomes

18. Empirical strategy: The Tale of 1800 Plus Russian Cities (Towns, and Townships) 2007 GeoRating survey conducted by the Public Opinion Foundation (ФОМ) Sample parameters: • 34,000 respondents • 68 Russian regions • 1822 cities and towns Links between social capital, governance and development are explored at the city level

19. Russia’s social capital bottlenecks • General lack of trust and capacity for self-organization (political history, religion?) • Erosion of trust during the transition period (Aghion et al., 2009) • Social capital stock is obsolete (Rose, 1995) • Excessive government control (“vertical power”) suppresses and idles social capital

20. Misgivings about social capital in Russia One of the main obstacles to modernization is the archaic mentality and low civic activism of the Russians who until 2025 will not reach mental compatibility with the average progressive European. I. Jurgens, INSOR think tank

21. Social cohesion, governance and economic conditions at a glance • What is more common in our country today – social accord and cohesion, or discord and alienation? 18% - social accord and cohesion • What is more common among people around you – social accord and cohesion, or discord and alienation? 53% - social accord and cohesion • How often are people around you prepared for collective action to jointly solve their problems? 77% - rarely or not prepared at all • Do you think that people can be trusted, or you cannot be more careful in dealing with people? 20% - people can be trusted • How strongly you feel responsibility for the situation in your family? 75% - full responsibility • How strongly you feel responsibility for the situation in your city? 72% - little or no responsibility __________________________ • Do you think local authorities understand and cater to the interests of people like you? • 79% - they ignore my interests • Overall, are you satisfied or dissatisfied with the situation in your city (town, village)? 62% dissatisfied

22. Factor analysis of attitudes and values reveals social capital

23. Social capital and urban governance

24. Social capital and urban development

25. Social capital has an economic payoff …

26. It strongly affects government performance …

29. … and works mainly through the vertical channel (large cities)

30. Interplay between different types of social capital • The adverse impact of the closed social capital grows stronger as the stock of the open social capital increases in a low-to-medium range. • Closed social capital helps when the society is nearly defenseless against government abuse, but becomes increasingly a drag on local development when civic awareness and capacity for collective action grow stronger.

31. Impact of bonding social capital in relation to stocks of bridging social capital

32. Validation and endogeneity • Life satisfaction is strongly correlated with objective measures of economic well-being • Government accountability is strongly correlated with the willingness to seek court protection of individual rights • Density and structure of interpersonal ties, as well as future discounting serve as instruments for bonding social capital • Size of middle class serves as a (weak) instrument for bridging social capital • Open social capital is associated with electoral turnout in early 2000s and with more recent support to opposition parties

33. Dynamic perspective • Sanguine development view: economic growth and accumulation of human capital foster civic culture and pro-social values (Glaeser, Ponzetto, Shleifer, 2007), which in their turn improve institutions and governance in the economy and society (Glaeser et al., 2004). Bonding social capital could disrupt this dynamic virtuous circle by perpetuating ineffective and unaccountable governance and debasing modern institutions. • Corruption, lawlessness and government predation erode trust in institutions and among individuals, and suppress investments in open social capital and cultural transmission of pro-social norms and civic virtues (Tabellini, 2008), while entrenching anti-modern social practices of adjustment to bad institutions. • The outcome of such “race” between different kinds of social capital is uncertain, and multiple equilibria are possible.

34. Conclusions • In today’s Russia modern and anti-modern types of social capital co-exist in proportions that vary from one city and region to the other and likely evolve over time. • The agenda of Russian modernization, apart from its technological and institutional aspects, has an important social dimension, and the evolution of the social capital mix could have far-reaching implications for economic and political development.