ADDRESS TO
THE SYDNEY INSTITUTE

“BUILDING SOCIAL CAPITAL”

PARLIAMENT HOUSE, MACQUARIE STREET, SYDNEY

WEDNESDAY, 16 JULY 2003
6.00 PM

The pollsters and the professional advisers will tell you that it is dangerous

to become reflective about political life. If you reflect on things you are

liable to say what you think.

The political participant should resist the urge to become a commentator. The

privilege of being a commentator is reserved for others, mostly journalists,

who have the luxury of being able to step outside the action. The active participant

is part of the action.

But last month I was doing a press conference, on a rather memorable day, and

I became reflective. At the end of the press conference I said this:

“I want to see Australia be everything it can possibly be. I want to

see it prosperous and strong and secure and tolerant and I want to be able to

see it fulfil all of those objectives and I want to make a contribution to that.”

As I was speaking I was thinking about the kind of country I would like Australia

to be. I was thinking about a prosperous country with high living standards

supporting high standards of health care and education, high standards of transport

and communication, and disposable income. I was thinking about a strong country

respected in the region and the world which was secure against outside threat

and able to protect its citizens and allow them to enjoy this high standard

of living. But I didn’t want to leave just a picture of a country that

was obsessed with material prosperity. I wanted to leave the thought that we

should aim to be rich in values as well. So I talked of being a country that

was tolerant.

To be frank I did not think at the time that talking about a tolerant country

would prove controversial. But judging from the mail I received it certainly

did. The word tolerant produced a big reaction. It turned out to be a verbal

bunker buster.

Most people who wrote to me supported the idea of a tolerant country, but not

all. Some of them wrote to me to tell me why.

One correspondent from Paradise in South Australia wrote as follows:

“You are reported as favouring a more tolerant Australia. More tolerant

than the Howard Government presumably, although if a Costello Government was

more tolerant than the current one, the mind bogles (sic).”

A correspondent from Cronulla in New South Wales wrote as follows:

“…I am alarmed at your so-called tolerance stand on certain subjects

as reported recently by various news media sources and which seems to indicate

your failure to understand the opinion of the silent majority in the electorate.”

Another from Coburg North in Victoria wrote as follows:

“Please note that if your personal policy is to pander to and show leniency

to the illegal Muslim immigrants who are queue jumpers and sworn enemies of

all Christians. My family and I most certainly will not vote Liberal…”

There was another category of person who wrote to me to tell that if I wanted

a tolerant country I had better support particular policies of one kind or another.

For some it was reconciliation. For others it was a republic. Although I have

supported both, in different ways, I was not thinking of these things. Obviously

a tolerant society can exist under either a Monarchy or a Republic and intolerant

ones have existed at various times under both of these constitutional arrangements.

Some people wrote to tell me that a tolerant country would not support military

action in Iraq. I most certainly did not have in mind that we should be more

tolerant towards Saddam Hussein. Saddam could have practiced a little more tolerance

to critics of his regime – rather than cutting their tongues out –

and a little more tolerance to ethnic minorities like the Kurds – rather

than attacking them with chemical weapons. The downfall of Saddam has saved

tens of thousands of people from arbitrary arrest, torture and execution.

A tolerant country will allow dissenting views, it will allow ethnic minorities

to live in peace and security. The downfall of Saddam Hussein and the Baathist

regime in Iraq is a major step for the better for Iraq and the world.

A tolerant society is one that respects differences and allows people to pursue

their different aims and ambitions within an overall framework of order. How

do you promote such a society? Where does the notion of trust and tolerance

come from?

Think of Paul Bremer with the overall responsibility of re-building Iraq. This

is a country that has no modern experience of tolerance of Sunni for Shia or

Sunni for Kurd, no modern experience of competing political ideas, no modern

experience of the ballot box. It is expecting a lot to think that these things

will organically emerge with the removal of the Dictator. The fact that the

Dictator could emerge in the first place, tells you that these values were not

strongly and widely rooted.

Iraq is a country with a wonderful economic base. Its oil reserves are the

second or third largest in the world – between 8 and 11 per cent of the

world’s total. It has fertile arable land. It has good sea ports with

access to world markets. It has some highly trained and sophisticated scientists.

It has a lot of human capital. Properly managed, Iraq would be a very rich country.

We know the outline of what a good economic policy would look like in Iraq.

There would be a system of private property rights, Government revenue would

be invested in crucial civil infrastructure, there would be an independent monetary

authority etc. But how would you go about implementing this?

You could turn to various models that have proved successful in other countries

but these will not work unless the economic institutions can take root and engender

public confidence and trust in Iraqi society. A prosperous economy takes root

best in a society that has institutions and relationships that promote confidence

and trust.

A totalitarian state aims to control every aspect of a society. It controls

the judiciary and the police force and everything else so that outside the state

there is no centre for opposition or dissent. There is nothing to organise resistance

around. There are no opposition political parties, no independent service clubs,

no independent newspapers – nothing outside government direction. And

a totalitarian society deliberately breaks down trust between citizens. In a

totalitarian society you can never really state a view to a neighbour because

the neighbour might be an informant. At home you can never really sound off

in front of the children because they might relay your comments, unintentionally,

to a teacher at school who is also part of the state apparatus. You trust no-one.

And the totalitarian state likes it that way because where there is no trust

between citizens, there is no basis for dissent or opposition. The only certainty

is the state and its apparatus. And that certainty is that dissent will be punished.

If you were re-building a country from the ground up after the fall of a totalitarian

state you would have to start re-building trust amongst citizens. You would

need to build a culture of tolerance between citizen and citizen which would

allow expression and association within the context of trust. You would need

to build trust between citizens and institutions.

And this can take enormous effort. This is part of the problem in Eastern Europe.

When communism ended, East European countries mostly endorsed liberal market

capitalism but they had little of the independent social institutions and framework

to sustain it. Some countries had more than others and have made a better transition.

These countries had institutions that stood outside the totalitarian state.

In a country like Poland there was the Church and Solidarity which were institutions

outside the state that retained public trust. These associations and relations

outside the state were sometimes referred to as civil society.

A country that has the experience of the voluntary associations is likely to

have a higher level of trust between citizens which can be used to build confidence

in public institutions.

But in other countries where there was no legal framework for private property,

no contract, no institutions outside party control, the transition to a market

economy is a mammoth undertaking.

I well remember in December 1999, when we were coming up to the implementation

of the GST, I had the chance to discuss with Russia’s Finance Minister

the Russian experience of VAT. I asked him whether it was true that Russian

tax collectors were being armed with assault rifles. This was only partly true,

he told me. “The rifles are only for the purpose of self-defence.”

If you want to run a successful modern liberal economy then trust and tolerance

between citizens gives you a long head start.

Trust facilitates compliance. Trust enhances efficiency. It reduces transaction

costs – you do not have to ascertain and negotiate the bribe on each transaction.

Trust in the legal system and the enforceability of contract underpins the willingness

to invest.

Trust and tolerance, are sometimes described as social capital. In an IMF paper

on Second Generation Reform, Francis Fukuyama argued: “Social capital

is important to the efficient functioning of modern economies and is the sine

qua non of stable liberal democracy.”¹

Individuals And Society

In 1987 Margaret Thatcher famously declared: “…there is no such

thing as society.” “There are individual men and women, and there

are families.”

This is an extremely individualistic view of the world. And she received a

lot of criticism over this statement.

At the other end of the spectrum are the collective views of the world usually

held by politicians of the left who want to submerge individuals into groups

of one kind or another. One clear giveaway is the tendency to put the word “community”

after everything. Joan Kirner was a classic example of this. She was forever

talking about the “Victorian community”, the “artistic community”,

the “ethnic community”, the “Greek community”, the “business

community” etc., etc. In this view of the world there are no longer individuals

who are artists or Greeks or businessmen. There are a series of groups into

which individuals are divided and treated together. It is assumed that they

have a uniformity of opinion because they share a particular characteristic

even though they might never have met, have no desire to do so, and have very

different perspectives.

In reality, individuals have varying connections of varying intensity with

others. In the first place there is the family, then maybe the street, the neighbourhood

or a town. They might have a religious association through a church they attend

and their relationships might extend to involvement in a voluntary association,

a sporting club, or a political organisation.

These are the networks and associations that give rise to trust between people.

Robert Putnam in his book “Bowling Alone” has tried to measure

the rundown of engagement in voluntary organisations in America over the last

third of the 20th Century. Although I have not seen a similar attempt to measure

this in Australia, all the anecdotal evidence to me from the churches, the political

parties, the Scouts, the local sporting clubs suggest that membership is in

decline and in that sense social capital is running down. Next week the Productivity

Commission will release a research paper on social capital which will review

the work that has been done in Australia.

Putnam quotes a slogan used by a volunteer Fire Department to publicise its

annual fundraising effort: “Come to our breakfast, we’ll come to

your fire.”

Of course we know that the volunteer bushfire brigade will come to our fire

whether we come to their breakfast or not. But we also know that if nobody comes

to their fundraiser, or if nobody comes to join their brigade, there will not

be anyone available to come to our fire.

Engagement in these voluntary groups produces a direct outcome, for the bushfire

brigade – a group that can attend to a fire. But it also produces by-products.

By-products like friendship, belonging, tolerance and trust – and forms the

basis for relationships which can be extended to other worthwhile causes.

Last week, I attended a major fundraiser for medical research and as I walked

around the tables to talk to various people, it was obvious that one table organiser

had invited his friends from the Rotary Club, and one had invited his contacts

from the Synagogue and one had invited his associates from the Liberal Party.

When each of these organisations have their own events there will be a table

gathered by each of the other groups including a table of medical researchers.

Engagement is reciprocated, it sponsors further engagement. And in these groups

where people have a common interest, and a name, they build trust and tolerance.

Does it matter if this culture of engagement is running down?

I think it does. I think the public laments the fact that engagement is running

down. But we should be careful here. The majority of the public is not so worried

about the issue that it makes them want to change their behaviour and reverse

the trend of declining participation. If people were really worried they would

presumably start flocking back into all those associations now struggling for

membership.

But there is a tendency to think fondly of a time when people in a neighbourhood

knew each other better and seemed to be closer.

Although television could well be one of the main causes of disengagement it

is replete with shows that depict people living together in close neighbourhoods.

The Australian TV series “Neighbours” is one such show. The American

series “Friends” is another. The American TV show “Cheers”

was about a bar “where everyone knows your name and they’re always

glad you came.” People laughed and joked and took an interest in each

other. There are not too many television shows about people who sit at home

and just watch television shows. Even if people don’t actually engage

that much with their neighbours, they apparently like watching others who do.

I should mention here that not all social groupings are positive ones.

The Mafia is a very close social network – in fact calling itself a society,

an honoured society. It generates a high degree of trust amongst its members.

It uses these associations for anti-social activities such as extortion, racketeering

and the like.

Some social networks also inspire enormous trust between insiders on the grounds

of a common intolerance to outsiders – paramilitary organisations in Northern

Ireland work on this principle. Urban gangs are another example. These organisations

develop social capital amongst themselves which they then direct in a destructive

way against others. It is the combination of internal trust and external tolerance

that produces positive benefits for the wider society

Recognising the importance of the non-government sector and the positive values

arising from it, what are the lessons for policy?

The first thing is the very important maxim for government, any government,

on any issue: “Do no harm.”

These social networks are neither established by, nor controlled by government.

They are voluntary. That is their strength. So while the Government cannot establish

these associations and should not force engagement it should be careful to do

no harm. Secondly if Government has a choice between delivering services in

a way that enhances engagement and one that does not, then, all other things

being equal it should prefer the former. Thirdly Government should be alert

to deal with any threats that arise to the voluntary sector.

I am a great believer in parent control of schools. The main reason for such

a policy is that the parents, on behalf of their children, really are concerned

about standards and outcomes in schooling. In my view involving parents is likely

to lead to higher standards. The parents who meet to elect a council, which

meets to appoint a Principal who is responsible for the staff, form a community

around the school which supports it and takes responsibility for it. They have

an interest in the outcome. But in the process, the school becomes a focal point

not just for the children but also for parents. It builds relationships not

just amongst the children but amongst the parents too.

Suppose the Government decided that it would offer a grant to each school of

the precise amount it raised by way of the school fete, on the condition that

the school did away with this as an annual fundraising activity. That way the

school would be no better and no worse off in a financial sense. The parents

could save the time they spend planning and conducting the fete. Would the school

be just as well off? No. Although it would lose no money it would lose all those

voluntary hours of common purpose and commitment. It would lose the association

the parents have made with each other and the teachers which is just as valuable

as the funds that are being raised

It is the activity, as well as the result, that brings the value.

This is the benefit of mutual obligation. Take a work for the dole project.

In return for income support a person engages in a work project. The project

produces, hopefully, some valuable infrastructure. But the person who has engaged

in the activity has more than just income support. They have the experience

of meaningful work, social contact, and hopefully have developed their work

skills.

This is why reliance on welfare can damage communities: A person who receives

income support without engaging in the social activity of work misses all the

side benefits of that activity, and the positive benefits of self-reliance.

This is why we should be heightening mutual obligation for people of working

age.

On the principle of do no harm, a Government should be careful not to usurp

the voluntary sector. It should not take away those things which people can

and want to do for themselves. But where it can support the voluntary sector,

without smothering it, it should do so.

And it must be alert to threats to the voluntary sector. One such threat is

the public liability crisis.

We would all agree that an innocent person injured through no fault of their

own is entitled to compensation. But if the cost of insuring against the compensation

threatens the viability of the local sporting club or the pony club or the scouts

then it will threaten an important dimension of our society. It will undermine

social capital. This is why it is necessary to limit pay-outs and heighten the

protection against liability for the voluntary sector. It is defending a very

important part of our social infrastructure.

In the 2001 Bolte lecture I suggested that we could revive the non-government

organisations of Australia by spending one hour a week in a volunteer activity.

Again I was surprised that some people were critical of the suggestion. I did

not stipulate that it should be charity work, although that is a particularly

important area of voluntary activity.

I suggested one hour a week at the Rotary, the Lions group, the Church, the

Synagogue, the sporting club, the neighbourhood watch, the school or the RSL,

the Scouts, the book group, the political meeting or at a neighbour’s

house.

The idea was just to heighten engagement. It was not being critical of anybody.

Some people suggested this was a deep plot to withdraw government funds from

the voluntary sector by increasing unpaid participation. Some people were of

the view that if there is a problem the Government should fix it. But if we

expect government to solve all our problems even in this voluntary sphere of

life we are a long way from the solution.

The view I am putting is that there are non-monetary things that add to the

wealth of a society. Civic engagement and the values which it promotes like

trust and tolerance are some of those things. You can call them social capital

if that is conceptually easier. It might help with the idea of building them

up, running them down, adding to our wealth, or detracting from it. But a society

which has these things should be careful not to let them run down. Once they

are gone it takes a lot of effort to get them back again.

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1 International Monetary Fund publication

“Social Capital & Civil Society” October 1999. See also Francis

Fukuyama Trust: The Social Virtues and Creation of Prosperity