Social Capital and Economic Performance in the American States (Last Updated October 2002)

Terrence Casey Assistant Professor of Political Science Department of Humanities and Social Sciences Rose-Hulman Institute of Technology Terre Haute, IN 47802 (812) 877-8281 [email protected]

Paper presented at the American Political Science Association conference, Boston MA, August 28-September 1, 2002.

ABSTRACT: Do areas with higher levels of social capital have stronger economies? Robert Putnam’s concept of social capital is said to provide widespread benefits, not the least of which are vibrant, productive economies. Putnam presents a logical, compelling case for the salutary effects of social capital, but what he does not present is any coherent data -- beyond anecdotal evidence -- to show that there is a consistent correlation, let alone a causal connection, between social capital and economic performance in the US. This paper will thus present an empirical analysis of social capital and economic performance for the American states. The 14-variable state-level social capital index presented by Putnam in Bowling Alone will be used to gauge variations in social capital across states. This is compared against state-level output data, measures of physical capital and measures of human capital. The results show a mild but statistically significant correlation between social capital and economic performance, but only when social capital is combined with other predictors of economic performance. Furthermore, social capital is shown to be a far less significant factor than more traditional economic indicators. In sum, although there may be an economic payoff to higher levels of social capital, it is relatively small and only accrues if other drivers of economic performance are already secure.

Introduction

Do areas with higher levels of social capital have stronger economies? Few concepts have precipitated so much research as that of social capital, which is said to provide widespread social benefits, not the least of which are vibrant, productive economies. Putnam presents a logical, compelling case for the salutary effects of social capital, but what he does not present is any coherent data -- beyond anecdotal evidence -- to show that there is a consistent correlation, let alone a causal connection, between social capital and economic performance in the US. This paper presents an empirical analysis of social capital and economic performance for the American states. The 14-variable state-level social capital index presented by Putnam in Bowling Alone will be used to gauge variations in social capital across states. Numerous economic output indicators (i.e., per capita income, growth in gross state product, etc.) will be presented for the last two decades and cumulated into an economic performance index. This analysis will show that by itself social capital is a poor indicator of state-level economic performance. To further clarify the relationship, measures of both physical and human capital are brought into the equation. Regression analysis using these variables shows that while social capital is positively related in a statistically significant fashion with economic performance, its relative importance compared to other factors is slight. In sum, although there may be an economic payoff to higher

levels of social capital, it tends to accrue at the margins, and only after other factors that drive economic performance are securely in place.

Social Capital as an Economic Asset

Social capital is defined as features of social organization, such as social networks and norms of interaction, that enable people to act collectively (Putnam, 2000, p. 19; Woolcock and Narayan, p. 226). The lineage of the concept goes back to the early 20th century, 1 but until a decade ago it was only the rare sociologist that gave it any concern. All that changed in 1993 with the publication of Robert Putnam’s Making Democracy Work, in which he attributed the superior governance of northern versus southern Italy to greater stocks of social capital. Putnam extended this idea into the American context with his 1995 ‘bowling alone’ article (Putnam, 1995), in which he attributed various social and political pathologies to a general decline in social capital in the US since the 1950s, an argument more fully elaborated in a recent book under the same title (Putnam, 2000).2 Putnam’s work captured the imagination of researchers across a wide range of disciplines and policy areas. In the early 1990s perhaps a dozen or so articles were published each year on social capital. Now the figure is closer to 200 (PIU, p. 9). The theory has been invoked to provide explanations for such wide-ranging topics as education, health care, juvenile delinquency, crime rates, economic development, business organization, and so on (Woolcock, 1998, pp. 193-96, fn 20). Social capital is virtually a philosopher’s stone for understanding a plethora of social dynamics. With the many and sundry applications of the concept, a complete review of the literature would be difficult.3 More importantly it would be unnecessary because the concern here is only with the connection between social capital and economic performance. How are networks and norms translated into an economic asset? Everyone is familiar with the aphorism, “It’s not what you know, it’s who you know.” Conceived of in this way, social capital (‘who you know’) is an asset are possessed by individuals and used to advance their personal economic standing (i.e., 1

The commonly accepted well-spring for the idea of social capital is Lyda J. Hanifan, a superintendent of schools in West Virginia in the 1920s (Woolcock and Narayan, p. 228; Putnam, 2000, p. 19) 2 The somewhat odd title refers to the fact that, although Americans are bowling more than ever, the number of bowling leagues has declined. Hence we are ‘bowling alone’, a point indicative of American’s general trend toward social disconnectedness. 3 For general reviews and critiques of the social capital literature, see Baron, Field and Schuller, and Dasgupta and Serageldin.

using ‘connections’ to land a lucrative job). This idea is hardly controversial, but social capital theorists take it one step further to suggest that the proliferation of networks and bonds of trusts – that is, social capital proper -- are in fact traits possessed by communities, not just individuals. Extensive social connections, feelings of generalized trust, and prevalent norms against opportunism and malfeasance serve to enhance the efficient operation of markets by creating positive externalities and/or by reducing transaction costs (PIU, p. 51-52, Whiteley, pp. 449-50). Social capital is transformed from a private into a public good that provides collective and cumulative economic benefits (Putnam, 2000, p. 21). “Those communities endowed with a rich stock of social networks and civic associations will be in a stronger position to confront poverty and vulnerability, resolve disputes, and/or take advantage of opportunities.” (Woolcock, 2001, p. 12) Areas well-endowed with ample stocks of social capital are likely to be more prosperous communities and to stay that way (Putnam, 1993a). Despite the explosion of theoretical articles on social capital and economics, the number of empirical studies has been rather meager. Studies undertaken on national economies have found significant correlations between elements of social capital, particularly trust, and indicators of aggregate economic performance (Knack and Keefer, 1997; Whiteley, 2000). Whiteley, indeed, argues that, if other factors are controlled, social capital is as least as important as human capital in explaining national growth. Analyses at the sub-national level have been rarer still and have provided mixed results. Working with John F. Helliwell, Putnam has found that social capital explains economic as well as political difference in Italy (Helliwell and Putnam, 1995). In contrast, Schneider, Plummer and Bauman’s (2000) study showed that economic rather than social factors were the driving forces of economic growth in the (subnational) regions of Europe. Finally, Casey (2002) showed that while there were positive correlations between trust, civic associations and economic performance across the regions of Great Britain, economic associations (i.e., labor unions) were negatively correlated with economic growth. Unfortunately, no one has yet to undertake a proper empirical examination of the connection between state economic performance and social capital in the US. Of course, Putnam maintains the connection in Bowling Alone, with a map detailing the differences in social capital across states (p. 293, reproduced here in Figure1) and a whole chapter discussing social capital produces stronger economies (Chapter 19). What he does not do, however, is to provide

empirical data to support this causal connection.4 Thus this hypothesis has never been properly tested in the American context. This is the focus of the remainder of this paper.

Social Capital and Economic Performance in the US

Do states with higher levels of social capital also have stronger economies? Putnam specifically states: “At the local or regional level, there is mounting evidence that social capital among economic actors can produce aggregate economic growth” (2000, p. 323). In Bowling Alone, he constructed a 14-variable index of social capital at the state level (pp. 291-3). Collectively these are intended to measure the core traits and behaviors underlying the concept of social capital: community organizational life, engagement in public affairs, community volunteerism, informal sociability, and social trust. The distribution of these traits across the states, according to Putnam, is analogous to barometric pressure systems, with a social capital “high pressure system” centered over Minnesota, a “low pressure system” centered over Mississippi, and various gradations in between. By the logic of his argument, we should thus find a pattern of state economic outcomes similar to that found for social capital. In order to test this proposition, state-level data on economic performance was gathered and compared against Putnam’s social capital index.5 Six measures were examined for each state from 1980 through the present for the 48 contiguous US states.6 Alaska and Hawaii are excluded from this analysis not because of a lack of economic data, but because Putnam does not provide a comprehensive social capital score for these states due to shortcomings in the available survey data. The first three economic measures cover basic output: per capita income (in constant dollars), the annual percentage change in per capita income, and the annual percentage change in

4

As one review of Bowling Alone put it, “Putnam is making a case rather than testing a hypothesis…” (Edwards and Foley, 2001, p. 227). 5 The question in this paper is not the accuracy of Putnam’s state-by-state index, but whether there is an empirical connection between variations in social capital and variations in economic performance. Therefore I have simply adopted his index scores for each state. This data was downloaded from the publicly available website that accompanied Bowling Alone. See http://www.bowlingalone.com/data.php3. 6 The logic for this particular timeframe is twofold. First, performance had to be gauged over a relatively long period of time in order to account for business cycle effects. Secondly, although there are variations in the number of years covered by individual indicators in Putnam’s data, much of his polling data goes back to the late 1970s. Beginning the analysis in 1980 thus offers a reasonable comparability in years across dependent and independent variables. Alaska and Hawaii are excluded from this analysis due to the fact that Putnam does not provide a comprehensive social capital score for these states due to shortcomings in the available data.

gross state product (constant dollars).7 The fourth and fifth variables deal with jobs, specifically the percentage growth in employment and the unemployment rate.8 Finally, more productive states are likely to be more prosperous states, thus productivity is a key indicator. Unfortunately, there is no comprehensive figure for productivity published at the state level. In order to get some indication of cross-state differences in productivity, the value-added per production worker in manufacturing was calculated for each state.9 Since the nominal values of all of these variables are quite divergent, each was converted into an index value whereby the US average in each year equaled 100 and each state was scaled accordingly. The scales were also constructed so that the economically more beneficial result received a higher nominal value. Thus states with lower unemployment rates thus have a higher index value on unemployment, and so on. These were then averaged across the years to present a single index number for each state on each indicator, which were then combined together to produce a state ‘Economic Performance Index’. All of this was then compared against the state scores on Putnam’s ‘Social Capital Index’. The full results by state are presented in Appendix Table A1, but the pertinent question is whether greater stocks of social capital lead to stronger economies. At least in terms of simple correlations, the answer is not really. Table 1 shows that on most measures of economic performance, correlations with the overall social capital index range from very modest positive values (r = 0.104 for per capita income) to very modest negative values (r = -0.128 for employment growth), indicating essentially no connection between the variables. A similar picture emerges when we look at the individual indicators of social capital rather than the cumulative index. Rather than include all 14 of Putnam’s measures (many of which are overlapping or redundant),10 Table 1 includes the variable from each of his five underlying traits of social capital that had the highest correlation with his overall index (See Putnam, 2000, p. 291, Table 4). The pattern largely remains one of a range of very small positive and negative

7

This data was gathered from the Bureau of Economic Analysis website (www.bea.gov). Employment growth was calculated as the year-to-year percentage increase in total non-farm employment. 8 This data was gathered from the Bureau of Labor Statistics website (www.bls.gov). 9 This was calculated as value-added in manufacturing divided by the number of production workers in each state. This was based on data from the Economic Census, which is conducted every five years on the ‘2’s’ and ‘7’s’. For this study this meant data for 1982, 1987, 1992, and 1997. Data from the Annual Survey of Manufactures was included for 2000.See Census Bureau, Annual Survey of Manufacturers: Geographic Area Statistics (Washington: Bureau of the Census) 1994 and 2000. 10 He includes, for example, both the percentage of people who served on the committee of a local organization and the percentage that served as an officer in a club or organization. This would seem to tap the same underlying values and behaviors.

correlations. There are two exceptions, however. State employment growth is negatively correlated, albeit modestly, with all aspects of social capital other than community organization. Of greater note is unemployment, which shows both a consistently positive and moderately strong relationship to social capital.11 When we compare the cumulative indices together, we again find a mix of low positive (on community organizational life and social trust) and low negative (on engagement in public affairs, volunteerism, and informal sociability) and economic performance. Thus it should hardly be a surprise that the correlation between the two indices is a positive but insignificant r= 0.050. (A matrix of correlations between all variables included in this study is included as Appendix Table A3.) In order to test the relative significance of these correlations, linear regressions were run with each of the individual economic indicators as well as the cumulative economic index against the social capital index. Social capital appears to have a positive effect on per capita income and productivity, but the connection is statistically insignificant. The effect of social capital on growth state product and employment growth are also statistically insignificant, although here the coefficients signs are reversed. Given this the results for the overall economic index are slightly positive but insignificant. On the other hand, the positive correlation between higher social capital and lower unemployment is not spurious (p < 0.001). Drawing all of this together, there is no discernable overall connection between levels of social capital and variations in economic performance across the American states. This can be seen graphically in Figures 1 and 2, which map respectively the variations in social capital -showing the “high and low pressure systems” that Putnam described – and economic performance across the states. If Putnam’s thesis were correct, then the two maps should look largely similar. In reality, the “high pressure systems” for economic performance are found in the southeast and southwest – a result which is hardly surprising to anyone even casually familiar with the American economy over the last few decades. Figure 3, additionally, is a scatter plot of each state’s social capital index and economic performance index score. The top two and bottom two states on each index are marked. What jumps out immediately from this graphic is that Nevada has both the highest economic performance score and the lowest social capital score. All

11

It should be noted that the correlations here are between index values, and the unemployment index was constructed such that areas with lower unemployment received higher scores. Thus these figures should be read as higher social capital correlating with lower unemployment.

told, at least when taken in isolation, social capital serves rather poorly as an indicator of economic performance.

Social Capital and Other Capitals

Of course, the retort of its advocates is that social capital cannot be examined in isolation. Social capital is simply one form of capital among many others – physical capital, natural capital, human capital, cultural capital, and financial capital (PIU, p. 13). Stocks of these ‘other capitals’ obviously have a major influence on any given area’s potential for prosperity. Putnam and others are certainly not maintaining that social capital is a sufficiently powerful influence on economic outcomes that it can counter shortcomings in these other factors. All else being equal. “…most researchers agree that social capital does help individuals to prosper. The only real debate is over how big a role social capital plays relative to human or financial capital” (Putnam, 2000, p. 322). It is thus necessary to bring these other forms of capital into the equation so as to decipher just how big a role social capital plays. The first additional factor to consider is physical and financial capital. While these two concepts are not exactly the same in terms of economic inputs, at least in the context of an advanced industrial economy like the United States we tend to conceive of financial capital as a fungible asset whose importance is that it can be transformed into productive physical capital. As such we should see covariance between the two across states and can treat them as essentially the same. The measure to be used here are net real stocks of private and public capital. State-level data on this were gathered by Christ and Green (2002) in their study of public capital and small firm performance. They examined private capital expenditure in real constant dollars in the manufacturing sector in each state per year, included a depreciation term, and tracked the changes in stocks over time.12 The same method was used on state government capital expenditures as a measure of capital. Their study covered the period of 1967-97 for private capital and 1970-96 for public capital. Since some of this data precedes the period covered in the Putnam index, this study will only be using that data from 1980-96/97. Obviously, in pure dollar figures we would expect a large state like California to have a much higher stock of both private and public capital than a small state like Rhode Island. With the aim of equalizing data across 12

Data for this was drawn from the Annual Survey of Manufacturers.

states, stocks of public and private capital were calculated on a per capital basis. As with the economic output measures, the capital figures – and, it should be noted, all of the other variable discussed below -- were then recalculated as an index with the US average equaling 100. Human capital also drives economic performance. Human capital is a catch-all term that relates to any sort of skills, abilities, and knowledge possessed by individuals or more prevalent in a particular community that can be translated into productive activity. The most basic measure of the skills of the workforce is education, which is gauged here by the percentage of a state’s population with a bachelor’s degree or higher.13 In addition to education, it has been recognized since the days of Joseph Schumpeter that economic success requires entrepreneurial risk. Given this, perhaps the most pertinent attribute of human capital that we would expect to find in more prosperous areas is a high level of entrepreneurialism. Unfortunately, there is no direct measure of entrepreneurialism. As a result, it is necessary to on a proxy measure. This was constructed using state data on new business starts – the outcome of entrepreneurial endeavor – for 1994-98 from the Statistical Abstract of the United States. Given difference in size, a direct state-to-state comparison would not be valid. Each state’s new business starts were thus calculated as a percentage of all new business starts in the US. This was then compared against each state economy’s contribution to the gross national product. It would be expected that a state that constitutes 5% of the US national economy should produce roughly 5% of all new business starts in a given year, thus producing a ratio at or near one. To the extent that the ratio is greater than unity, we can reasonably infer that that the population of that state has above average tendencies toward entrepreneurialism. To the extent that it is less than one, we can infer that entrepreneurial traits are somewhat lacking in that state. In addition to physical and human capital, states differ in their competitive endowment. Initial structural conditions alter the economic challenge faced by a state, so these need to be taken into account in assessing the relative importance of various forms of capital. Such structural differences will be assessed first by the percentage of workers in labor unions. It is inferred that states with a higher percentage of workers in unions will have less flexible labor markets, which will a serve as a drag on the growth of the state’s economy. Secondly, the industrial structure of a state is measured by the percentage of gross state product produced by

13

This data were gathered from various years of The Statistical Abstract of the United States and the Census Bureau website (www.census.gov).

manufacturing. Given the long-term trend of deindustrialization in the US and the rapid growth of service industries, it is again inferred that states with a higher percentage of manufacturing are likely to achieve lesser economic performance. As with the other measures discussed above, both unionization and industrial structure were converted into index values. However, given the inferred negative impact of these factors, the index values are the reverse of the nominal values so that a higher index value accords with the more economically beneficial outcome (i.e., states with more union members or manufacturing get lower scores and vice versa). The correlations between the indicators of physical capital, human capital, and industrial structure are presented in Table 3. Looking down the columns per capita income is boosted by the amount of public capital (r = 0.365), education (r = 0.754) and the prevalence of labor unions (r = -0.555 – given the reverse index the negative correlation means that higher levels of unionization correlate with higher per capita income). Change in per capita income, on the other hand, is negatively related to all but education. The growth in gross state product is most strongly connected to the prevalence of business starts (r = 0.488), as is employment growth (r = 0.562). At the same time, although higher levels of unionization appear to boost per capita income, they serve to dampen employment growth (r = 0.368). Higher levels of education are positively correlated to lower unemployment, while greater unionization produces higher unemployment on average. Productivity, finally, is influenced the most by education and only slightly by public capital. When compared to the cumulative economic index, only the private capital stock, rather inexplicably, is negative. The others are all positive, with business starts showing the strongest association (r = 0.481) and (lower) unionization the weakest (r = 0.162). At first blush, then, other forms of capital appear to provide more certain predictors of economic performance than social capital. But how significant are these correlations? Multiple regression analysis of all of these factors combined with social capital on the cumulative state economic index was conducted (see Table 4). The first point to note is that the coefficient for social capital was both positive and statistically significant at the p < 0.05 level. Private capital, public capital, business starts, and unionization were also all significant at the p < 0.001 level. The coefficient for stocks of private capital, despite being statistically significant, has a negative sign in contradiction to the inferred theoretical relationship with economic performance, the results perversely implying that greater investment serves to reduce growth. Industrial structure (percentage of manufacturing), in

contrast was not significantly related to overall economic performance nor, surprisingly, was educational attainment. The overall fit of the model fit was positive and moderately strong, with an R2 of 0.622 and an adjusted R2 of 0.555. The inference to be drawn from these results is that, all else being equal, higher levels of social capital do translate into higher levels of performance. However, when looking across the contiguous United States, all else is not equal. The relative size of the coefficients for public capital, business starts, and unionization imply that changes in these factors are much more important in improving overall economic outcomes. It takes a much greater change in social capital to translate into improved economic performance. Social capital is economically beneficial, but more at the margins and only if more traditional economic factors are also favorable.

Conclusions

The analysis above only provides only a ‘first-cut’ at the question of the empirical connection between social capital and economic performance in the US, so one should be cautious in inferring too much from the results. Nevertheless, a few conclusions can be drawn with some reasonable certainty. First, by itself social capital is not a good predictor of state-level economic performance in the United States. Whether looking at Putnam’s cumulative index or at its individual components, there is either no relationship or a very small positive correlation between economic performance and social capital in the American states. This contradicts previous cross-sectional studies of social capital and economics, which have found positive relationships between components of social capital (i.e., trust) if not cumulative indices of the concept (Knack and Keefer, 1997; Whiteley, 2000). That being said, higher levels of social capital were shown to be positively and significantly related to lower unemployment. However, the key question – as posed by Putnam himself – is the relative significance of social capital compared to other forms of productive capital. Once other economic factors were brought into the equation, the results of this study show that social capital matters, but not very much. Higher levels of social capital do have an economic payoff, but only modestly and only if other basic economic factors are securely in place. Inequalities in these factors are more probable explanations of differences in state economic performance than are differences in endowments of social capital. Although further testing is needed to clarify the point, it appears that Putnam’s

argument that higher levels of social capital in a community translates into aggregate economic growth is not correct. One intriguing puzzle left unanswered by this study is why social capital is so closely related to lower levels of unemployment when is it seemingly unrelated to other economic indicators, including employment growth. Unfortunately, the data presented above is insufficient to tease out this conundrum. However, this study has gone some way to offering a more concrete understanding of the relationship between social capital and prosperity.

BIBILIOGRAPHY Baron, Stephen, Field, John and Schuller, Tom. Eds. (2000) Social Capital: Critical Perspectives. Oxford, UK: Oxford University Press. Casey, Terrence, “Social Capital and Regional Economies in Britain,” under review at Political Studies. Christ, Kevin and Green, Richard (2002) “Public Capital and Small Firm Performance,” Unpublished Working Paper. Census Bureau (Various). Statistical Abstract of the United States. Washington: GPO. Census Bureau, (2000) Annual Survey of Manufacturers: Geographic Area Statistics. Washington: Bureau of the Census. Coleman, James (1990) Foundations of Social Theory. Cambridge, MA: Harvard University Press. Dasgupta, Partha and Serageldin, Ismail, eds. (2000) Social Capital: A Multifacted Perspective. Washington: World Bank. Edwards, Bob and Foley, Michael (1998), ‘Civil Society and Social Capital Beyond Putnam,’ American Behavioral Scientist, Vol. 42, No. 1, pp. 124-139. Edwards, Bob and Foley, Michael (2001) ‘Much Ado about Social Capital,’ Contemporary Sociology, Volume 30, No. 1, pp. 227-230. Fukuyama, Francis (1995) Trust: The Social Virtues and the Creation of Prosperity. New York: Free Press. Helliwell, John F. and Putnam, Robert D. (1995), ‘Economic Growth and Social Capital in Italy.’ Eastern Economic Journal, Vol 21, No 3, pp. 295-307. Knack, Stephen and Keefer, Philip (1997), “Does Social Capital Have an Economic Payoff? A Cross-Country Investigation’, Quarterly Journal of Economics, Vol.112, No. 4, pp. 1251-1288. Performance and Innovation Unit (PIU), “Social Capital: A Discussion Paper,” The Cabinet Office, London, April 2002. Portes, Alejandro (1998), ‘Social Capital: Its Origins and Application to Modern Sociology’, Annual Review of Sociology, Vol. 24, pp. 12-37. Putnam, Robert (1993) Making Democracy Work: Civic Traditions in Modern Italy. Princeton, NJ: Princeton University Press.

Putnam, Robert (1993a), ‘The Prosperous Community: Social Capital and Public Life,’ The American Prospect, Vol. 4, Issue 13. Putnam, Robert (1995), ‘Bowling Alone: America’s Declining Social Capital,’ Journal of Democracy, Vol. 6, No. 1, pp. 65-78. Putnam, Robert (2000) Bowling Alone: The Collapse and Revival of America’s Civic Community. New York: Simon and Schuster. Putnam, Robert (2001), ‘Social Capital: Measurement and Consequences,’ Canadian Journal of Policy Research, Vol. 2, No. 1, pp. 41-51. Schneider, Gerald, Plumper, Thomas, and Bauman, Stephan (2000), ‘Bringing Putnam to the European Regions: On the Relevance of Social Capital for Economic Growth’, Paper presented at the International Studies Association Conference, Los Angeles, CA. Skocpol, Theda and Fiorina, Morris (eds.) (2000) Civic Engagement in American Democracy. Washington, DC: Brookings. Whiteley, Paul F. (2000) ‘Economic Growth and Social Capital,’ Political Studies, Vol. 48, pp. 433-66. Woolcock, Michael (1998), ‘Social Capital and Economic Development: Toward and Theoretical Synthesis and Policy Framework’, Theory and Society, Vol. 27, No. 2, pp. 151-203. Woolcock, Michael (2001), ‘The Place of Social Capital in Understanding Social and Economic Outcomes,’ Canadian Journal of Policy Research, Vol. 2, No. 1, pp. 11-17. Woolcock, Michael and Narayan, Deepa (2000), ‘Social Capital: Implications for Development Theory, Research and Policy,’ World Bank Research Observer, Vol. 15, No 2, pp. 225-249.

Figures and Tables: Figure 1: Putnam’s Social Capital Index by State

Index (from Putnam)

AL & HI = na

1.09 to 1.71 0.46 to 1.09 -0.17 to 0.46 -0.8 to -0.17 -1.43 to -0.8

(6) (8) (12) (13) (9)

Source: Putnam, Bowling Alone.

Figure 2: Economic Performance Index by State

Index (US Avg=100)

AL & HI = na

127.1 to 141.6 112.4 to 127.1 97.7 to 112.4 83 to 97.7 68.3 to 83

(2) (6) (21) (14) (5)

Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, Statistical Abstract of the United States.

Figure 3: Social Capital and Economic Performance 2

ND

Social Capital Index

1.5

SD

1 0.5

AZ

0 -0.5

WV

-1

NV

MS

-1.5 -2 50.0

LA

60.0

70.0

80.0

90.0

100.0

110.0

120.0

130.0

Economic Performance Index r = 0.050 Top/Bottom two states on both indices labelled

140.0

150.0

Table 1: Correlations between Elements of Social Capital and Economic Performance Change Per in Per Gross ECONOMIC Capita Capita State Employment UnemployPERFORMANCE Income Income Product Productivity INDEX Growth ment Community Organizational Life Engagement in Public Affairs Community Volunteerism Informal Sociability Social Trust SOCIAL CAPITAL INDEX

0.098

-0.126

0.222

0.243

0.562

0.048

0.351

0.042

-0.038

-0.148

-0.234

0.359

-0.038

-0.110

0.065

-0.134

-0.173

-0.223

0.385

-0.087

-0.124

-0.189

0.044

-0.261

-0.224

0.398

-0.080

-0.178

0.288

-0.144

0.085

-0.035

0.547

0.174

0.204

0.104

0.006

-0.079

-0.128

0.582

0.034

0.050

Table 2: Regression Results for Social Capital against Economic Performance Indicators Coefficient t-statistic Probability Per Capita Income 1.830 0.763 0.449 Change in Per Capital Income 0.061 0.038 0.969 Gross State Product -0.748 -0.801 0.427 Employment Growth -3.353 -0.481 0.633 Unemployment Rate 13.674 4.594 0.000 Productivity 0.769 0.229 0.819 ECONOMIC PERFORMANCE INDEX 0.912 0.289 0.774

R2 0.010 0.000 0.006 0.016 0.338 0.001 0.002

Table 3: Correlations between 'Other Capitals' and Economic Performance

Private Capital

Per Capita Income -0.261

Change in Per Capita Income -0.490

Gross State Product -0.287

Employment Growth -0.228

Unemployment 0.039

Productivity 0.044

ECONOMIC PERFORMANCE INDEX -0.305

Public Capital

0.365

-0.231

0.286

0.223

0.155

0.141

0.329

0.754 0.400 0.077 -0.073 0.429 0.335 0.313 Education Business 0.178 -0.010 0.488 0.562 -0.107 0.059 0.481 Starts -0.555 -0.029 0.113 0.368 0.220 -0.159 0.162 Unions* GSP in 0.099 -0.310 0.105 0.252 0.107 0.191 0.224 Manufacturing* * Reverse index so that economically beneficial results index higher (i.e, higher index equals lower percentage in unions and lower percentage in manufacturing).

Table 4: Multiple Regression Results for Economic Performance Index Variable Coefficient t-Statistic Probability Constant 37.72650 3.59757 0.00090 Social Capital 5.12119 2.23156 0.03130 Private Capital (per capita) -0.18112 -4.15437 0.00020 Public Capital (per capita) 0.39296 4.22555 0.00010 Education 0.03649 0.34369 0.73290 Business Starts 0.20830 2.55561 0.01450 Unions 0.17401 3.94801 0.00030 Industry (% manufacturing) -0.01305 -0.20090 0.84180 R2 0.62208 Adjusted R2 0.55594 F-statistic 9.40601 Prob(F-statistic) 0.00000 n= 48

State AL AZ AR CA CO CT DE FL GA ID IL IN IA KS KY LA ME MD MA MI MN MS MO MT

Per Capita Income 80.5 89.2 76 110.7 118.9 132.9 108.1 99.1 90.6 81.2 107.5 91.2 91 95.8 80.6 81.5 87.1 114.9 117.2 99.3 103.5 69.9 93.1 81.8

Table A1: State Economic Performance and Correlation with Social Capital Index Change in Per Gross ECONOMIC State PERFORMANCE Capita Employment Unemployment Productivity Product Growth Rate (Manufacturing) INDEX* Income 102.7 85.8 91.3 76.7 70.8 84.6 90.1 164.1 214.8 100.1 123.2 130.3 100 97.6 117.5 84.7 70.5 91.1 92.4 116.7 106 83.1 113.1 103.7 103.3 147.3 153.6 112 117.5 125.4 110.9 90.3 44.3 116.4 111.2 101.0 99 103.6 127.3 113.6 122.4 112.3 95.5 119.2 186.9 100.7 92.8 115.7 111.2 138.8 160.7 106.6 84.6 115.4 94 179.9 145.4 91.2 85.3 112.8 99.4 95.3 56.8 86.3 105.4 91.8 98.4 109.9 85.8 100.5 94.8 96.8 94.2 97.9 74.3 118.2 112.7 98.1 94.4 80.2 95.6 119.8 102.7 98.1 100.8 103.2 107.7 84 106.2 97.1 90.3 42.7 54.1 65 140.3 79.0 103.7 69.5 100 102.4 70.1 88.8 118 85.9 97.3 110.7 108.8 105.9 118 96.5 61.2 113.9 107.8 102.4 97.1 77.8 76.5 73.9 100.9 87.6 106 112 109.3 118.9 105.7 109.2 101.7 91.5 83.1 70.3 65.8 80.4 100 84.9

77.3 70.2

86.3 88.5

102.1 91.8

105.8 77.7

94.1 82.5

SOCIAL CAPITAL INDEX** -1.07 0.06 -0.5 -0.18 0.41 0.27 -0.01 -0.47 -1.15 0.07 -0.22 -0.08 0.98 0.38 -0.79 -0.99 0.53 -0.26 0.22 0 1.32 -1.17 0.1 1.29

Table A1 (cont.)

State NE NV NH NJ NM NY NC ND OH OK OR PA RI SC SD TN TX UT VT VA WA WV WI WY

Correlation with Social Capital

Per Capita Income 93.5 106 106.5 123 78.8 116 88.2 83.8 96.7 85.9 94.2 100.2 100.4 80.5 83.8 86.6 93.2 79.5 90.1 104.1 103.2 75.8 95.3 95.4

Change in Per Capita Income 102.3 86.6 112.8 107.6 90.5 106.8 110.7 101.7 95.9 84.7 94.2 100.4 102.7 105.6 108.1 106.8 96.1 95.9 105.6 105 99 92.2 95.9 79.3

Gross State Product 98.4 212.2 129.8 97.6 127.1 85.6 126.1 77.4 88.3 60 174.3 84.6 88.7 117.1 108 106.7 124 152.4 110.6 99.9 138.2 64.9 105.5 67.5

0.104

0.006

-0.079

* Average of individual economic indicators

ECONOMIC SOCIAL PERFORMANCE CAPITAL Employment Unemployment Productivity INDEX* INDEX** Growth Rate (Manufacturing) 97.8 136 93.2 103.5 1.15 260.1 97.8 86.8 141.6 -1.43 130.6 124.8 99.1 117.3 0.77 72.7 101.5 116.4 103.1 -0.4 128.4 79.2 148 108.7 -0.35 48.1 92.3 110.4 93.2 -0.36 131.1 114 81.1 108.5 -0.82 78.1 124.8 90.5 92.7 1.71 64.5 90 104.8 90.0 -0.18 75.4 106 99.1 85.2 -0.16 113.1 83.8 91.1 108.5 0.57 48.1 92.2 91.3 86.1 -0.19 49.7 99.3 69.1 85.0 -0.06 115.3 102.1 73.9 99.1 -0.88 123.5 131.8 83.4 106.4 1.69 116.4 94.3 79.3 98.4 -0.96 129 92.9 120.4 109.3 -0.55 179.2 114.9 91.8 119.0 0.5 106.6 119.3 93.8 104.3 1.42 130.6 120.6 97.6 109.6 -0.32 137.2 82.7 106.3 111.1 0.65 35 43.7 98.2 68.3 -0.83 100 109.1 94.6 100.1 0.59 43.7 102.5 100.6 81.5 0.67 -0.158

0.582

0.034

0.050

** Data derived from Robert Putnam, Bowling Alone

1.000

Table A2: Social and 'Other Capitals' in Economic Performance

State AL AZ AR CA CO CT DE FL GA ID IL IN IA KS KY LA ME MD MA MI MN MS MO MT

Private Capital 98.3 71.5 92.7 71.6 82.7 74.1 107.7 66.3 82.3 97.4 88.8 101.6 112.9 128.8 98.1 142.7 76.9 65.9 68.5 82.3 94.9 83.4 85.5 150.5

Public Capital 89.2 118.3 68.2 101.8 123.3 112 115.5 111.8 100.6 95.2 97.9 83.5 105.5 100.3 83.7 76.8 81.8 89.9 100.8 76.7 120.1 88.2 83.5 101.2

Educational Attainment 74.3 93.6 65 111.7 135.7 130 100.1 90.5 93.4 85.6 104.1 69.2 86.2 109.2 75.4 80.6 89.1 126.1 133.5 86.4 113.9 76.7 94.8 98

New Business Starts 111.1 127.5 96.3 110 124.9 84.2 87.3 161.8 116.4 119.3 82.5 83.1 69.3 80 81.7 78.7 104.8 107.3 90.9 87.8 73.8 94.6 80.8 110.6

Unionization 120.5 150.3 149.6 84.3 133 77.6 106.7 150.4 147.8 139.8 68.1 86.6 107.9 134.4 111.5 144.7 99 98.4 89.7 41.8 66.1 156.9 97.8 96.7

Industrial Structure 76.1 123.3 68.2 116.9 133 86.2 65.9 149.7 95.1 100.7 93.1 29.2 67.2 101.1 53.5 117 93.2 144.4 96.4 37.8 86.8 72.7 83 158.2

ECONOMIC PERFORMANCE INDEX* 84.6 130.3 91.1 103.7 125.4 101.0 112.3 115.7 115.4 112.8 91.8 96.8 98.1 98.1 97.1 79.0 88.8 105.9 102.4 87.6 109.2 80.4 94.1 82.5

SOCIAL CAPITAL INDEX** -1.07 0.06 -0.5 -0.18 0.41 0.27 -0.01 -0.47 -1.15 0.07 -0.22 -0.08 0.98 0.38 -0.79 -0.99 0.53 -0.26 0.22 0 1.32 -1.17 0.1 1.29

Table A2 (cont.)

State NE NV NH NJ NM NY NC ND OH OK OR PA RI SC SD TN TX UT VT VA WA WV WI WY Correlation with Social Capital

Private Capital 124.1 106.4 70.8 71.9 108.6 72.4 80.3 229.4 81.5 110.6 86.3 78.4 52.9 87.2 129.8 89.2 111.2 77.8 86.7 74.4 90.7 129.1 84.4 340.5

Public Capital 121.9 159.6 62 101.1 93.7 135.1 93.6 109 91.4 78.7 96.3 91.7 93.2 95.9 101.7 102.4 90.3 82.9 69.3 90.2 161.8 78.2 102.5 171.7

Educational Attainment 93.1 79.4 114.8 121.5 97 109.8 88.9 91.2 89.3 87.5 103.8 136.7 105.3 79.7 87.9 74.6 96.2 107.3 116.7 118.5 114.1 58.8 92.3 89.7

New Business Starts 59.5 130.6 108.3 145.8 100.4 107.7 93.8 69.4 81.4 94.2 101.2 93.5 98 99 70.8 94.8 98.2 123.6 94.8 84.3 85.9 75.4 85.3 75.3

0.298

0.126

0.347

-0.340

Unionization 134.3 70.5 126.8 51.3 138.1 19.3 170.3 137.2 69.3 139.2 78.9 74.4 72.4 173 149.7 135.3 155.8 141.6 132.6 151.4 57.9 88.8 72.2 131

Industrial Structure 121.8 176 70.6 103.7 140.9 124.4 41 164 44.1 111.6 82.7 81.4 89.8 57 138.9 68.8 118.9 121.9 86 113.2 115.5 107.4 44.3 175.7

ECONOMIC PERFORMANCE INDEX* 103.5 141.6 117.3 103.1 108.7 93.2 108.5 92.7 90.0 85.2 108.5 86.1 85.0 99.1 106.4 98.4 109.3 119.0 104.3 109.6 111.1 68.3 100.1 81.5

SOCIAL CAPITAL INDEX** 1.15 -1.43 0.77 -0.4 -0.35 -0.36 -0.82 1.71 -0.18 -0.16 0.57 -0.19 -0.06 -0.88 1.69 -0.96 -0.55 0.5 1.42 -0.32 0.65 -0.83 0.59 0.67

-0.097

0.196

0.050

1.000

Correlation with -0.305 0.329 0.313 0.481 0.162 0.224 1.000 0.050 Economic Performance NOTE: All index numbered calculated so that 'best value' is highest value (i.e., lower unionization equals higher index value). ** Data derived from Robert Putnam, Bowling Alone * Average of individual economic indicators

A B C D E F G H I J K L M N

SOCIAL CAPITAL INDEX Per Capita Income, 1980-00 Change in Income, 1980-00 Gross State Product, 1986-01 Employment Growth, 1980-01 Unemployment Rate, 1980-01 Value-Added/Worker, 1982-00 ECONOMIC PERFORMANCE INDEX Private Capital (per capita), 1980-97 Public Capital (per capita), 1980-96 Educational Attainment. 1989-2000 New Business Start-Ups, 1994-98 Unionization, 1983, 1985, 1995-00 Industrial Structure, 1982-2000

A 1.00 0.10 0.07 -0.09 -0.13 -0.58 0.03 0.05 0.30 0.13 0.35 -0.34 -0.10 0.20

Table A3: Correlations between Variables B C D E F G 1.00 0.37 0.07 -0.09 0.32 0.38 0.33 -0.26 0.37 0.75 0.18 -0.56 0.10

1.00 -0.02 -0.09 0.39 -0.17 0.15 -0.49 -0.23 0.40 -0.01 -0.03 -0.31

1.00 0.82 0.13 -0.02 0.86 -0.29 0.29 0.08 0.49 0.11 0.11

1.00 0.20 -0.04 0.86 -0.23 0.22 -0.07 0.56 0.37 0.25

1.00 -0.05 0.45 0.04 0.16 0.43 -0.11 0.22 0.11

1.00 0.21 0.04 0.14 0.34 0.06 -0.16 0.19

H

I

J

K

L

M

N

1.00 -0.31 0.33 0.31 0.48 0.16 0.22

1.00 0.39 -0.27 -0.39 0.20 0.45

1.00 0.17 0.05 -0.23 0.51

1.00 0.16 -0.29 0.20

1.00 0.05 0.27

1.00 0.13

1.00