The literature on economic growth has increasingly come to emphasise the importance of social capital as a potential determinant of long run economic performance. This paper provides a conceptual examination of the concept of social capital, and the functions it can be assumed to perform in relation to economic growth. We point out that the concept as it has been advanced thus far in the literature is subject to some ambiguity – leaving unaddressed the questions of how much social capital is optimal, of whether all forms of social capital are equally desirable, and of whether all stages of economic development require the same forms of social capital. We argue that in order to provide answers to such questions, it is important to understand a number of distinct functions of social capital – and discuss two, transparency and rationalisation, in some detail. In doing so, we come to reflect on the linkage between social capital and other social institutions such as the state, as well as the role of human capital in economic development. Finally, we suggest that the functional characterisation of social capital, serves to explain the dynamic in terms of which the social capital of a society comes to evolve over time. The authors gratefully acknowledge financial support from the South African Network for Economic Research, and the University of Natal for financial support which made work on this project possible. We express our thanks to D. Herwitz, R.E. Klitgaard, S. Schirmer, C. Torr, M. Woolcock, H. Zarenda and anonymous referees for useful comments on earlier drafts. Responsibility for the contents of this paper remains ours.
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